Business context and reporting period
Fluor Corporation’s unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Fluor provides engineering, procurement and construction services through Energy Solutions, Urban Solutions and Mission Solutions; its Other segment consists of NuScale. Stork and AMECO are presented as discontinued operations and held for sale.
Financial performance and position
Unless stated otherwise, amounts are in millions of dollars. Revenue and earnings below are for continuing operations unless identified as discontinued operations.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $2,938.5 | $3,697.7 |
| Gross profit; gross margin | $92.8; 3.2% | $63.8; 1.7% |
| Operating loss | $(10.5) | $(26.9) |
| Continuing-operations loss attributable to Fluor | $(61.0); $(0.43) per diluted share | Income of $21.6; $0.15 per diluted share |
| Discontinued-operations loss attributable to Fluor | $(26.1) | $(287.6) |
| Total net loss attributable to Fluor | $(87.0); $(0.62) per diluted share | $(266.0); $(1.90) per diluted share |
| Operating cash flow | $(230.6) | $(63.7) |
- Consolidated net loss, including noncontrolling interests, was $53.9 million. Continuing-operations loss attributable to Fluor increased from the prior-year profit, while the much smaller total loss reflected fewer discontinued-operations impairment charges than in 2020.
- Segment profit, a non-GAAP measure, was $59.9 million (2.0% of revenue), compared with $54.7 million (1.5%). Corporate G&A rose to $65.6 million from $33.6 million, largely due to higher compensation expense. Continuing-operations impairment and exit costs were $26.4 million versus $102.4 million; discontinued-operations impairment was $20.5 million versus $295.2 million.
- Cash and cash equivalents were $1,937.8 million at March 31, down from $2,198.8 million at year-end; marketable securities were $18.7 million. Cash declined $261.0 million during the quarter. Operating outflow reflected working-capital changes, COVID-19 project funding, corporate cash payments and higher taxes. Investing cash outflow was $64.5 million and financing inflow was $28.4 million.
- Total debt was approximately $1,683.2 million, including $4.7 million of short-term borrowings and $1,678.5 million of long-term debt. No borrowings were drawn under the $1.65 billion revolving credit facility; covenant capacity for further borrowing was approximately $869 million. Letters of credit outstanding were $414 million under the committed facility and $927 million under uncommitted lines.
- Current assets were $5,169.5 million and current liabilities were $3,441.3 million. Fluor reported $608 million of cash held by consolidated VIEs, which may not be readily available for general purposes.
Material changes and operating trends
- Revenue declined 20.5% year over year, primarily as Energy Solutions and Urban Solutions projects were completed or neared completion, with additional COVID-19-related delays. Mission Solutions revenue was broadly flat.
- Energy Solutions revenue fell to $991.0 million from $1,359.3 million; segment profit was $2.2 million versus a $5.9 million loss. Q1 2021 profit included a $29 million expense related to an embedded foreign-currency derivative.
- Urban Solutions revenue declined to $1,194.2 million from $1,592.2 million and segment profit fell to $29.8 million from $51.3 million. COVID-19 impacts, project closeout and cost-to-complete revisions weighed on results; favorable dispute and commercial closeout resolutions partly offset them.
- Mission Solutions revenue was $753.3 million versus $746.2 million, and segment profit increased to $43.6 million from $32.1 million, aided by contract modifications, execution activity and improved projected performance scores.
- New awards were $3,662.4 million versus $3,834.1 million. Backlog was $23,791.7 million at March 31, up from $23,144.1 million at year-end but down from $29,041.8 million a year earlier. Fluor removed approximately $1 billion from backlog for a canceled North American chemicals project. Backlog included $1.6 billion of projects in a loss position; 57% was lump-sum work.
- Remaining unsatisfied performance obligations were $23,250 million: $10,783 million expected within one year, $6,438 million in one to two years, and $6,029 million thereafter. RUPO is not identical to backlog.
Outlook, risks and contingencies
- Fluor gave no specific numerical revenue or earnings guidance in the provided filing text. Management said cash, operating cash generation and unused credit capacity were expected to support requirements for at least the next 12 months, while noting the credit facility and 2023 Notes mature within the next 24 months and liquidity opportunities may be pursued.
- Management warned that limited broad-based new awards could pressure future earnings, particularly in Energy Solutions. It cited COVID-19, project delays or cancellations, cost and schedule estimates, client and partner financial condition, market cyclicality and government budget constraints as material uncertainties.
- Fluor expects to sell AMECO in the first half of 2021 and Stork before the end of Q1 2022. It announced a plan to substantially reduce overhead costs and said restructuring expense was likely later in 2021, although no material costs for that initiative had been recognized by quarter-end.
- NuScale incurred $16 million of expenses, net of qualified reimbursements; JGC Holdings invested $40 million during the quarter. Fluor said it continued seeking investors and capital providers to fund commercialization.
- Outstanding performance guarantees could require up to $16 billion of future payments, representing remaining work to be performed; the recorded performance-guarantee obligation was not material. Future funding commitments for unconsolidated VIEs were $57 million.
- Fluor described significant disputes, including the Santos matter (approximately AUD $1.47 billion sought), Sadara counterclaims (approximately $636 million), and Barrick claims (approximately $330 million). The company said it was defending the claims and did not consider a loss probable, subject to stated exceptions and recorded reserves. The filing also describes shareholder litigation and ongoing SEC and DOJ document requests and investigations relating to 2019 project charges.
- Fluor committed to net-zero Scope 1 and Scope 2 absolute greenhouse-gas emissions by the end of 2023. The company reported no material changes in market risk, risk factors, or internal control over financial reporting; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether operating cash flow and working capital improve, and how much reported cash is accessible after accounting for VIE restrictions and project needs.
- Progress on refinancing or addressing the 2023 Notes and credit-facility maturity, covenant compliance, and letter-of-credit capacity.
- Whether new awards convert into revenue and margin, and the quality of backlog, including loss-position projects and the canceled chemicals project.
- Sale timing and proceeds for Stork and AMECO, and any further impairment or separation costs.
- Developments in the major project disputes, securities and derivative litigation, and SEC/DOJ inquiries, including potential effects beyond recorded reserves.
- Execution of the overhead-reduction plan, NuScale funding and commercialization, and progress against the 2023 emissions commitment.