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Lower Segmental Contribution to Ail Fluor (FLR) Q4 Earnings

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Fluor Corporation FLR is slated to report fourth-quarter 2019 results on Feb 18, before market open.

In the last reported quarter, the company’s adjusted earnings of 71 cents per share topped the Zacks Consensus Estimate by 86.8%. Also, the said figure increased 29.1% from a year ago.

Revenues of $3.94 billion lagged the consensus mark by 16.1% but grew 2.5% year over year, supported by solid performance of the Mining & Industrial segment.

Earnings & Revenue Expectations

The Zacks Consensus Estimate for Fluor’s fourth-quarter earnings is pegged at 24 cents per share, implying a decline of 68.8% on a year-over-year basis. The consensus estimate for revenues is $4.19 billion, indicating 12.7% year-over-year fall.

Fluor Corporation Price and EPS Surprise

Factors to Note

Fluor’s overall business has been witnessing lower level of project execution activity. Lower contribution from its Energy & Chemicals, Infrastructure & Power and Diversified Services segments has been a major concern for the company. The Zacks Consensus Estimate for its fourth-quarter backlog is pegged at $29.1 billion, indicating a 27.1% decline from the year-ago period. The consensus mark for new awards is $3.4 billion, suggesting a massive drop from the year-ago figure of $10.1 billion.

The company has been incurring heavy restructuring charges associated with forecast revisions for Energy & Chemicals, Mining & Industrial, and Infrastructure & Power segments. These charges and intense competition are likely to have weighed on margins in to-be-reported quarter.

Segment-Wise Projections

Fluor’s Energy & Chemicals segment has been experiencing reduced volume of project execution activities and lower broad-based new awards, which are likely to ail fourth-quarter 2019 results.

The Zacks Consensus Estimate for Energy & Chemicals revenues of $1,471 million suggests a decrease from $1,838 million in the year-ago quarter. Also, new awards are likely to decline more than 77% to just $2 billion.

The Diversified Services business has been plagued with softness in the power services business, absence of large projects in the equipment business, a lower maintenance project in Australia, and the cancellation of a large operations and maintenance project in North America. These headwinds are expected to reflect on fourth-quarter 2019 results.

The consensus estimate for revenues from the segment is $609 million, pointing to a decline from $613 million a year ago. The same for new awards is $400 million, which indicates fall of more than 50% from the prior year.

Of late, it revised forecast for the Infrastructure & Power unit due to late engineering changes, cost increase and ongoing assessments of certain unapproved change orders related to a fixed-price project. These negatives are expected to weigh on the segment’s fourth-quarter 2019 results.

The Mining & Industrial segment has been witnessing improved mining activities. The company has been benefiting from FEED and feasibility studies for a large mining EPC project. It has been winning awards for FEED and pre-FEED work for gold, bauxite and copper projects, which are expected to have boosted the segment's top-line performance.

The consensus mark for Energy & Chemicals and Diversified Services segments' profits suggests decline of 9.4% and 34.1%, respectively, on a year-over-year basis.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for Fluor — which shares space with KBR, Inc. (KBR - Free Report) in the same industry — this time around. This 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. This is not the case here as you will see below.

Earnings ESP: Fluor has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some stocks in the sector 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 releases:

Installed Building Products, Inc. IBP has an Earnings ESP of +3.09% and a Zacks Rank #2.

Aspen Aerogels, Inc. ASPN has an Earnings ESP of +25.00% and a Zacks Rank #3.

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