Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fluor Corp (FLR, Financial) reported a strong revenue of $4.1 billion for the third quarter, with a total backlog of $31.3 billion, 80% of which is reimbursable.
- The Urban Solutions segment saw a significant increase in backlog, up 72% over the past 12 months, driven by advanced technology and life sciences projects.
- Fluor Corp (FLR) is making progress in the nuclear sector, with new projects in Romania and involvement in the US domestic uranium enrichment program.
- The company has a strong cash position, with $2.9 billion in cash and marketable securities, and plans to return capital to shareholders through an increased share repurchase program.
- Fluor Corp (FLR) is strategically positioned for growth in the data center market, leveraging modularization and innovative cooling processes to secure programmatic opportunities with large tech companies.
Negative Points
- The Energy Solutions segment experienced lower-than-expected contributions due to delays in revenue recognition and cost growth on a subcontract in Mexico.
- Fluor Corp (FLR) faced challenges with a large manufacturing facility project for Intel, which was canceled, impacting their semiconductor business.
- The company's adjusted EBITDA for the third quarter was $124 million, down from $216 million a year ago, reflecting a higher effective tax rate and lower segment profits.
- Fluor Corp (FLR) is experiencing delays in converting front-end engineering design (FEED) packages to EPC awards, particularly in the energy transition sector.
- The company is dealing with a $1 billion breach of contract lawsuit related to the Mario M. Cuomo Bridge project, which could impact future financials.
Q & A Highlights
Q: Joe, the fourth quarter guide implies a significant ramp in revenues, up 30%. Can you explain your comfort level with this and the factors driving the acceleration? Also, the implied margins in energy solutions suggest a 3% margin. What's happening there?
A: Joseph Brennan, CFO: The ramp in revenues is due to the timing of revenue recognition on a large project slipping into Q4 and 2025. The margin reduction reflects this delay and cancellations of three other programs. We've managed funding requirements for legacy projects down to $80 million for the full year, showing progress. Regarding share repurchases, we'll discuss a holistic shareholder return plan in Q4.
Q: Can you still achieve the 2026 adjusted EBITDA target of $800 million to $950 million in the current environment? What are your thoughts on 2025, and do you see an environment that supports backlog and revenue growth?
A: David Constable, CEO: We are likely four quarters behind the original EBITDA target. However, our EPS is tracking to the 2021 strategic plan target. We see strong CAGR growth for revenue and EBIT over the next planning period. Urban solutions will be a primary growth engine, with energy solutions reloading for future growth.
Q: Regarding NuScale, why does the potential agreement continue to get delayed, and is there anything you can do to lock in more value for Fluor?
A: David Constable, CEO: There's strong interest in NuScale's SMR technology, the only US NRC-approved SMR. We're engaging with a strategic investor to capture value for Fluor and SMR shareholders. We're committed to supporting NuScale's global projects and are finalizing a commercialization model.
Q: Can you talk about the overall strength of the demand picture and whether you can be as selective in your bookings while achieving growth objectives?
A: David Constable, CEO: We remain committed to fair and balanced contract terms and selectivity. The demand picture is strong, with significant CapEx from top clients and government spending. We see opportunities in energy transition, particularly in Europe, and will continue to be selective.
Q: Regarding energy solutions, are we seeing a glimpse of what the segment's contribution could be when large projects are completed? Is there enough underlying work for growth off this new base?
A: Joseph Brennan, CFO: The LNG Canada project is performing within expectations, with timing issues affecting revenue recognition. Energy solutions is reloading with front-end work in traditional and transition markets. We expect significant contributions from energy solutions in the planning period.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
