Five Key Quotes from Fluor on Energy and Commodities

Engineering and construction firm Fluor Corp. (FLR) reported solid earnings and guidance for Q3. It’s sitting on about $2.2 billion in cash as well. The global company noted uncertainty around the world, and gave a nice snapshot of what the company was expecting from the different market segments it serves. From Fluor Corp.’s Q308 conference call:

Energy:

We think the backlog for oil and gas for 2009 will stay pretty constant… When oil was trading in a range of $50 to $70 per barrel in 2005 and 2006, we booked $15 million in new awards in oil and gas. So, I think it’s fair to say that our clients were not assuming that long-term prices would [be] $100 or more per barrel… Fluor has just secured almost $9 billion in new awards this quarter. With over $5 billion coming from oil & gas projects…

We saw some adverse impact from the hurricanes during the third quarter, but we expect that the fourth quarter will rebound as refineries comeback online. With demand for gasoline down somewhat, this may give our customers an opportunity to do some of our turnaround work that they have been deferring.

[Two of] our key clients… ExxonMobil (XOM) and Conoco Phillips (COP) recently stated they intend to maintain current strong CapEx levels in 2009…But OptiCanada’s project… may be delayed in light of falling oil prices.

Gas-fired plants: 

The power market is going to continue to be relatively slow. 

Nuclear plants:

We are still projecting that will be late 2010 of the earliest before any significant nuclear work will begin and that’s of course assuming financing can be obtained.

Commodities:

Industrial and Infrastructure new awards for the quarter were $2.2 billion of which $1.3 billion was very large gold and copper processing project to Latin America and $420 million was for a solar panel manufacturing complex for REC in Singapore.

Clearly there’s been a drop in demand on some of the commodities, and the mining industry is one that reacts much quicker to market cycle than and commodity prices than almost any other segment… We’ve had a tremendous inflation in the cost of capital goods over the last 18 months to 2 years. There is an opportunity for that to come down and in fact have a positive impact on the projects that get delayed.

Government:

Overall, we continued to see our government business as stable and select opportunities for growth even in a soft economy… Clients like the Virginia Department of Transportation has publicly talked about unexpected budget constraints.

 

Comments

[rsinvestor:]

With a 31% increase in end of quarter backlog vs. the same qtr last year, FLR is still generating business. Also, the current quarter saw $8.8 billion in new awards, vs $6bil in the year ago quarter. This tells me the business isn't slowing down at all, and in fact is increasing.

Trailing EPS is 3.365, and trades at a forward PE of only 11. FLR seems diversified enough to rebalance their mix of contracts to match whatever opportunities the slowing economy, world-wide, delivers.

2008 Nov 10 09:08 AM