Fluor Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and results
Fluor provides engineering, procurement and construction services through Energy Solutions, Urban Solutions, Mission Solutions and Other. Stork and remaining AMECO operations were reclassified from discontinued to continuing operations for all periods shown. Fluor continues to control and consolidate NuScale, which became publicly traded through a reverse recapitalization in Q2 2022.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $3,612 | $3,503 | $10,034 | $10,534 |
| Gross profit (loss) | $(15) | $113 | $222 | $294 |
| Gross margin | (0.4)% | 3.2% | 2.2% | 2.8% |
| Operating profit (loss) | $(11) | $101 | $190 | $(7) |
| Net earnings (loss) from continuing operations attributable to Fluor | $22 | $42 | $136 | $(127) |
| EPS from continuing operations, diluted | $0.08 | $0.22 | $0.74 | $(1.00) |
Q3 consolidated continuing-operations results were a $24 million net loss, while $46 million of that loss was attributable to noncontrolling interests; Fluor therefore reported $22 million of continuing-operations earnings attributable to itself. The effective tax rate was unusually high at 939.2% in Q3, partly reflecting the small pretax income base and tax valuation allowances.
Financial position, cash flow and liquidity
- Cash and marketable securities: $2.591 billion at September 30, 2022, versus $2.336 billion at December 31, 2021. Cash alone was $2.436 billion; $852 million was held by consolidated VIEs and may not be readily available for general use.
- Cash flow, nine months: Operating cash outflow was $15 million, improved from $220 million outflow in 2021. Investing cash outflow was $64 million; financing cash inflow was $378 million, including $341 million from NuScale’s de-SPAC transaction and $107 million from sale of a NuScale interest. Cash increased $227 million after a $72 million adverse foreign-exchange effect.
- Debt: $1.147 billion total at quarter end ($167 million current and $980 million long-term), compared with $1.192 billion at year-end 2021. The 2023 Notes had $145 million outstanding; other senior notes include $381 million of 2024 Notes and $600 million of 2028 Notes.
- Credit availability: $845 million available under the $1.8 billion facility, which matures in February 2025; $332 million of letters of credit were outstanding under it and $877 million under uncommitted lines. The facility requires minimum liquidity of $1.2 billion, subject to stated provisions that could reduce it after debt repayment.
- Management said cash, operating cash generation and unused credit capacity should support operations and debt maturities for at least 12 months. It expected to address 2023 and 2024 maturities through liquidity, operating cash or a securities issuance.
Material changes and operating trends
- Q3 revenue rose 3% year over year, mainly from ramp-up on projects in Mexico, China and LNG. Nine-month revenue declined 5%, primarily as projects in Urban and Mission Solutions completed or neared completion.
- Q3 total segment profit fell to $31 million from $116 million; nine-month segment profit was $253 million versus $272 million. Urban Solutions recorded a $54 million segment loss in Q3, including charges of $64 million for highway rework and delays, $22 million for an international bridge and $21 million for an automated people mover. Nine-month charges on these projects were $86 million, $54 million and $35 million, respectively.
- Energy Solutions revenue increased, but Q3 segment profit declined to $59 million from $72 million. Mission Solutions revenue decreased, while segment profit was broadly stable at $29 million.
- Backlog increased to $25.423 billion at September 30 from $20.800 billion at December 31, 2021, helped by $15.219 billion of nine-month new awards. Q3 awards were $9.743 billion. Remaining unsatisfied performance obligations were $23.861 billion, including $12.160 billion expected within one year. Backlog includes $2.0 billion of loss projects and $4.4 billion of unfunded government contracts.
Outlook, risks and contingencies
- Fluor gave no specific earnings or revenue forecast in the supplied filing text. Management expected to fund about $100 million of loss-project costs in Q4 2022, including incentives for a legacy upstream project.
- Management said Q4 reviews of schedule and cost estimates and claim potential on an international bridge project, plus other project claim negotiations and dispute resolutions, could materially change project forecasts and Q4 results. Recovery of certain infrastructure project costs remains under analysis and could be material.
- In Q3, Fluor agreed to arrangements facilitating the sail-away of a legacy upstream project from a China fabrication yard, reducing liquidated-damages exposure and providing partially client-funded fabricator incentives.
- Outstanding performance guarantees had a maximum potential amount of $16 billion, representing estimated remaining cost to perform; the recorded performance-guarantee obligation was not material. Future funding commitments to unconsolidated VIEs were $57 million.
- Significant legal and regulatory matters include a proposed settlement of a securities class action awaiting final court approval; Barrick arbitration claims of approximately $364 million; Santos claims of approximately AUD $1.47 billion; and Sadara counterclaims of approximately $574 million. Fluor disputes these claims and generally said it did not believe losses were probable, subject to stated reserves and uncertainties. SEC and DOJ investigations concerning 2019 project charges remained unresolved, and Fluor continued cooperating.
- Other disclosed risks include project cost overruns and delays, supplier and subcontractor escalation, client payment and award risks, foreign-exchange movements, litigation, and the potential effects of COVID-related disruption. Fluor reported no material changes to risk factors from its 2021 10-K and no material changes in market risk.
Important facts for investors to verify
- Whether Urban Solutions project claims and dispute outcomes recover the costs underlying the substantial Q3 charges, and the effect of further schedule or cost revisions.
- Whether the $2.0 billion of loss-project backlog and expected Q4 funding needs affect operating cash flow or require additional liquidity.
- How much reported cash is practically available, given VIE restrictions, project requirements and geographic transfer constraints.
- Final CFIUS approval of the $107 million NuScale interest sale; the amount was recorded as temporary APIC and may need to be repaid if approval is denied.
- Final resolution and potential financial, regulatory or reputational effects of the legal matters and SEC/DOJ investigations.
- How Fluor will refinance or otherwise address the 2023 and 2024 note maturities, and the potential dilution or cash cost associated with its convertible preferred stock.