Fluor Corporation's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.18.14 | About: Fluor Corporation (FLR)

Fluor Corporation (NEW) (NYSE:FLR)

Q4 2013 Earnings Conference Call

February 18, 2014 05:30 PM ET

Executives

Ken Lockwood - VP, IR

David Seaton - CEO

Biggs Porter - SVP and CFO

Analysts

Andy Kaplowitz - Barclays

Jamie Cook - Crédit Suisse

Jerry Revich - Goldman Sachs

Brian Konigsberg - Vertical Research

Steven Fisher - UBS

Will Gabrielski - Stephens

Michael Dudas - Sterne Agee

Vishal Shah - Deutsche Bank AG, Research Division

Sameer Rathod - Macquarie Research

Alex Rygiel - FBR

Andrew Wittmann - Baird

Operator

Good afternoon and welcome to the Fluor Corporation Fourth Quarter and Year End 2013 Conference Call. Today's call is being recorded. At this time all participants are in a listen-only mode. A question-and-answer session will follow management's presentation. A replay of today's conference call will be available at approximately 8:30 p.m. Eastern Time today, accessible on Fluor's website at www.fluor.com. A web replay will be available for 30 days. A telephone replay will also be available through 8:30 p.m. Eastern Time on February 24th at the following telephone number 888-203-1112. The pass code of 5357718 will be required.

At this time for opening remarks, I would like to turn the call over to Mr. Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Ken Lockwood

Thanks very much, operator. And welcome everyone to Fluor's Fourth Quarter and 2013 Year End Conference Call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer; and Biggs Porter, Fluor's Chief Financial Officer. As you know our earnings announcement was released this afternoon after market closed and we have posted a slide presentation on our website, which we will reference while making our prepared remarks today.

Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on Slide 2. During today's call and slide presentation, we will be making forward-looking statements, which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences, in the Company's Form 10-Q, which was filed earlier today as well.

During this call, we may discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are also posted in the Investor Relations section of our website at investor.fluor.com.

So with that I'd like to turn the call over to David Seaton, Fluor's Chairman and CEO. David?

David Seaton

Thanks, Ken. Good afternoon everybody and thank you for joining us. On today's call we will review fourth quarter and full year 2013 results and also discuss our outlook for 2014. If you turn to Slide 3, I would like to start with 2013 full year performance. Net earnings attributable to Fluor for 2013 were $668 million or $4.06 per diluted share, which is up from $456 million and $2.71 per diluted share in 2012. Our financial results in 2013 met our expectations and we continue to be very encouraged by the significant and sustained progress of our Oil & Gas group.

Consolidated segment profit for 2013 rose to $1.2 billion, up from $769 million a year ago. Increased segment profit for 2013 reflects growth in Oil & Gas, power and government segments, partly offset by declining in mining and metals. Fluor's Oil & Gas business posted especially strong results with a 32% increase in segment profit, strong revenue growth and margin improvement. Consolidated revenue of $27.4 billion for 2013 was comparable with 2012, reflecting growth in Oil & Gas and power which was offset, as I said, with revenue reductions in other segments.

Full year new awards were $25.1 billion, comprised of $12.9 billion in Oil & Gas, $6.6 billion in industrial and infrastructure and $4.1 billion in government with $1.5 billion in power. Consolidated backlog at the end of the year was $34.9 billion, which compares with $38.2 billion a year ago, as I said, reflecting continued decline in mining and metals awards and the fourth quarter cancelation of our contract for Pascua Lama in South America.

If you would please turn to Slide 4 for some recent highlights. In the fourth quarter the Oil & Gas segment booked new awards of $4.2 billion including the North West Redwater refinery upgrade project in Canada and additional scope on a major upstream gas processing project in Kazakhstan. Ending backlog for Oil & Gas segment rose 10% from a year ago and at $1.3 billion sequentially to end 2013 at $20 billion.

As you know in January we announced the award of an engineering, procurement construction contract by Chevron and Apache for the proposed Kitimat LNG facility in British Columbia. We are extremely pleased we selected with our partner JGC for this strategically important project which is on track to become Canada's first major LNG production and export terminal. We believe that winning this project positions us well for other full scale LNG projects. In industrial and infrastructure, the backlog at the end of the year was $10.5 billion which is down from $17.2 billion last year. This decline was driven by lower mining awards in 2013 and the fourth quarter cancelation of Pascua Lama which I noted earlier removing $1.8 billion from our backlog. While we continue to support the water treatment facilities for Pascua Lama and helping wind down the project, our original EPCM contract has been canceled.

