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Fluor Rides on Market Diversity & Solid End-Market Prospect
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Fluor Corporation (FLR - Free Report) has been riding on market diversity, strong line of successful contracts and robust end-market potential. However, persistent backlog erosion, volatility of commodity prices along with intense competition pose significant challenges.
A Look at Second-Quarter Results
Fluor’s second-quarter 2018 adjusted earnings and revenues surpassed the Zacks Consensus Estimate by 17.4% and 8.3%, respectively. Earnings also increased 12.5% on 3.6% growth in revenues year over year, driven by prudent cost management and foreign currency exchange benefits, partly offset by costs tied to its downstream and power projects. That said, Fluor continues to see prospects for gradual improvement in core markets, particularly commodity-related, as prices rebound and customer capex recovers.
Meanwhile, stabilizing backlog/bookings is notable. Total backlog came in at $29.3 billion (as of Jun 30), up from $29.1 billion in the first quarter, marking the first increase since 2016.
Key Growth Drivers
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 permits it to focus on more stable business markets and capitalize on developing the cyclical markets at suitable times.
Meanwhile, Fluor follows systematic strategic initiatives to boost its scope of work, while generating more returns. The company presently focuses on transforming its engineering, procurement, construction or EPC model into one integrated solution. It believes that this will help in expanding its scope of work on a project, improve client satisfaction and provide an opportunity to generate greater returns.
A classic example of such effort is Fluor’s decision to acquire Dutch engineering and construction company, Stork Holding B.V. in 2016. This integration reflects its goal to strengthen its “integrated solutions offerings”. These initiatives give Fluor the extra edge and a distinct competitive advantage.
Additionally, the company has a robust track record of receiving awards, and management remains optimistic about continuation of this trend in the future as well, given strong end-market potential. Fluor remains optimistic about its end markets, including mining. This is because leading indicators of future capital spending like industrial production and capacity utilization are improving in several regions and industries, signaling higher capital spending going forward. Again, President Trump’s plans to boost infrastructure spending seem to be vital growth catalysts to the industry players like Fluor, as well as others like Gates Industrial Corporation plc (GTES - Free Report) , Jacobs Engineering Group Inc. , KBR, Inc. (KBR - Free Report) and the likes.
Factors Weighing Down
Although Fluor exhibited decent backlog growth sequentially, it dropped 22.1% on a year-over-year basis. The company expects the improved momentum to continue through the remaining of 2018. However, we await better visibility going forward.
Over the past few quarters, Fluor has been witnessing continuous backlog erosion. Slow burn on a couple of key projects and absence of new awards at a reasonable pace are making matters worse for the company.
Also, volatility in commodity prices and the cyclical nature of the company’s commodity-based business lines pose significant challenges for Fluor in the forthcoming quarters.
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Fluor Rides on Market Diversity & Solid End-Market Prospect
Fluor Corporation (FLR - Free Report) has been riding on market diversity, strong line of successful contracts and robust end-market potential. However, persistent backlog erosion, volatility of commodity prices along with intense competition pose significant challenges.
A Look at Second-Quarter Results
Fluor’s second-quarter 2018 adjusted earnings and revenues surpassed the Zacks Consensus Estimate by 17.4% and 8.3%, respectively. Earnings also increased 12.5% on 3.6% growth in revenues year over year, driven by prudent cost management and foreign currency exchange benefits, partly offset by costs tied to its downstream and power projects. That said, Fluor continues to see prospects for gradual improvement in core markets, particularly commodity-related, as prices rebound and customer capex recovers.
Meanwhile, stabilizing backlog/bookings is notable. Total backlog came in at $29.3 billion (as of Jun 30), up from $29.1 billion in the first quarter, marking the first increase since 2016.
Key Growth Drivers
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 permits it to focus on more stable business markets and capitalize on developing the cyclical markets at suitable times.
Meanwhile, Fluor follows systematic strategic initiatives to boost its scope of work, while generating more returns. The company presently focuses on transforming its engineering, procurement, construction or EPC model into one integrated solution. It believes that this will help in expanding its scope of work on a project, improve client satisfaction and provide an opportunity to generate greater returns.
A classic example of such effort is Fluor’s decision to acquire Dutch engineering and construction company, Stork Holding B.V. in 2016. This integration reflects its goal to strengthen its “integrated solutions offerings”. These initiatives give Fluor the extra edge and a distinct competitive advantage.
Additionally, the company has a robust track record of receiving awards, and management remains optimistic about continuation of this trend in the future as well, given strong end-market potential. Fluor remains optimistic about its end markets, including mining. This is because leading indicators of future capital spending like industrial production and capacity utilization are improving in several regions and industries, signaling higher capital spending going forward. Again, President Trump’s plans to boost infrastructure spending seem to be vital growth catalysts to the industry players like Fluor, as well as others like Gates Industrial Corporation plc (GTES - Free Report) , Jacobs Engineering Group Inc. , KBR, Inc. (KBR - Free Report) and the likes.
Factors Weighing Down
Although Fluor exhibited decent backlog growth sequentially, it dropped 22.1% on a year-over-year basis. The company expects the improved momentum to continue through the remaining of 2018. However, we await better visibility going forward.
Over the past few quarters, Fluor has been witnessing continuous backlog erosion. Slow burn on a couple of key projects and absence of new awards at a reasonable pace are making matters worse for the company.
Also, volatility in commodity prices and the cyclical nature of the company’s commodity-based business lines pose significant challenges for Fluor in the forthcoming quarters.
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Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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