Fluor posts profit off better oil, mining outlooks

Dive Brief:

  • Fluor announced Tuesday it earned $9 million in the fourth quarter of 2022, up from a net loss of $278 million in the fourth quarter of 2021, according to the company’s annual report.
  • Revenue for the fourth quarter hit $3.7 billion compared to $3.6 billion a year ago, about a 2.8% increase, according to the report. Ending backlog for 2022 totaled $26 billion, a 25% jump from $20.8 billion in the prior year.
  • The Irving, Texas-based company reported new awards for the quarter reached $4.6 billion, a fourfold increase from $989 million in 2021. “We have outperformed relative to our timeline and our shareholder expectations on reinforcing our capital structure,” said Fluor CFO Joe Brennan. “We are now in position to create a stronger balance sheet which would generate significant shareholder value in any economic environment.”

Dive Insight:

New awards in the fourth quarter of 2022 increased threefold largely due to a third New Fortress Energy fast LNG project, a chemicals project in China and a methane storage terminal project in Mexico, said David Constable, CEO of Fluor, during the earnings call.

Infrastructure charges on a number of legacy projects have negatively affected Flour’s results the past few years. The COVID-19 pandemic and oil price declines later amplified those problems. Over the past five years, Fluor’s stock has tumbled close to 40%. The company cast its latest report as a turning point from that recent history. 

“In 2022, we demonstrated our resilience, continued to grow and remained steadfast in taking actions to achieve positive results,” said Constable. “With a renewed sense of confidence, I am excited about the opportunities in front of us and encouraged by our ability to deliver significant shareholder value now and in the years ahead.”

The company established its 2023 adjusted EPS guidance at $1.50 to $1.90 per share, versus analysts’ $1.66 consensus. 

That’s due to the volume of new awards received across all three segments over the past year, the reimbursable nature of the existing backlog versus previous fixed-price contracts and the expected performance of the company’s remaining legacy projects, said Constable during the call.

Takeaways from earnings

Fluor’s awards momentum stood out during the quarter, said Andrew Wittmann, senior research analyst at Milwaukee-based financial services company Baird, in a research note. 

“A first look at results suggests better-than-expected awards, 2023 EBITDA guidance midpoint ahead of consensus, and, importantly, no material charges through the income statement all suggesting more consistent execution,” Wittmann wrote. “The underlying performance today appears to be solidifying — that’s the key.”

New awards to the backlog also continue to be increasingly lower risk, added Wittmann.

About 63% of the backlog is reimbursable, according to Fluor, up from 41% a year ago. That’s seen as a positive — and less risky — business proposition by observers. 

“Investors have been wary of Fluor going over budget on its construction projects given deep issues under prior management,” said Wittmann. “If future work is not fixed price but rather reimbursable then the odds of going over budget are significantly reduced.”

Constable added that those reimbursable contracts should increase to about 75% by 2024.

“2022 [and beyond] is seeing inflecting growth driven by earnings which bottomed during 2021’s transition,” said Wittmann. “[That] eventually will be bolstered by elevated commodity prices, which should ultimately drive investment in oil, gas and mining.”

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