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Fluor Beats on Q3 Earnings; Narrows Guidance

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Fluor Corporation (FLR - Free Report) reported third-quarter 2013 net earnings of $173 million or $1.05 per share, beating the Zacks Consensus Estimate of $1.03 by 2 cents. Quarterly earnings increased 19.3% from $145 million in the year-ago quarter, while earnings per share rose 22.1% from 86 cents. Profits during the third quarter were primarily driven by growth in the Oil & Gas, Government and Power segments, partially offset by the sluggish mining and metals businesses. The company’s earnings also benefited from lower share count as revenue decreased

Total Revenue

Total revenue came in at $6.7 billion, compared with $7.1 billion in third-quarter 2012. The growth in the Oil & Gas segment was offset by the sluggish performance of the Industrial & Infrastructure segment. Revenues fell short of the Zacks Consensus Estimate of $7.3 billion.

In the reported quarter, the company inked contracts worth $5.6 billion. This included $2.4 billion in the Oil & Gas segment, $1.9 billion in the Government segment, $472 million in Industrial & Infrastructure and $846 million in Power. Consolidated backlog was $36.5 billion at quarter-end, down from $40.8 billion in the third quarter of 2012, primarily due to the downturn in the mining and metals market.

Segment Revenue

Revenues from the Oil & Gas segment reported year-over-year growth of 13.3% to $2.9 billion, while segment profits rose 24% to $108.3 million. Revenues were primarily driven by increased contributions from upstream and petrochemical projects. Total contracts for the segment were $2.4 billion in the quarter, which included a mega engineering, procurement and construction project in Texas for Chevron Phillips Chemical ethane cracking project. Backlog at the quarter-end was $18.7 billion, compared with $19.2 billion at the end of prior-year quarter.

Revenues in the Industrial & Infrastructure segment came in at $2.7 billion, down from $3.5 billion in the past year, with segment profit falling to $132.4 million from $145.0 million in the third quarter of 2012. The declines in revenues and profits were due to lackluster performance from the mining and metals business line despite healthy performance of the industrial services and infrastructure businesses in the quarter. New contracts were $472 million in the quarter compared with $1.8 billion in the prior-year quarter. Backlog at quarter-end was $13.8 billion versus $18.0 billion in the past year, mainly due to a reduction in mining and metals contracts.

The Government segment reported a year-over-year revenue decline of 14.6% to $675.2 million. However, the segment’s profit increased 65.2% year over year to $37.8 million. New contracts for the Government segment totaled $1,933 million, down from $1,951 million reported in third-quarter 2012, driven primarily by the reduced fees from the LOGCAP IV task orders. Backlog at the end of the quarter was $1.8 billion, compared with $1.6 billion in the previous year.

Revenues in the Global Services segment reduced 5.7% to $149.7 million, while the segment’s profit fell to $24.5 million from $29.2 million in the past year. A decline in both the top and bottom lines was due to reduced contribution from the equipment business line.

Fluor’s Power Group segment reported revenues of $301.6 million compared with $169.9 million in the past year, a significant 77.6% rise due to progress in gas-fired and solar projects. The segment’s profit increased a massive 233.3% to a profit of $7.6 million compared to the loss of $6.0 million in the prior-year quarter. New contracts in the quarter totaled $846 million, which included a state-of-the-art natural gas-fueled power plant for Dominion Virginia Power. The segment’s backlog was $2.1 billion, down from $1.6 billion in the third quarter of 2012.

Balance Sheet

Exiting the quarter, cash and marketable securities, including non-current, amounted to $3.0 billion at the quarter-end versus $2.6 billion as on Dec 31, 2012. The long-term debt also reduced to $496.5 million compared with $520.2 million at year-end 2012. Shareholders equity increased to $3.8 billion compared with $3.3 billion on Dec 31, 2012. However, the debt to capitalization reduced to 12.1% from 13.9% in Dec, 2012.

Revised Outlook

Due to slowdown of growth opportunities in the company’s mining and metals business line, the company narrowed the guidance for full-year 2013. The company now expects 2013 earnings to be in the range of $3.90–$4.10 per share, down from its earlier guidance $3.85–$4.20.

The company expects 2014 EPS to be in the range of $4.10 to $4.60 per share, driven by increasing opportunities in Oil & Gas segment, partially offset by the Government and Mining and metals businesses.

Fluor currently carries a Zacks Rank #4 (Hold). Stocks in the same sector that are worth a look include Jacobs Engineering Group Inc. (JEC - Free Report) , KBR, Inc. (KBR - Free Report) and Great Lakes Dredge & Dock Corporation (GLDD - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).

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