Fluor Corporation FLR reported second-quarter 2015 net earnings from continuing operations of $1.00 per share, which missed the Zacks Consensus Estimate by a nickel and were down 2% from the year-ago figure of $1.02.
Despite the company’s strong focus on operational excellence, earnings were adversely affected by volatility in oil and gas prices. Moreover, prevailing softness in the global macroeconomic environment resulted in poor sales during the quarter, hurting the bottom-line performance.
Inside the Headlines
Total revenue decreased 8.4% year over year to $4,810.1 million. The top line also lagged the Zacks Consensus Estimate of $5,150 million.
Sluggishness in the Industrial & Infrastructure segment resulted in poor execution of projects, thereby weighing on the overall top-line performance. Additionally, the quarter saw relatively fewer awards as macroeconomic woes adversely affected the sales too.
Segment-wise, revenues from the Oil & Gas segment fell 3.7% year over year to $2,7 51.2 million. Increased activities in petrochemical and downstream projects were conducive to sales growth in this segment. However, this increase was more than offset by a fall in sales of the upstream oil projects, as they approached completion.
Industrial & Infrastructure segment revenues dropped 25.4% year over year to $1, 080.0 million. Prevailing weakness in the mining and metal business, coupled with softness in the infrastructure business, worsened the extent of fall in segmental sales.
Revenues in the Government segment edged up 0.7% year over year to $603.1 million. Rapid progress of projects awarded in 2014 contributed to the revenue growth in this segment. However, this was offset by a reduction in awards associated with LOGCAP IV project in Afghanistan.
Global Services revenues declined 12.7% to $125.4 million. Weak equipment sales in Afghanistan and challenging conditions in the metal and mining industry led to the poor performance of this segment.
On the other hand, revenues in the Power segment were up 22.7% year over year to $250.4 million. Multiple “gas-fired” projects drove the improvement in this segment.
In the reported quarter, the value of Flour’s contracts decreased 27.2% to $4.3 billion on a year-over-year basis. Orders in the Industrial & Infrastructure Segment totaled $607 million (down 50.1%) and those in the Government segment totaled $726 million (down 76%). However, orders in the Oil & Gas segment totaled $2.9 billion (up 76.5%).
Encouragingly, consolidated backlog witnessed a 3.2% year-over-year hike to $41.6 billion at quarter-end.
Liquidity
As of Jun 30, Fluor with cash and marketable securities (including non-current) of $2.1 billion compared with 2.4 billion on Dec 31, 2014. Long-term debt was up marginally to $992.5 million from $991.7 million on Dec 31, 2014.
During the quarter, Fluor repurchased shares worth $103.0 million and expended $31.0 million in form of dividends.
Guidance Cut
For 2015, Fluor curtailed its earnings guidance to a range of $4.05–$4.35 a share from the prior projection of $4.40–$5.00.
Keeping in mind the broader macroeconomic uncertainties and lower level of orders, Fluor has revised its guidance downward. Moreover, the company anticipates that volatility in prices of oil and mined commodities may cause delay in major projects, thereby hurting its financial performance for the remaining half of 2015.
Notably, the outlook excludes the impact of the previously announced termination and settlement of Fluor’s U.S.-defined benefit pension plan.
Our Take
There is no denying the fact that Fluor witnessed a challenging second quarter, mainly on account of factors that were beyond its control. Nevertheless, despite the challenges faced by the company, its billion-dollar backlog at the quarter-end remains an encouraging factor, which will likely drive growth, going forward. Moreover, Fluor holds a proven record of winning lucrative awards, and management remains optimistic that this trend will continue, especially in the oil and gas segment, in future as well. This is expected to drive further growth.
Fluor currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector include KBR, Inc. KBR, AO Smith Corp. AOS and Layne Christensen Company LAYN. While both KBR and AO Smith sport a Zacks Rank #1 (Strong Buy), Layne Christensen carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment