Fluor Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; comparisons are with Q1 2010 unless otherwise noted. Figures are in U.S. dollars.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Revenue | $5.058 billion | $4.919 billion | +3% |
| Earnings before taxes | $241.1 million | $233.1 million | +3% |
| Net earnings attributable to Fluor | $139.7 million | $136.6 million | +2% |
| Diluted EPS | $0.78 | $0.76 | +$0.02 |
| Operating cash flow | $370.5 million | $(246.1) million | Improved |
Gross profit was approximately $270.2 million, or 5.3% of revenue, versus $260.6 million, also about 5.3%, a year earlier. The effective tax rate declined to 33.1% from 34.1%, primarily because of greater earnings attributable to joint-venture and partnership noncontrolling interests.
Segments and backlog
- Industrial & Infrastructure: Revenue rose 60% to $1.993 billion and segment profit nearly tripled to $92.1 million. Mining and metals and infrastructure performance drove the increase. Backlog rose 88% year over year to $19.8 billion.
- Oil & Gas: Revenue fell 23% to $1.656 billion and segment profit declined 33% to $61.8 million as older projects wound down and newer awards were still ramping up. Backlog increased 25% to $13.6 billion.
- Government: Revenue increased 23% to $818.5 million, while segment profit decreased slightly to $34.1 million; margin was 4.2% versus 5.3%.
- Global Services: Revenue grew 12% to $378.5 million and segment profit rose 13% to $31.0 million.
- Power: Revenue declined 60% to $211.6 million and segment profit fell 48% to $29.5 million as major projects, including Oak Grove, completed or neared completion. Segment margin increased to 13.9% from 10.6%.
New awards were $6.2 billion, versus $3.4 billion, and consolidated backlog reached $37.2 billion, up from $25.7 billion a year earlier. About 86% of Q1 awards and 77% of ending backlog related to projects outside the United States. Backlog may be subject to cancellation or scope changes.
Cash, liquidity and capital
- Cash and cash equivalents were $2.192 billion at March 31, 2011; current and noncurrent marketable securities totaled $463 million. Combined cash and securities were about $2.7 billion.
- Operating cash flow was $370.5 million, mainly reflecting earnings and reduced working capital, including higher Oil & Gas advance billings. Investing activities used $33.4 million; financing activities used $315.4 million.
- Total debt was approximately $82.9 million, including $65.2 million of convertible notes and $17.8 million of municipal bonds. Debt-to-capital was 2.4%, down from 3.2% at year-end 2010. The company reported compliance with debt covenants.
- Credit lines totaled $3.8 billion, with $2.4 billion unused; $1.4 billion of letters of credit were outstanding. Management said cash, operating cash generation and unused capacity should meet requirements for at least the next 12 months.
- Fluor repurchased and cancelled 3.5 million shares for approximately $246 million. The quarterly dividend declared was $0.125 per share. It expected to contribute $50–$90 million to defined-benefit pension plans in 2011; approximately $8 million had been contributed by quarter-end.
Outlook, risks and unusual items
Management cited continued competitive pressure on contract pricing and margins, with the global recession still affecting many clients’ capital plans. It noted signs of recovery in Oil & Gas, supported by late-2010 awards and higher backlog, but gave no quantified full-year earnings or revenue guidance. Mining and metals growth supported Industrial & Infrastructure, while Power faced weak demand and delays in air permits for coal-fired plants.
The Greater Gabbard offshore wind project dispute is a key contingency. Fluor had recorded $209 million of claim revenue for incurred costs and considered recovery of incurred and future costs probable. The client had withheld $112 million in liquidated damages, with further withholding possible up to an approximately $150 million contractual maximum. If schedule relief or claim recovery is unsuccessful, unrecovered amounts could reduce earnings. Total recognized claims against clients were $242 million; ultimate recoveries may differ materially from recorded amounts.
Outstanding performance guarantees were estimated at $5.6 billion, although the recorded liability was not material and potential payments above estimated costs to complete were not estimable. Other disclosed risks include project execution and cost overruns, award and cancellation uncertainty, client or partner creditworthiness, litigation, tax audits, and international political, labor, currency and safety conditions. Management reported no material change in market-risk disclosures or risk factors and said disclosure controls were effective.
Important facts for investors to verify
- Whether Industrial & Infrastructure awards and backlog convert into profitable execution, and whether Oil & Gas ramp-up offsets project completions.
- The resolution and recoverability of the Greater Gabbard claims and liquidated damages, including any effect on future earnings.
- Cash conversion and working-capital trends, particularly the dependence on client advances and project billing milestones.
- Potential cash requirements from convertible-note conversions, guarantees, pension contributions and share repurchases.
- The durability of segment margins amid competitive bidding and the stated weakness in Power markets.