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Fluor (FLR) Realigns Business Structure, Aims to Divest Stork

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In a bid to better align the business, Fluor Corporation (FLR - Free Report) has realigned its organizational structure into three segments. Moreover, it intends to sell the maintenance services business, Stork.

The company announced that it will conduct its operations in three business segments — namely, Energy Solutions, Urban Solutions and Mission Solutions — beginning first-quarter 2021. Presently, the company operates the business through six main segments, namely Energy & Chemicals, Mining & Industrial, Infrastructure & Power, Government, Diversified Services and Other.

In the latest organizational structure, Energy Solutions will focus on energy transition, chemicals, and traditional oil and gas opportunities. Urban Solutions will pursue opportunities in mining, metals, advanced technologies, manufacturing, life sciences and infrastructure. Lastly, Mission Solutions will focus mainly on U.S. government and international opportunities.

Fluor maintains a strong focus on enhancing its competitive position in the market through prudent strategic initiatives. Earlier, the company implemented a change in the reporting segments in order to better reflect the diverse end markets served. From the beginning of 2019, it initiated certain restructuring plans to optimize costs and improve operational efficiency. These initiatives include rationalization of resources, real estate and overhead across various geographies, along with the liquidation of AMECO equipment business.

During third-quarter 2019, Fluor management planned to divest the company’s government and AMECO equipment businesses. Hence, the results of government and AMECO businesses have been presented as earnings from discontinued operations in 2019. Meanwhile, in February 2020, Fluor announced its intention to retain the government business and reflect the financial information in continuing operations beginning first-quarter 2020. It expects to complete the AMECO equipment business sale within first-half 2021.

Refined Strategy to Drive Growth

Fluor’s market diversity remains a key strength that helps it mitigate the cyclicality of the 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 cyclical markets at suitable times.

In sync with this, management has decided to be increasingly levered toward cost-plus projects and more value-added services. The company has decided that it will not bid competitive fixed-priced EPC in the Energy & Chemicals segment and will be more selective in Infrastructure. This marks a significant shift from the prior management team's high-risk, higher-margin strategy. Notably, no projects have been booked under this strategy from the second quarter of 2019. Fluor will only pursue reimbursable or open-book lump-sum conversion engineering, procurement and construction prospects. The company believes that competitively bid lump-sum projects create a transactional market, wherein the allocation of risk is not appropriately distributed.

Also, in the Infrastructure business, Fluor intends to exit the markets in Europe and Australia, and focus on select markets in the United States. It has been further refining its approach toward this market and will no longer pursue large-scale projects for clients where there is a history of onerous contractual terms, as well as inadequate program management.

Shares of Fluor have jumped 49.8% over the past six months, underperforming the Zacks Engineering - R and D Services industry’s 62.7% rally. Nonetheless, the company’s latest strategic efforts are expected to provide a much-needed boost to its performance. Also, Fluor has exclusive rights to service NuScale nuclear projects, the first of which is already in the pipeline. Fluor, being an industry leader in nuclear remediation at government facilities throughout the United States, is expected to benefit from the rising demand for energy across the globe.

Zacks Rank

Fluor — which shares space with KBR, Inc. (KBR - Free Report) , Jacobs Engineering Group Inc. (J - Free Report) and AECOM (ACM - Free Report) in the same industry — currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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