Fluor Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021. Amounts are in U.S. dollars unless indicated. Statements are unaudited.
Financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $3.122 billion | $3.347 billion |
| Gross profit / margin | $123 million / 3.9% | $93 million / 2.8% |
| Operating profit (loss) | $96 million | $(32) million |
| Net earnings (loss) attributable to Fluor | $48 million | $(87) million |
| Net earnings available to common shareholders / diluted EPS | $38 million / $0.27 | $(87) million / $(0.61) |
| Operating cash flow | $(188) million | $(230) million |
| Cash and cash equivalents at period end | $1.913 billion | $1.938 billion |
Total segment profit was $115 million, or 3.7% of revenue, compared with $60 million, or 1.8%, a year earlier. Q1 2022 operating profit included a $63 million impairment reversal related to Stork and remaining AMECO assets; Q1 2021 included $47 million of impairment expense. The effective tax rate on continuing-operations pretax earnings was 35.4%, including a $16 million net valuation-allowance impact.
Segment performance and business context
- Energy Solutions: Revenue rose to $1.174 billion from $991 million; segment profit increased to $54 million from $2 million, reflecting higher execution activity on several projects and lower derivative-related expense.
- Urban Solutions: Revenue declined to $959 million from $1.194 billion and segment profit to $15 million from $30 million, reflecting project completions, delayed awards, a prior-year rail settlement and cost growth on an advanced manufacturing project.
- Mission Solutions: Revenue fell to $593 million from $753 million, while segment profit increased to $58 million from $44 million, substantially due to favorable resolution of Army Corps of Engineers project close-out items and evacuee support work.
- Other: Segment loss was $12 million versus $16 million, including a $21 million NuScale loss. Stork and remaining AMECO were reclassified to continuing operations and included in Other for all periods presented because the timing of planned sales became uncertain.
New awards were $1.926 billion, down from $3.884 billion. Backlog was $19.254 billion at March 31, versus $20.800 billion at year-end 2021 and $25.973 billion at March 31, 2021. Work performed exceeded new awards in the quarter. Remaining unsatisfied performance obligations were $17.817 billion, with $10.166 billion expected to be satisfied within one year; RUPO and backlog are defined differently in the filing.
Liquidity, debt and cash flows
- Cash, cash equivalents and marketable securities totaled approximately $2.1 billion at March 31, down from $2.3 billion at December 31, 2021. This includes $509 million held by consolidated VIEs, which may not be readily available for general use.
- Total reported debt was approximately $1.196 billion, including $214 million current and $982 million long-term, compared with approximately $1.192 billion at year-end. The 2023 Notes were reclassified as current.
- The $1.8 billion revolving credit facility matures in February 2025; $393 million of letters of credit were outstanding and stated borrowing availability was $806 million. An additional $863 million of letters of credit was outstanding under uncommitted lines.
- Operating cash outflow reflected working-capital increases on several large projects. Investing cash outflow was $105 million and financing cash outflow was $16 million. Management stated available liquidity, operating cash generation and unused credit capacity were expected to support requirements and debt maturities for at least 12 months.
- The company identified $1.0 billion of backlog on loss projects that may weigh on future operating cash flow. First-quarter cash dividends on convertible preferred stock were $10 million.
Outlook, notable events and risks
- No quantified earnings or revenue guidance was provided. Management said prospective client indications gave it optimism that 2022 new awards would exceed the annualized first-quarter amount, while noting delays in client procurement and awards.
- COVID-related effects continued, including China lockdown impacts on workforce mobilization and the supply chain at a fabrication yard. The company suspended new investment in Russian operations and was winding down existing regional obligations; it did not consider regional backlog significant to future revenue or margin.
- In April 2022, Fluor agreed to sell approximately 5% of NuScale to Japan NuScale Innovation for approximately $110 million, subject to CFIUS review. In May, NuScale completed its merger with Spring Valley Acquisition Corp. and related private investment transactions; Fluor said it would continue consolidating the combined company.
- The securities class action had a proposed settlement pending court approval; no additional liability or insurance recovery was recorded in Q1. Other significant disputes include Santos claims of approximately AUD $1.47 billion, Sadara counterclaims of approximately $574 million, and Barrick claims of approximately $364 million. Fluor disputes these claims and reported its assessments that losses were not probable, or were not probable beyond amounts reserved, as applicable.
- SEC and DOJ inquiries into 2019 project charges and related project accounting, financial reporting and governance matters remained ongoing. The company said it was cooperating.
- Outstanding performance guarantees had a stated maximum potential payment amount of $14 billion, representing remaining cost of work; the company said the recorded performance-guarantee obligation was not material. Future funding commitments to unconsolidated VIEs were $57 million.
- Other disclosed risks include project cost overruns and delays, client payment and award delays, contract claims, joint-venture and supplier performance, litigation, cybersecurity, foreign-exchange changes, and tax and regulatory matters. Management reported no material change in risk factors or market-risk disclosures.
Most important facts to verify
- Whether new awards recover from the first-quarter pace and backlog declines, and how delays or cancellations affect reported backlog and RUPO.
- Whether the $1.0 billion of loss-project backlog, working-capital needs and cash held in VIEs affect usable liquidity and future cash flow.
- The outcome and financial exposure of the major disputes, securities settlement approval, and ongoing SEC and DOJ inquiries.
- Whether Stork and AMECO are sold or again meet held-for-sale criteria, which could require impairment recognition after the $63 million reversal.
- The status of NuScale’s transaction, CFIUS review and resulting ownership and consolidation impacts, along with the company’s plan for 2023–2024 debt maturities.