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

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Fluor Corporation (FLR - Free Report) is scheduled to report fourth-quarter 2018 results on Feb 21. In the last reported quarter, the company’s earnings came in at 55 cents per share, missing the Zacks Consensus Estimate by 5.2%. Revenues of $4,658 million also lagged the consensus mark of $4,695 million. Nevertheless, the stock outpaced the Zacks Consensus Estimate on earnings and revenues in four of the trailing six quarters.

Meanwhile, the company’s third-quarter earnings declined 13.4% from 67 cents per share recorded in the year-ago period. Revenues also decreased 5.7% year over year, mainly due to decrease in revenues from Energy & Chemicals, and Diversified Services segments.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is currently pegged at 61 cents, remaining unchanged over the past 60 days. This reflects a decrease of 12.9% from the year-ago earnings of 70 cents per share. Revenues are expected to be $4.83 million, down 4% year over year.

Fluor Corporation Price and EPS Surprise

Fluor Corporation Price and EPS Surprise | Fluor Corporation Quote

Factors at Play

Fluor has been facing a reduced level of project execution activity for several power projects. Again, lower contribution from its Energy & Chemicals segment added to the woes.

Segment Discussion

Fluor has been witnessing dismal results from its Energy & Chemicals segment (accounting for 40.8% of the total revenues) and Power business line. Revenues from the Energy & Chemicals segment deceased 10% in the first nine months of 2018, primarily due to reduced volume of project execution activity for several chemicals and downstream projects. In the said time frame, the segment’s profit also decreased 18% owing to charges incurred during the period due to estimated cost and schedule impacts on a fixed-price downstream project, reduced volume of project execution activities for several chemicals projects and foreign exchange losses related to the company’s joint venture in Mexico.

However, Fluor expects a better performance from the segment in the fourth quarter compared with the third quarter. It is expected to book its $8.4-billion share of roughly $14-billion worth contract in the fourth quarter related to the LNG Canada project. Meanwhile, it continues to see a number of advantageous projects that include LNG projects in Mozambique, chemical facilities including methanol facilities in the Gulf Coast, as well as several cracker complexes.

The Zacks Consensus Estimate for Energy & Chemicals revenues of $1,902 million reflects a decrease from $2,358 million in the year-ago quarter. However, the estimated figure is in line with revenues in the last reported quarter.

Meanwhile, Mining, Industrial, Infrastructure & Power segment (accounting for 29.8% of the company’s total revenues) picked up pace in the third quarter and currently has a positive outlook for the mining infrastructure market.

The Zacks Consensus Estimate for the segment’s fourth-quarter revenues is pegged at $1,371 million, reflecting growth from $1,003 million in the third quarter but a slight decrease from $1,387 million in the year-ago period.

Robust pipeline of work in North America and Europe is expected to be favorable for the company’s Diversified Services business (accounting for 12.6% of revenues). Further, it has enhanced its maintenance, fabrication and construction capabilities, as well as invested in systems and processes that are expected to improve project delivery. The segment recorded 3% year-over-year revenue growth in the first nine months of 2018. Revenues from the segment are expected at $677 million versus $710 million a year ago and $588 million in the third quarter.

Meanwhile, Government segment (contributing 16.8% to the total revenues) has been performing pretty well. Fluor enjoys a solid track record of contracts, and management remains optimistic that the trend will continue even in the future, thereby driving growth of the company. Major wins in the government business over the last few quarters allowed Fluor to expand long-term recurring revenue opportunities. The trend is expected to have continued in the to-be-reported quarter as well.

Revenues at the Government segment soared 31% year over year in the first nine months of 2018. The Zacks Consensus Estimate for the segment’s fourth-quarter revenues of $863 million reflects growth from $781 million in the third quarter but a slight decline from $957 million in the year-ago period.

Quantitative Model Prediction

Our proven model does not conclusively show that Fluor is likely to beat on earnings in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, the company carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks With Favorable Combination

Here are a few construction stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release:

Forterra, Inc. (FRTA - Free Report) has an Earnings ESP of +8.99% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Toll Brothers Inc. (TOL - Free Report) has an Earnings ESP of +1.91% and holds a Zacks Rank #3.

Owens Corning Inc (OC - Free Report) has an Earnings ESP of +5.83% and holds a Zacks Rank #3

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