Fluor Corporation FLR is scheduled to report second-quarter 2018 results on Aug 2. In the last reported quarter, the company’s earnings came in at 30.86 cents per share, missing the Zacks Consensus Estimate of 81 cents by 30.9%. However, the company surpassed estimates in three of the past four quarters, resulting in an average positive surprise of 4.45%.
We expect Fluor to score an earnings beat in the to-be-reported quarter as well.
Factors Driving Better-Than-Expected Results
Fluor has been enhancing its competitive position in the market through prudent leadership initiatives and strategic alliances. Notably, starting from first-quarter 2018, the company shifted the mining business to its industrial, infrastructure and power segment to better align external reporting with its operations.
Fluor’s revenues from the Energy & Chemicals segment, accounting for 40.3% of the total revenues, registered 8.7% year-over-year decline in the first quarter. Currently, the company’s margins are under pressure as it is transitioning from higher-margin engineering to lower-margin construction activities, particularly related to Energy & Chemicals segment. This migration is a result of the natural maturing of EPC projects, as well as the low level of new awards over the past several quarters. This is also the most prominent reason which causes year-over-year variance in results.
The Zacks Consensus Estimate for Energy & Chemicals revenues of $2,057 million reflects growth from $1,943 million in the first quarter. Additional chemical derivative and refining opportunities, both domestic and international, along with upstream and LNG opportunities will drive the company's growth.
Meanwhile, Mining, Industrial, Infrastructure & Power segment, accounting for 18.9% of the company’s total revenues, has been reporting dismal results. In the first quarter of 2018, the company booked substantial charges due to forecast revisions on a gas-fired power project. Fluor has been working on 12 gas-fired power projects since 2003, out of which 10 have underperformed and three suffered losses.
Hence, the company has decided to discontinue the pursuit of lump-sum gas-fired power market from the end of the first quarter of 2018, and will instead focus on power services, renewables and nuclear businesses. In the last reported quarter, the segment's revenues declined 33.7% year over year, reflecting lower volume of project execution activities in power.
Given this backdrop, the Zacks Consensus Estimate for second-quarter revenues for the segment is pegged at $1,019 million, reflecting growth from $910 million in the last reported quarter, given opportunities in copper, gold and iron ore replacement projects.
Robust pipeline of work in North America and Europe is expected to be favorable for the company’s Diversified Services business. Further, the company has grown its maintenance, fabrication and construction capabilities, as well as invested in systems and processes that are expected to improve project delivery. The segment registered 13% year-over-year revenue growth in the last reported quarter. The segment’s revenues are expected to record a modest improvement to $648 million from $643 million in the first quarter.
Meanwhile, Government segment (contributing 27.5% to the total revenues) has been performing pretty well. Fluor enjoys a solid track record of contracts, and management remains optimistic that the trend will continue even in the future, thereby driving growth of the company. Over the past few quarters, major wins in the government business allowed Fluor to expand its long-term recurring revenue opportunities. The trend is expected to have continued in the to-be-reported quarter as well.
Revenues at the Government segment soared 73.5% year over year in the last reported quarter. The Zacks Consensus Estimate for the segment’s revenues of $774 million reflects growth from $744 million in the year-ago quarter.
Over the past few quarters, Fluor’s market diversity has remained a key strength and allowed the company to mitigate the cyclicality of markets in which it operates. Fluor continues to be optimistic about its investment projects, particularly the LNG projects in North America. Furthermore, the company has a strong track record of receiving awards, which is anticipated to prove conducive to bottom-line growth in the to-be-reported quarter as well.
Overall, for the second quarter, the Zacks Consensus Estimate for total revenues is pegged at $4.51 billion, implying a 4.4% decline. The Zacks Consensus Estimate for earnings is pegged at 69 cents, reflecting a 4.2% year-over-year decrease.
Fluor Corporation Price and EPS Surprise
Fluor Corporation Price and EPS Surprise | Fluor Corporation Quote
Quantitative Model Prediction
Our proven model shows that Fluor is likely to beat earnings estimates in the to-be-reported quarter. This is because the stock has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is perfectly the case here as you will see below:
Earnings ESP: Fluor has an Earnings ESP of +1.45% as the Most Accurate Estimate of 70 cents is pegged higher than the Zacks Consensus Estimate of 69 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Currently, the company sports a Zacks Rank #1, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.
Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Other Stocks to Consider
Here are some other construction companies that you may also want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in the quarter to be reported:
Boise Cascade Company BCC has an Earnings ESP of +14.97% and sports a Zacks Rank #1. The company is scheduled to report quarterly numbers on Aug 6, 2018.
GCP Applied Technologies Inc. GCP has an Earnings ESP of +2.56% and carries a Zacks Rank #3. The company is slated to report quarterly numbers on Aug 7, 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.
Altair Engineering Inc. ALTR has an Earnings ESP of +28.57% and carries a Zacks Rank #3. The company is slated to report quarterly numbers on Aug 13, 2018.
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