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Fluor (FLR) Down 12% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Fluor Corporation (FLR - Free Report) . Shares have lost about 12% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Fluor Q2 Earnings Beat on Estimates, Guidance Cut

Fluor's second-quarter 2017 earnings (excluding non-recurring costs) came in at 72 cents per share, crushing the Zacks Consensus Estimate of 59 cents by 22.0%.

However, on a reported basis, the company’s loss came in at 17 cents a share, in stark contrast to the earnings per share of 72 cents recorded in the year-ago quarter.

An after-tax charge of $124 million, related to estimated cost increases on three gas-fired power projects, pushed the bottom line into the red. Also, a drab revenue performance added to Fluor’s woes.

Inside the Headlines

Second-quarter revenues came in at $4,716.1 million, falling short of the Zacks Consensus Estimate of $4,935 million by 4.4% and edging down 2.9% year over year. Two of the company’s four segments recorded revenue growth, which was more than offset by the decline recorded by the other two segments.

Revenues from the Energy, Chemicals and Mining segment declined 7.0% year over year to $2,304.0 million on account of reduced activity on Gulf Coast chemicals projects.

Industrial, Infrastructure and Power segment’s revenues inched up 1.6% year over year to $1,026.5 million. Sales at this segment largely benefited from increased project execution activities for several life sciences, advanced manufacturing and two nuclear projects for Westinghouse.

Revenues at the Government segment were up 13.1% year over year to $744.2 million, on the back of higher project execution activities for the Idaho Cleanup Project Core Contract (“Idaho Core Project”) and construction services projects.

Diversified Services revenues were down 9.9% to $641.4 million on a year-over-year basis. Completion of large Stork projects in Australia and delays in the seasonal upturn in European markets weighed down on the top-line performance of this segment.

For the reported quarter, Fluor’s new awards were down 50.3% to $3.2 billion on a year-over-year basis. Orders at the Industrial, Infrastructure and Power segment were $672 million, including the Southern Gateway highway project in Texas. The orders in the government business came in at $1,109 million, including task orders for LOGCAP IV in Afghanistan, additional funding for the Strategic Petroleum Reserve and the Idaho Cleanup Project Core Contract.

Orders at the Energy, Chemicals and Mining segment totaled $860 million. Orders at the Diversified Services segment grossed $554 million.

Consolidated backlog at the end of the quarter was $37.6 billion, down from $47.3 billion in the year-ago quarter. The backlog erosion is attributable to adjustment for a liquefied natural gas project in Canada, cancellation of a nuclear power plant project for Westinghouse and adjustment made to limit the contractual term of the Magnox nuclear decommissioning project.

Liquidity & Shares Repurchases

As of Jun 30, 2017, Fluor had cash and marketable securities (including non-current) of $2,144.9 million, up from $2,105.0 million as on Dec 31, 2016. Long-term debt at the end of second-quarter 2017 rose to $1,560.5 million from $1,517.9 million as on Dec 31, 2016.

2017 Guidance Cut

Concurrent with the second-quarter 2017 results, the company slashed its 2017 guidance for the second time in a row. The company currently projects earnings per share in the range of $1.40–$1.70 compared with the previous range of $2.25–$2.75.

The downward guidance revision is mainly attributable to charges incurred in the Industrial, Infrastructure & Power segment and the winding down of the V.C. Summer Nuclear Station project. In addition, slowdown of the pace of new awards and a waning revenue trajectory adds to the company’s grim sentiment. This apart, volatility in commodity prices is likely to play spoilsport.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.

Fluor Corporation Price and Consensus

 

Fluor Corporation Price and Consensus | Fluor Corporation Quote

VGM Scores

At this time, the stock has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.




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