Fluor's Outlook Turns Gloomy as it Tackles $188 Billion Worth of Projects

Researched by Industrial Info Resources (Sugar Land, Texas)--Fluor Corporation (NYSE:FLR) (Irving, Texas) took a long, close look at its own operations over the past quarter, and what it saw made the company slash its outlook and acknowledge that its standing on various projects is shakier than once thought. The engineering, procurement and construction (EPC) giant is withdrawing all previously issued earnings guidance for 2019. Industrial Info is tracking nearly $188 billion in active global projects involving Fluor, including more than $64 billion worth under construction.

Click on the image at right for a graph detailing Fluor's active global projects, by industry.

Fluor cited a rough market environment and an "ongoing strategic review of our operations" as the major factors in its sudden drop. New contract awards in second-quarter 2019 totaled $2.4 billion, its lowest quarterly total in more than a year. The book-to-bill ratio of 0.57 was similarly low; a ratio of less than 1 indicates a company is supplying services faster than it is receiving orders, pointing to weak demand.

"During the quarter, we commenced a comprehensive operational and strategic review of Fluor's businesses. These charges reflect our efforts over the past few months to meet with clients, subcontractors, suppliers and our project teams to evaluate and address the status of our current projects," said Carlos Hernandez, the chief executive officer of Fluor, in a press release.

Fluor now expects its Energy & Chemicals business to see a 15% to 20% decline in revenues in the second half of 2019, when compared with the same period in 2018. Among the factors that slammed Fluor's bottom line was an "indefinite delay" to Zero Emission Energy Plants Limited's (ZEEP) (Austin, Texas) South Louisiana Methanol Plant in Saint James, Louisiana. Construction was underway when the owner halted construction; contractors, including Fluor, are not actively working on it. The project is designed to convert 180,000 million British thermal units per day of natural gas feedstock into about 5,300 metric tons per day of methanol. For more information, see Industrial Info's project report.

On the plus side, a separate methanol project, Sasol Limited's (NYSE:SSL) (Johannesburg, South Africa) pet coke-to-methanol plant in Westlake, Louisiana, is making progress. The Westlake project is designed to process petroleum coke into 1 million metric tons per year of methanol and 400,000 metric tons per year of sulfuric acid. It will be supported by the addition of a petroleum coke-fired cogeneration unit, which will generate 240 megawatts (MW). For more information, see Industrial Info's project reports on the plant and cogen unit.

"We expect that the Lake Charles Methanol project will move forward early next year," Hernandez said in an earnings-related conference call.

Following its review of operations, Fluor chalked up pretax charges of $714 million for the second quarter, including $186 million in pre-tax charges for late design change and subcontractor negotiations on an unnamed offshore project.

A bright spot for Flour is its mining business, where the company expects to see 30% to 40% revenue growth in the second half of the year. "In mining, we're starting to see the FEED and feasibility work we have been completing over the last year come to fruition," Hernandez said. "In the second quarter, we booked over 300 million of work in copper mining projects alone."

One of Flour's largest copper-mining projects under construction is Freeport-McMoRan Incorporated's (NYSE:FCX) (Phoenix, Arizona) expansion of its Lone Star Copper Mine in Safford, Arizona, which is expected to wrap up late next year. The mine was on track to be depleted by 2021, but the project will allow it to continue producing up to 200 million pounds per year of copper through 2040. For more information, see Industrial Info's project report.

For the second quarter, Fluor reported net losses of about $555 million, compared with net earnings of about $112 million in second-quarter 2018. The company saw revenues of $4.1 billion, a 16.2% decline from the same period last year. Hernandez closed out last week's conference call with a quote that sounded both determined and ominous: "While we still have a lot of work to do with Fluor, we ask for your patience as we ensure we are taking the right steps. We maintain our conviction that Fluor is a best-in-class company, and are remaining diligent in our pursuit to restore our reputation and credibility."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.