We recently maintained a Neutral recommendation on Fluor Corporation (FLR).
Fluor Corporation is a holding company that owns the stock of a number of subsidiaries. Acting through these subsidiaries, it is one of the largest professional services firms, providing engineering, procurement, construction and maintenance as well as project management services on a global basis. It serves a diverse set of industries worldwide including oil and gas, chemical and petrochemicals, transportation, mining and metals, power, life sciences and manufacturing. It is also a primary service provider to the U.S. federal government. It performs operations and maintenance activities for major industrial clients, and in some cases, operate and maintain their equipment fleet.
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.
On February 22, 2012, the company came out with its fourth-quarter 2011 earnings per share of $0.90, above the Zacks Consensus Estimate of $0.82. Prior-year loss per share was $0.65.
For 2011, earnings per share were $3.40, above the Zacks Consensus Estimate of $3.33 and prior-year earnings per share of $1.98.
Total revenue was $6.3 billion compared with $5.3 billion in the fourth quarter of 2010. The 19% growth was aided by a significant rise in Industrial & Infrastructure business. New awards for the quarter were $4.3 billion.
For 2011, total revenue was $23.4 billion, up 12% year over year. The surge was driven by strong growth in the mining and metals business line within the Industrial and Infrastructure segment. Consolidated backlog at the end of the year was $39.5 billion, reflecting an increase of 13% year over year.
Though the company’s Power segment revenue declined by 56% year over year in 2011, the fourth-quarter performance was the best in four years with awards totaling just under $1 billion to $947 million. The decline was due to benefits derived in 2010 from completion of a number of new projects during the year.
New awards in 2011 continue to be strong at $26.9 billion. The company benefited from substantial mining & metals volume, as well as sizable orders within the Oil & Gas segment. Consolidated backlog rose to a new high of $39.5 billion, an increase of 13% from the end of 2010. The company’s international marketremained robust, with 84% of awards derived from outside the US with focus on Australia, the Middle East, Latin America and Canada.
Though the company maintained its 2012 earnings guidance and remains well positioned for growth in its diversified market, the prevailing uncertain market remains a matter of concern at least for the first half of the year.
Further, Fluor’s government contracts may be terminated at any point of time if it does not comply with the restrictions and regulations imposed by the government. Therefore, there are chances that it will not be able to enter into any government contracts in future. The termination of government contracts could significantly reduce its expected revenue and profits. The company’s prime competitor is Jacob’s Engineering Group (JEC).
We continue to maintain a Neutral rating on Fluor Corporation, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.
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