Fluor Reports Weak Mining, Government Results in First-Quarter 2014, Expects Full-Year Capex Close to 2013

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading engineering, procurement, construction and project management firm Fluor Corporation (NYSE:FLR) (Irving, Texas), reported drops in profits and revenues for the first quarter of 2014, after weakening mining and government-related business offset solid gains in the Oil & Gas segment. Net earnings were reported to be $149.1 million, a 10.45% decrease from first-quarter 2013.

Total revenues stood at $5.38 billion, a 25.06% decrease from the same period last year. Although all of the company's segments reported lower revenues, the steepest decline was in the Industrial & Infrastructure segment, which was driven by continuously diminishing business in the mining and metals line. Fluor also faced notably fewer newly awarded mining and metals contracts over the past 12 months. The Government segment also reported a substantial drop in profits, largely related to fewer orders related to the LOGCAP IV contract in Afghanistan, which provides contractor support and logistics work for U.S. troops. Still, a growth in upstream and petrochemical projects led to a 32% jump in profits in the Oil & Gas segment.

Fluor hit a record $10.7 billion in contract awards for the quarter, including $8.8 billion in the Oil & Gas segment alone. The consolidated backlog totaled $40.16 billion, compared with $37.46 billion at the end of the first quarter of 2013. Among the projects added to Fluor's backlog during the quarter is a five-year contract to maintain the Strategic Petroleum Reserve for the U.S. Department of Energy (DOE).

Capital expenditures for the first quarter totaled $66.6 million, compared with $56.9 million in first-quarter 2013.

Industrial Info is tracking more than $172 billion in active projects involving Fluor, including Exxon Mobil's (NYSE:XOM) (Irving, Texas) $8.9 billion addition to its Kearl Oil Sands development in Alberta, Canada. The long-term project involves constructing the 110,000-barrel-per-day (BBL/d) Train 2, which will be capable of ramping up to 145,000 BBL/d with debottlenecking. The addition will increase bitumen production at the mine up to 345,000 BBL/d. Flour Canada Limited (Calgary, Alberta) is serving as an engineering, procurement and construction contractor. The project is expected to be completed in the fourth quarter of 2014.

"I'm pleased to report that last month, the Nuclear Decommissioning Authority in the United Kingdom selected the Cavendish Fluor Partnership as the preferred bidder on Magnox [reactor projects], for the decommissioning of 12 nuclear sites," said David Seaton, the chairman and chief executive officer of Fluor, in a conference call. "This project will leverage our considerable experience in nuclear remediation."

Seaton said that he expects capital expenditures for full-year 2014 to track close to 2013's $288.5 million. Fluor executives expect higher margins for full-year 2014 when compared with 2013, although overall revenues are expected to be lower. Earnings growth is expected to begin in the third quarter, as weakening results in the mining and government businesses likely will continue to offset gains in the Oil & Gas segment in the second quarter.

"We're seeing a good, solid stream of study and front-end work in mining, which gives me confidence that we will see that start to return as we get into 2015," Seaton said in response to a question during the conference call. "I think Government [segment] is going to be more of a difficulty, because they've got a lot on the books. I think that winning the Strategic Petroleum Reserve is a great example of the diversity within that group, of being able to work not only in the [U.S. Department of Defense] world, but also in the DOE world and the FEMA world. That diversity helps them, but I think it's going to be difficult to replace LOGCAP from its peak."

He later added: "There's a lot of combined-cycle, gas-fired power plants that we're bidding. I think there's seven that we've bidding on right now. But I think that the recent ruling by the Supreme Court on CSPAR really helps us, because we've really got a lot of expertise on the coal side of the power business, and on the retrofit side, and I think that the ruling really helps us a lot in removing some of the headwinds that power [business] has experienced over that last two years."

For more information on the Supreme Court's recent ruling and its potential effects on the Power Industry, see May 1, 2014, article - Upholding CSAPR Could Deal Further Blow to Power Generating Fuel Diversity. For more information, visit Industrial Info's Oil & Gas Production Project Database, Power Project Database, Metals & Minerals Project Database, and Chemical Processing Project Database.

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