Fluor Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Figures are unaudited and, unless noted, in millions of U.S. dollars. Fluor provides engineering, procurement and construction management services through Energy Solutions, Urban Solutions and Mission Solutions, alongside other businesses.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $3,734 | $3,752 |
| Gross profit (loss) | $99 | $(38) |
| Operating profit (loss) | $52 | $(141) |
| Net earnings (loss) | $40 | $(130) |
| Net earnings (loss) attributable to Fluor | $59 | $(107) |
| Basic / diluted EPS | $0.35 / $0.34 | $(0.82) / $(0.82) |
| Operating cash flow | $(111) | $(161) |
Gross margin was approximately 2.7%, versus approximately negative 1.0% a year earlier. Improvement in operating results reflected stronger segment performance and a $53 million year-over-year swing in foreign-currency results: a $12 million gain versus a $41 million loss. Interest income less interest expense was $39 million, compared with $41 million.
Segments and backlog
- Energy Solutions: Revenue $1,432, segment profit $68 (4.7% margin), versus $1,612 and $88 (5.5%). A Mexico joint venture construction subcontract incurred $29 million of cost growth related to delays, labor and material escalation.
- Urban Solutions: Revenue $1,479, segment profit $50 (3.4% margin), versus $1,208 and a $20 million loss. Higher execution activity on recently awarded projects and the absence of the prior-year $59 million LAX project rework charge drove the improvement.
- Mission Solutions: Revenue $601, segment profit $22 (3.7% margin), versus $649 and $7. The prior-year period included a $21 million weapons-facility cost-growth charge.
- Other: Segment loss was $22 versus $90, including NuScale losses of $33 versus $29 and an $11 million gain on the sale of Stork’s continental European operations.
- New awards were $7.0 billion, up from $3.2 billion, principally due to large Urban Solutions awards. Backlog rose to $32.7 billion from $29.4 billion at year-end, including a large life sciences award. Approximately 80% of backlog was reimbursable; 56% related to projects outside the U.S. Backlog includes $1.2 billion of legacy loss-position projects.
Cash, debt and liquidity
- Cash and cash equivalents were $2.335 billion at March 31, down from $2.519 billion at December 31, 2023; cash plus marketable securities totaled approximately $2.4 billion, versus $2.6 billion. Cash held by consolidated VIEs was $462 million and may not be available for general use.
- Operating cash outflow of $111 million reflected working-capital increases on large projects and the usual first-quarter timing of incentive payments. Fluor also funded an estimated $55 million on loss projects during the quarter.
- Investing cash outflow was $22 million and financing cash outflow was $26 million. Capital expenditures were $34 million. The cash decrease also included a $25 million adverse exchange-rate effect.
- Debt was $1.149 billion, primarily $590 million of 2028 notes and $575 million of 2029 convertible notes; no credit-facility borrowings were outstanding. Fluor redeemed $10 million of 2028 notes.
- The $1.8 billion credit facility matures in February 2026; $450 million of letters of credit were outstanding and reported borrowing capacity was $776 million. A further $916 million of letters of credit was outstanding under uncommitted lines. Management said available cash, expected operating cash generation and unused credit capacity should support requirements for at least 12 months.
Changes, outlook and notable matters
- Revenue was nearly flat year over year, while segment profit improved to $118 million from a $15 million loss. The 2023 comparison included the LAX rework charge and a $60 million negative AMECO South America sale impact.
- The effective tax rate was 55.6%, compared with negative 30.1% in Q1 2023. Fluor recorded a $17 million reserve for an uncertain tax position following an adverse court ruling; the reserve excludes $9 million of assessed penalties. Fluor appealed and intends to pursue settlement negotiations.
- Fluor sold Stork’s continental European operations for $67 million and recognized an $11 million gain; $38 million of proceeds arrived in April. A definitive agreement to sell Stork’s U.K. operations was signed in April; closing could occur as early as Q2, with no material earnings impact expected.
- No specific earnings guidance was provided in the supplied filing text. Management cited project execution, new awards and backlog, but cautioned that backlog can be cancelled, deferred or adjusted and includes estimated third-party and pass-through costs. Mission Solutions backlog included $2.8 billion of unfunded government contracts.
- Major stated risks include project cost and schedule overruns, subcontractor and partner performance, award timing, labor and supply constraints, client payment delays, currency movements, litigation, tax matters and access to credit and financial assurances. The filing reported no material changes to the company’s previously disclosed risk factors.
Contingencies and items to monitor
- Santos litigation in Australia: A court-appointed panel recommended judgment for Santos on claims valued at approximately AUD $790 million, excluding interest and costs, and for Fluor on another claim Santos values at approximately AUD $700 million. Fluor disputes the report and argues that a contractual liability cap applies; the court had reserved decisions on both adoption and Fluor’s challenge. The filing does not provide a clear estimate of potential loss.
- NTTA retaining-wall litigation: An expert report estimated repair costs at $227 million; the authority initially said damages would exceed $100 million. Fluor and its joint-venture partner have asserted claims for indemnity from subcontractors.
- Outstanding performance guarantees had a stated maximum potential future payment amount of $15 billion, representing remaining work costs; Fluor said the recorded performance-guarantee obligation was not material. The maximum is not presented as an expected loss.
- Loss-position partnership and joint-venture investments included $274 million in liabilities, primarily provisions for anticipated losses on two legacy infrastructure projects. Future funding commitments for unconsolidated VIEs were $57 million.
- Fluor had recorded $475 million of revenue associated with claims and unapproved change orders as of March 31; realization is subject to uncertainty. The balance was $531 million at year-end.
Most important facts for investors to verify
- Progress and commercial resolution of the Mexico subcontract cost overrun, and whether loss-project funding and estimated losses decline.
- Developments in the Santos and NTTA cases, including potential exposure, indemnification and any changes to accruals.
- Cash conversion and working-capital trends, including the availability of VIE cash and the use of customer advances.
- Execution, funding and cancellation risk in backlog, particularly unfunded government work and legacy loss-position projects.
- Resolution of the uncertain tax position and assessed penalties, and completion and proceeds of the proposed U.K. Stork sale.
- Compliance with credit-facility liquidity and other covenants, and availability of letters of credit under committed and uncommitted facilities.