Fluor Corporation — Q2 2022 Form 10-Q
Business context and period: Unaudited results for the three and six months ended June 30, 2022. Fluor provides engineering, procurement and construction services across Energy Solutions, Urban Solutions, Mission Solutions and Other. Stork and remaining AMECO operations were reclassified from discontinued to continuing operations for all periods presented.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $3.299 billion | $3.684 billion | $6.422 billion | $7.031 billion |
| Gross profit (margin) | $115 million (3.5%) | $88 million (2.4%) | $237 million (3.7%) | $181 million (2.6%) |
| Operating profit (loss) | $106 million | $(76) million | $201 million | $(108) million |
| Net earnings (loss) attributable to Fluor | $66 million | $(115) million | $114 million | $(201) million |
| EPS available to common stockholders, diluted | $0.38 | $(0.62) | $0.66 | $(1.23) |
| Operating cash flow | Not separately reported for the quarter | $(133) million | $(154) million |
Q2 revenue declined about 10% year over year; first-half revenue declined about 9%. First-half segment profit was $223 million, compared with $156 million. Cash and cash equivalents were $2.074 billion at June 30, down from $2.209 billion at year-end; marketable securities were $120 million. Total debt was approximately $1.161 billion, including $181 million current and $980 million long term. Current assets were $4.642 billion and current liabilities $3.126 billion.
Segments, backlog and material changes
- Energy Solutions: Q2 revenue was $1.330 billion and segment profit $65 million (4.9% margin). First-half revenue rose to $2.505 billion, while segment profit was $119 million, little changed year over year.
- Urban Solutions: Q2 revenue was $1.005 billion and segment profit $8 million. The prior-year quarter included a $138 million infrastructure-project charge; further cost growth on that project led to a $32 million Q2 2022 charge. Fluor also recorded charges on two other legacy infrastructure projects, partly offset by favorable forecast revisions and an $11 million joint-venture sale gain. Recoverability of costs on the legacy project remains under analysis.
- Mission Solutions: Q2 revenue of $547 million and segment profit of $28 million were lower year over year, mainly reflecting completion of a DOE contract and closure of LOGCAP in Afghanistan.
- Backlog was $19.519 billion at June 30, down from $20.800 billion at December 31, 2021. First-half awards were $5.476 billion versus $5.580 billion; work performed exceeded awards. Remaining unsatisfied performance obligations were $17.908 billion, with $10.028 billion expected within one year.
- Fluor reversed $63 million of prior impairment in the first half after reassessing Stork and AMECO as held and used. The company cautioned that some or all could be recognized again if the businesses are sold or again qualify as held for sale.
Liquidity, outlook and risks
Management said cash, operating cash generation and unused credit capacity are expected to be sufficient for operating needs for at least the next 12 months. The $1.8 billion revolving facility matures in February 2025; $338 million of letters of credit were outstanding and $785 million was available to borrow. Another $960 million of letters of credit was outstanding under uncommitted lines. Cash held by consolidated VIEs was $557 million and may not be readily available for general use. The company expects to address the 2023 and 2024 note maturities using liquidity, operating cash flow or a securities issuance; $153 million of 2023 Notes was classified as current.
There was no specific earnings or revenue guidance in the provided filing text. Management cited COVID-related productivity, workforce-mobilization and supply-chain effects; client delays and reduced energy-sector capital spending; project cost growth, schedule risk and loss-project cash needs; and foreign-exchange volatility. Backlog included $1.2 billion of loss projects, which may weigh on future operating cash flow. The company reported no material change in market risk or risk factors from its 2021 10-K.
- In April, Fluor sold approximately 5% of NuScale for $107 million, subject to CFIUS review. The proceeds were recorded as temporary additional paid-in capital; they must be repaid if approval is not obtained. NuScale became public through a reverse recapitalization, and Fluor continued to consolidate it.
- Performance guarantees had a stated maximum potential future payment amount of $13 billion, representing estimated remaining costs to complete covered work; the recorded performance-guarantee obligation was not material.
- Fluor reported ongoing SEC and DOJ investigations concerning 2019 project charges and related accounting, reporting and governance matters. It is cooperating.
- Significant disputes include Barrick claims of approximately $364 million net, Santos claims of approximately AUD $1.47 billion, and Sadara counterclaims of approximately $574 million. Fluor disputes the claims; the filing states that management did not consider losses probable in the disclosed matters, subject to the stated reserves and assessments. A proposed securities-class-action settlement remained subject to final court approval.
Most important facts to verify
- Progress and cash exposure on the $1.2 billion of loss projects, especially infrastructure project cost recovery and schedule performance.
- Backlog conversion, new awards and client delays, including the decline in backlog during the first half.
- Availability and restrictions on cash, compliance with credit-facility liquidity covenants, and plans for the 2023 and 2024 debt maturities.
- CFIUS approval and final accounting for the NuScale share sale, plus the effects of NuScale’s public-company transaction.
- Developments in the SEC/DOJ inquiries and major litigation, including settlement approval and potential claim outcomes.