Fluor Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless noted. Fluor provides engineering, procurement and construction services through Energy Solutions, Urban Solutions, Mission Solutions and Other (NuScale). Stork and remaining AMECO operations are reported as discontinued operations and held for sale.
Financial performance and condition
| Metric | Q3 2021 | Nine months 2021 |
|---|---|---|
| Revenue | $3.10 billion, down 10.2% | $9.28 billion, down 14.8% |
| Gross profit / margin | $106.5 million / 3.4% | $258.7 million / 2.8% |
| Operating profit | $101.6 million | $88.7 million |
| Net earnings (loss) from continuing operations attributable to Fluor | $46.7 million | $(20.9) million |
| Net earnings (loss) available to common stockholders, including discontinued operations and preferred dividends | $30.7 million | $(175.6) million |
| Operating cash flow | Not presented quarterly in the supplied filing text | $(219.5) million, versus $144.2 million generated |
- Disclosed continuing-operations EPS was $0.26 for Q3 and $(0.25) for the nine-month period; discontinued-operations EPS was $(0.04) and $(0.99), respectively. Nine-month discontinued-operations loss attributable to Fluor was $140.1 million.
- At September 30, cash and cash equivalents were $2.13 billion and marketable securities were $67.2 million, about $2.19 billion combined. Long-term debt was $1.17 billion and short-term borrowings were $4.6 million, compared with $1.70 billion and $4.9 million at year-end 2020.
- Fluor reported $1.65 billion of committed credit capacity, with $399 million of letters of credit outstanding and $795 million of additional borrowing capacity. The facility requires minimum liquidity of $1.25 billion and matures in February 2023.
- Total equity increased to $1.84 billion from $1.26 billion at year-end, primarily reflecting the $582 million preferred-stock issuance and noncontrolling-interest contributions.
Material changes and operating drivers
- Q3 revenue fell mainly because projects across segments were completed or nearing completion. Nine-month revenue declines also reflected lower execution activity, COVID-related effects, project cancellations and market shifts.
- Urban Solutions recorded a $138 million second-quarter charge for procurement and subcontractor cost growth, delays and disruption on a legacy infrastructure project. Fluor believes some costs may be recoverable, but expects several quarters of analysis and client negotiations before recognizing additional revenue.
- For the nine months, segment profit improved in Energy Solutions and Mission Solutions, but Urban Solutions moved to a $20.8 million segment loss from $119.2 million profit. Energy Solutions profit was $183.9 million versus $133.0 million; Mission Solutions profit was $116.5 million versus $66.3 million.
- Q3 operating profit benefited from a $37.5 million foreign-currency gain, compared with a $29.8 million loss in Q3 2020. Nine-month interest expense increased, including a $19.6 million loss on debt repurchases; nine-month impairment and restructuring costs were $26.4 million, down from $106.2 million.
- Backlog was $21.03 billion, down from $23.14 billion at December 2020 and $25.46 billion at September 2020. Fluor removed approximately $2 billion for cancellation of a North American chemicals project and a steel project. Nine-month awards increased to $8.07 billion from $7.04 billion. Remaining unsatisfied performance obligations were $20.54 billion.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance is provided. Management said cash, operating cash generation and unused credit capacity should support requirements for at least 12 months, while noting the credit facility and 2023 Notes mature within 24 months. Fluor planned to review options for remaining 2023 and 2024 Notes and extend or replace its credit facility.
- Management attributed negative nine-month operating cash flow to working-capital increases on large projects, COVID-related project funding, higher G&A cash payments and increased taxes. Backlog included $1.1 billion of loss projects expected to negatively affect future operating cash flow.
- Fluor issued $582 million of 6.5% cumulative perpetual convertible preferred stock and used proceeds to repurchase or redeem approximately $509 million face value of 2023 and 2024 Notes. Preferred dividends imply approximately $39 million of annual payments if declared; conversion could represent up to about 27 million common shares and dilute existing holders.
- Fluor sold AMECO’s North American operations for $71 million and recorded a $25 million loss. It expected to sell Stork and remaining AMECO operations near year-end 2021 or early 2022. Stork and AMECO recorded $126.3 million of nine-month impairment expense.
- Outstanding performance guarantees had a stated maximum potential payment amount of $13 billion, representing estimated remaining costs to complete work; Fluor reported no related liability. The filing also identifies $900 million of letters of credit under uncommitted lines.
- Material disputes include Santos claims of approximately AUD $1.47 billion, Sadara counterclaims of approximately $574 million against about $100 million of Fluor invoices, and Barrick claims of approximately $364 million. Fluor says it is defending the claims and does not consider losses probable, subject to uncertainty. SEC and DOJ investigations concerning 2019 project charges and related accounting and governance matters remain ongoing.
- Other key risks cited include project cost and schedule overruns, cancellations and deferrals, client or supplier financial distress, COVID effects, government-contract restrictions, litigation, and NuScale’s need for further capital to reach commercialization. NuScale received $193 million from outside investors during the period; Fluor owned approximately 80% at quarter-end.
Investor verification points
- Track recovery prospects, schedule and final costs for the Urban Solutions project behind the $138 million charge, and any subsequent client recovery recognized.
- Monitor operating cash flow, working capital, loss-project cash requirements, backlog conversion and new awards after the two major project cancellations.
- Verify plans for the 2023 Notes and credit facility maturities, covenant headroom, and the cash and dilution effects of preferred dividends or conversion.
- Follow the timing and terms of the Stork and remaining AMECO divestitures and whether sale proceeds differ from carrying values.
- Review developments in the major disputes and SEC/DOJ investigations, and assess potential exposures despite the company’s stated loss assessments.