Dip in Fluor Net Income Sets Stage for Reboot as Markets Change

In its just announced third-quarter results, Fluor Corp. reported a 3.3% revenue rise to almost $4.1 billion. But the total still missed analysts' consensus of $4.73 billion, with the engineer-contractor citing project impacts and reduced energy business earnings.

Those combined to push corporate net income down to $54 million, from $169 million in the same quarter last year, the Irving,Texas-based company said.

But Fluor executives and analysts are optimistic about its future market potential in the still shifting energy market and in the looming Trump administration.

While Q3 new awards totaled $2.7 billion compared to $5 billion in the same quarter last year, Fluor said, its consolidated backlog climbed to $31.3 billion from $26 billion, with 80% of that under reimbursable contracts. The engineer-contractor said its "legacy" fixed-price project backlog is down to $859 million from $1 billion last quarter.

The firm is "pleased the election process delivered a clear winner," said CEO David Constable. "This creates an environment of certainty that our clients need in order to make major capital investment decisions."

Chief Operating Officer Jim Breuer said Fluor is "reloading the hopper with significant front-end work, both in traditional markets and energy transition. putting together a very deliberate strategy around power and low carbon power and a new wave of projects [that] will come to fruition."

Acknowledging the falloff in adjusted earnings per share to $0.51 from $1.02 in third quarter 2023, Constable said: "It does not change our focus on pursuing demand-driven growth opportunities in the markets we serve and on returning cash to shareholders."

EPC Award Uptick Delayed

The $50-million Q3 profit in Fluor's energy unit reflected a lower- than-expected contribution from its contractor role in what is believed to be the $14-billion first phase of the LNGCanada liquefied natural gas terminal in British Columbia. That project is set to complete next year.

Constable said it "is on track to ... ship first cargoes in 2025 [and] continues to meet management expectations." Q3 profit also reflects $18 million in cost growth on a project in Mexico.

Constable also noted a semiconductor project cancellation by Intel, on which Fluor had been doing early construction. "It was a megaproject, but we're still doing work at that specific site, and there's additional work within the project that we're currently completing," he said, noting other work for the tech giant being explored in the U.S. and in Asia.

Fluor results also were affected by what he termed an energy transition slowdown in North America and continued tougher company discretion in selecting projects.

"The expected conversion of FEED packages to EPC awards has not yet come to fruition," he said, adding that "over the past three years, we've 'no bid' over $20 billion of [energy projects] due to unfavorable risk or contractual conditions."

Constable says traditional energy, energy transition and low carbon power projects "will drive FEED packages." He sees better energy transition potential in Europe, with four of Fluor's five EPCM projects in progress located there. "I think energy transition in the US is going to be pivoting to energy addition ... driven by multiple fuel sources, thermal power, thermal power with carbon capture and nuclear."

With an uptick in nuclear power demand, spurred particularly by the data center boom, Constable sees growth for Fluor in both new and resurrected reactor project construction. "The size and supply chain requirements for these mega-facilities represent a sweet spot for Fluor," he said. The firm is "developing innovative cooling process concepts, and completed work with client offsite modularization design and production processes that will expedite buildout."

Fluor also is 50% owner of small nuclear reactor development leader NuScale Power, which is ahead of competitors in gaining federal approvals and recently announced improvement in its income results.

KeyBanc analyst Sangita Jain described Fluor's quarter results as having a "messiness and unpredictability that investors have wanted to get past." But others are more optimistic. Truist Securities lead sector analyst Jamie Cook termed the Q3 shortfalls "unexpected and disappointing," but said "we believe the market is missing that Fluor is executing operationally." She said Fluor could have an expanded stock repurchase program early next year and may monetize its 50% stake in 2025.

Andrew Wittmann, lead industry analyst at Baird Research, said the firm would keep the "outperform" rating on Fluor, which he added "is well positioned to grow backlog with better terms and conditions and has yet to include potential for the power gen/data center opportunity which accelerates [earnings per share] growth."