Fluor Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are to the corresponding 2020 periods. Fluor provides engineering, procurement and construction services through Energy Solutions, Urban Solutions and Mission Solutions; NuScale is reported in Other. Stork and AMECO are classified as discontinued operations.
Financial results and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $3.236B | $3.735B | $6.175B | $7.433B |
| Gross profit | $59.5M | $78.9M | $152.2M | $142.7M |
| Operating profit (loss) | ($2.4M) | $33.3M | ($12.9M) | $6.4M |
| Net earnings (loss) attributable to Fluor | ($114.4M) | ($25.0M) | ($201.5M) | ($290.9M) |
| Loss per common share, including discontinued operations | ($0.84) | ($0.18) | ($1.46) | ($2.07) |
Q2 gross margin was approximately 1.8%, versus 2.1% a year earlier. The six-month figures reflect lower revenue but improved gross profit; prior-year impairment charges contributed to the year-over-year comparison. Q2 loss attributable to Fluor includes $107.8M of discontinued-operations losses and $4.9M of preferred-stock dividends in the common-stockholder loss calculation.
- Cash flow: Operating cash flow was negative $153.9M for the first half, versus positive $64.1M in 2020. Investing cash flow was approximately negative $0.0M, and financing cash flow was positive $655.3M. Cash and cash equivalents ended June at $2.711B, up from $2.199B at year-end; the increase was substantially supported by financing, including preferred-stock proceeds.
- Liquidity and debt: Cash plus marketable securities totaled approximately $2.743B. Long-term debt was $1.679B, with $4.7M of other short-term borrowings. The $1.65B credit facility had no borrowings, $431M of letters of credit outstanding, and $783M of additional borrowing capacity. Cash held by consolidated VIEs ($636M) may not be available for general use.
- Backlog and obligations: Backlog was $21.074B at June 30, down from $23.144B at December 31, 2020. First-half new awards were $5.033B, compared with $5.763B. Remaining unsatisfied performance obligations were $20.648B.
Material changes and operating drivers
- Consolidated revenue fell 13% in Q2, primarily as projects across segments completed or neared completion. First-half revenue fell 17%.
- Energy Solutions’ Q2 segment profit rose to $109.2M from $42.7M, benefiting from negotiated change orders, cost improvements and collections of previously reserved receivables.
- Urban Solutions recorded a $138M Q2 charge for procurement and subcontractor cost growth, delays and schedule disruption on a legacy infrastructure project. Management believes some costs may be recoverable, but says assessment and client negotiations could take several quarters. The segment reported a $68.4M Q2 loss.
- Mission Solutions’ Q2 segment profit increased to $44.9M from $9.7M, helped by DOE project activity, performance fees and release of COVID-related reserves.
- Backlog declined partly due to cancellation of North American steel and chemicals projects, removing about $2B during the first half. Backlog included $1.2B of projects in a loss position.
- Discontinued operations generated a $107.8M Q2 loss attributable to Fluor, including impairment and sale-related charges. Fluor sold AMECO’s North American operations for $71M and recorded a $25M loss. The company expects to sell remaining AMECO operations and Stork near year-end 2021 or early 2022.
Outlook, risks and contingencies
- Management said cash, operating cash generation and available credit should support operations for at least 12 months, while noting the credit facility and 2023 notes mature within 24 months. It expected further substantial debt reductions in the second half of 2021 using remaining preferred-placement proceeds.
- Fluor issued $582M of 6.5% cumulative perpetual convertible preferred stock. Dividends, if approved, are expected to require about $39M annually; conversion could represent up to 27M common shares and dilute existing holders. The board approved a $10M preferred dividend in July.
- Management said overhead-reduction actions begun in January could result in restructuring expense later in 2021. It continues to seek investors and capital providers for NuScale; outside investors contributed $100M during the first half and a further $92M in July.
- Key risks include COVID-19 and market uncertainty, project cost and schedule overruns, cancellations and delays, client payment or recovery disputes, competition, foreign currency effects, government-contract requirements, and litigation. Performance guarantees had an estimated maximum potential payment of $12B, although the recorded obligation was not material.
- Material disputes include Santos claims of approximately AUD $1.47B, Sadara counterclaims of approximately $574M against Fluor entities, and Barrick claims of approximately $330M. Fluor disputes the claims and states it does not consider losses probable beyond amounts reserved where applicable. SEC and DOJ inquiries into 2019 project charges and related reporting matters remained ongoing.
Important facts for investors to verify
- Progress, recoverability and eventual financial impact of the $138M Urban Solutions project charge.
- Backlog quality and conversion, including loss-position projects, cancellations, and the pace of new awards.
- Operating cash flow and the accessibility of cash held in VIEs as project funding needs change.
- Debt reduction, upcoming maturities, credit-facility covenant compliance and the cost and terms of preferred dividends or conversion.
- Timing and proceeds of the Stork and remaining AMECO sales, and resolution of the major claims and government investigations.