Fluor Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023, compared with the three months ended March 31, 2022. Fluor provides engineering, procurement, construction and related services through Energy Solutions, Urban Solutions and Mission Solutions, with NuScale, Stork and AMECO included in Other.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $3.752 billion | $3.122 billion, up 20% |
| Gross profit (loss) | $(38) million; approximately (1.0)% margin | $123 million; approximately 3.9% margin |
| Operating profit (loss) | $(141) million | $96 million |
| Net earnings (loss) attributable to Fluor | $(107) million | $48 million |
| EPS available to common stockholders | $(0.82), basic and diluted | $0.27, basic and diluted |
| Operating cash flow | $(161) million | $(188) million |
| Cash and cash equivalents | $2.137 billion at March 31 | $2.439 billion at December 31, 2022 |
| Debt | $994 million total: $16 million current and $978 million long-term | $1.130 billion at December 31, 2022 |
Cash, cash equivalents and marketable securities totaled $2.3 billion at quarter-end, down from $2.6 billion at year-end. This includes $642 million of cash held by consolidated VIEs that may not be readily available for general purposes. Net interest income was $41 million, versus net interest expense of $9 million a year earlier, reflecting higher interest earned on deposits and redemption of the 2023 Notes. The effective tax rate was (30.1)%; a $52 million valuation-allowance item was a significant component of tax expense.
Segments, backlog and material changes
- Energy Solutions: Revenue of $1.612 billion and segment profit of $88 million (5.5% margin), compared with $1.174 billion and $54 million (4.6%). Results benefited from project ramp-ups and a $22 million favorable foreign-currency remeasurement.
- Urban Solutions: Revenue of $1.208 billion and segment loss of $20 million (1.7% negative margin), compared with $1.061 billion and $17 million profit. Results included a $59 million charge for LAX Automated People Mover rework, schedule impacts and system integration testing.
- Mission Solutions: Revenue of $649 million and segment profit of $7 million (1.1% margin), compared with $593 million and $58 million. A $21 million charge related to cost growth and schedule delays on a weapons facility project contributed to the decline.
- Other: Segment loss was $90 million versus $14 million. The 2023 result included a $60 million negative earnings impact from the sale of AMECO South America, including $35 million of foreign-currency translation effects; NuScale also reported a larger loss.
- Total new awards rose to $3.234 billion from $1.926 billion. Backlog was $25.623 billion, down slightly from $26.049 billion at year-end but up from $19.254 billion a year earlier. Remaining unsatisfied performance obligations were $24.358 billion. Backlog includes $1.7 billion for loss projects; $3.0 billion of Mission Solutions backlog was unfunded government work.
Revenue growth reflected ramp-up on recently awarded projects, partly offset by work nearing completion. The prior-year comparison included a $63 million impairment reversal; no material impairment expense was recorded in Q1 2023. Fluor completed the AMECO divestiture in March for total proceeds of $144 million. Plant & Facility Services was moved into Urban Solutions for the periods presented.
Liquidity, outlook and risks
- Operating cash outflow reflected working-capital increases on large projects and seasonal incentive payments. Management said operating cash generation, available credit and cash were expected to support operating needs and debt maturities for at least the next 12 months.
- Fluor redeemed the remaining €129 million of 2023 Notes for $140 million in January. The $1.8 billion credit facility was extended to February 2026; there were no borrowings under it and reported borrowing capacity was $828 million. Letters of credit outstanding were $420 million under committed lines and $957 million under uncommitted lines.
- Management expected to address the 2024 Notes maturity through liquidity, operating cash or a new securities issue, and aspired to partially retire them during 2023 using organic sources. A downgrade to specified ratings could require collateral against the credit facility.
- Fluor estimated up to $15 billion of potential future payments under performance guarantees, representing remaining cost of work; the recorded performance-guarantee obligation was not material.
- Material legal matters include the Santos Australia dispute: a court-appointed panel issued a non-binding draft report recommending for Santos on certain claims, while recommending for Fluor on another claim of roughly equivalent asserted value. The panel had not determined precise damages; Fluor challenged the process and the contract liability cap. Other disclosed matters include Sadara and Barrick claims, an NTTA claim expected by the claimant to exceed $100 million, and ongoing SEC and DOJ investigations relating to 2019 project charges. Fluor had accrued an amount for the investigations but said the ultimate outcome could not be predicted.
- The filing provides no quantified earnings or revenue guidance. Management said it was on track to meet its goal of net-zero Scope 1 and 2 absolute emissions by the end of 2023. The filing identifies project cost and schedule estimation, client and subcontractor performance, awards, working capital, litigation, funding and market conditions among risks; no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether project execution and cost-control issues, particularly the LAX and weapons facility charges, lead to further losses or cash needs.
- Conversion of backlog and RUPO into profitable work, including the status of loss-project backlog and unfunded government contracts.
- Available liquidity after considering VIE restrictions, letters of credit, the 2024 Notes maturity and credit-facility covenant requirements.
- Developments and potential financial consequences in the Santos dispute, SEC/DOJ investigations and other material claims.
- Whether the AMECO sale’s reported loss, currency effects and other unusual items affect comparability of future results.