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Fluor (FLR) to Report Q4 Earnings: What's in the Cards?

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Premium engineering and construction firm Fluor Corporation (FLR - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 20.

Last quarter, the company reported an earnings beat of 15.5%. Fluor beat estimates thrice and missed once over the trailing four quarters, for an average positive surprise of 6.3%

Let's see how things are shaping up for this announcement.

Factors at Play

Fluor’s market diversity remains a key strength that helps it mitigate the cyclicality of markets in which it operates. The company’s strategy of maintaining a good business portfolio mix enables it to focus on the more stable business markets as well as capitalize on developing the cyclical markets at suitable times. The engineering and construction space is enjoying a good momentum right now, with the best net backlog and earnings growth in years. This bodes well for the company’s performance.

The company is poised to grow on the back of its strong track record of receiving awards, which is anticipated to prove conducive to bottom-line growth in the to-be-reported quarter as well. During the quarter under review, Fluor won an engineering, procurement and construction management (EPC) contract by Vopak Terminal Durban to deliver the Vopak Growth 4 Project in Durban, South Africa.

Further, it won a contract with Ontario Power Generation for the procurement and construction of refurbishment work at the Darlington nuclear generating station. Also, its joint venture was chosen by the Massachusetts Bay Transportation Authority as the design-build team for the $2-billion Green Line Light Rail Extension in Boston.

These awards are expected to boost Fluor’s top line in the quarter to be reported.

Fluor Corporation Price, Consensus and EPS Surprise

Moreover, the company’s continued focus on cost controls enables it to deliver the performance requirements specified by its clients as well as their budgetary needs. Fluor’s current focus on transforming its EPC model into one integrated solution is likely to expand the company’s scope of work on a project, improve client satisfaction and provide an opportunity to generate greater returns, which will likely boost profits.

Despite these positives, the fact remains that the widespread macroeconomic challenges have severely restricted the company’s performance for the past several quarters. Sluggish backlog conversion problem has been a persistent crisis in this sector, mainly attributable to uncertain macroeconomic conditions. These conditions are likely to impede growth to some extent.

Also, we expect the company's margins to suffer, as it transitions from higher-margin engineering to lower-margin construction activities. Volatility in commodity prices and cyclical nature of the company’s commodity-based business lines pose significant challenges for Fluor in the upcoming quarters.

Earnings Whispers

Our proven model does not show that Fluor is likely to beat earnings estimates in this quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for the company is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 63 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Fluor has a Zacks Rank #3.While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Boston Beer Company, Inc. (SAM - Free Report) has an Earnings ESP of +29.18% and a Zacks Rank of 1. The company is expected to release quarterly numbers around Feb 21. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ruth’s Hospitality Group Inc. , with an Earnings ESP of +11.69% and a Zacks Rank of 2, is slated to report results on Feb 21.

MercadoLibre, Inc. (MELI - Free Report) has an Earnings ESP of +5.46% and a Zacks Rank of 2. The company is likely to release earnings around Feb 22.

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