Fluor Corporation (FLR) reported earnings per share from continuing operations of 92 cents in the third quarter of 2010, after adjusting for one-time charges. Revenues were $5.5 billion, up from $5.4 billion in the third quarter of 2009 but higher than the Zacks Consensus Estimate of $5.1 billion.
New project awards in the third quarter were $7.6 billion, which surpassed the average of $3 billion for the prior quarters. Awards in the quarter were diversified, including $3.0 billion in Industrial & Infrastructure projects, $2.9 billion in Oil & Gas projects, and approximately $1.2 billion from Government segment.
Fluor’s Oil & Gas business unit reported a segment profit of $75 million, down 60% from the third quarter of 2009. Segment profits were impacted by lower new awards. New orders were $2.9 billion and were won internationally. Order backlog was $11.7 billion, which was lower than the prior-year level of $13.5 billion.
The Industrial & Infrastructure group reported segment profit of negative 147 million, including the charges of $163 million related to cost increases on the Greater Gabbard Offshore Wind Farm Project and $95 million related to the completed SR-125 road project. Revenue for the segment was $2.2 billion, up 96% from the year-ago period, driven by growth in the mining and metals business lines.
The Government segment posted a profit of $35 million. Revenue in the quarter grew 46% to $793 million, compared with the year-ago period.
Segment profit for Global Services was $35 million in the third quarter, compared to a loss of $5 million in the corresponding prior-year period. Revenues of $419 million were down 5% from the third quarter of 2009.
Fluor Power Group’s third quarter profit was down 20% over the prior year quarter to $40 million on revenues of $383 million, which declined 6% over the third quarter of 2009. Increased segment profit reflects solid contributions from ongoing projects and the benefit of positive project performance on a large coal-fired power project that is nearing completion.
Cash and equivalents were $2.4 billion with negligible long-term debt and shareholders’ equity of $3.5 billion.
Guidance
Business prospects in mining continue to display strength, while operations and maintenance spending remain weak. Fluor’s oil and gas markets are still in transition, but there are indications that a limited number of key projects could be released this year. Overall, Fluor’s new award prospects across its portfolio are substantial.
Fluor stands out as one of the few engineering and construction companies that has the technological expertise, logistics and procurement capabilities, and project management experience needed to execute a large variety of projects, including large and complex projects for a diverse group of industrial and government clients virtually anywhere in the world.
Given its strong financial position, Fluor will have ample financial resources to pursue a niche acquisition program aimed at strengthening its considerable service breadth. The company is delivering solid results driven by its diversified business model and targeted new awards strategy. With a proven management team and a strong balance sheet, Fluor is poised to outperform in the current market environment.
Fluor is a best-in-class engineering and construction companies with a favorable contract mix, diverse service offerings and strong relationships around the world, thus allowing it to sustain its operating margin without diminishing growth potential.
We currently have a Neutral recommendation on Fluor Corporation.
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