Fourth quarter new awards in industrial and infrastructure were $340 million, including a number of maintenance contract renewals.

If you would turn to Slide 5, the Government group posted fourth quarter new awards of $1.1 billion. Our ending backlog at 2013 was $2.4 billion. In the Power segment fourth quarter new awards were $146 million, including early engineering on a proposed nuclear facility in U.S. and renewal of several power maintenance contracts. Ending backlog for Power was $2 billion which compares to $1.9 billion a year ago.

During the quarter NuScale was selected by the Department of Energy to receive funding that will support the development, licensing and the commercialization of the Company's nuclear small module reactor technology. We're in the process of negotiating the terms of the agreement with DOE, which is expected to provide approximately $200 million in cost sharing funds over the next four years. We are pleased with DOE selection in NuScale, which we believe provides independent validation of our view of the commercial viability of a safe, reliable and scalable small modules of reactor technology. We're in the process of seeking potential investors, manufacturers and other supply chain partners.

With that I'll now turn the call over to Biggs to review the details of our operating performance, corporate financial metrics as well as our outlook for 2014. Biggs?

Biggs Porter

Thanks David and good afternoon everyone. Please turn to Slide 6 of the presentation. I want to start by providing some additional comments on our performance for the fourth quarter. Revenue for the quarter was $6.3 billion, which compares to $7 billion last year, mainly due to a significant reduction in the mining and metals business line. Net earnings attributable to Fluor for the fourth quarter of 2013 was $167 million or $1.01 per diluted share, which compares to a loss of $4 million of $0.03 per diluted share in 2012.

As you may recall, the fourth quarter net loss of $0.03 in 2012 was affected by $1.61 per share charge on an offshore wind farm project, a $0.17 per share benefit from the sale of our interest in a Telecommunications Company and a $0.26 per share benefit from the favorable resolution of various tax items.

The effective tax rate in the fourth quarter of 2013 was approximately 31%, including benefits from research and development tax credits and a domestic production activity deduction, which were partially offset by the adverse tax effect from foreign loss without tax benefit. Fourth quarter segment profit was $318 million, including improved contributions from the Oil & Gas, Global Services and Government groups.

Turning to Slide 7, Government results in the fourth quarter included approximately $57 million related to the favorable resolution of various issues with the U.S. government. There were essentially three separate events that made up to $57 million and these are discussed in our Form 10-K. We assumed a certain amount of benefit to result from these items in our guidance, but we didn't necessarily expect all these issues to get resolved in the fourth quarter. While it may seem somewhat unique, it is similar in nature to close outs that we regularly see in the commercial business lines, when contingencies [ph] are released upon resolution of the associated issues. Partially offsetting these benefits were increased proposal and other overhead costs in the government group in the quarter.

With regard to government backlog beginning this quarter, we elected to include the unfunded portion of our multi-year government contracts at Savannah River and Portsmouth in order to be more comparable with industry practice. The fourth quarter 2013 included new awards and unfunded backlog of $983 million. We will separately identify the unfunded amounts in our financial reporting going forward.

Moving to Slide 8, as previously mentioned Fluor's consolidated backlog at year-end was $34.9 billion. The percentage of fixed price contracts in our overall backlog was 20% at quarter end and the mix by geography was 36% U.S. and 64% non U.S.

Turning to Slide 9, corporate G&A expenses in the fourth quarter of 2013 were $65 million, which compares with $41 million a year ago, a significant rise in our stock price during the fourth quarter gross stock price driven compensation expenses higher by 12 million. G&A also demonstrated a more normal seasonal trend in 2013, which resulted in higher fourth quarter expense.

Shifting to the balance sheet, Fluor's financial condition remains very strong, with cash plus current and non-current marketable securities totaling $2.7 billion. This compares with the balance of $2.6 billion a year ago. During 2013 the Company generated $789 million in cash flow from operating activities, repurchased $200 million worth of Fluor shares and paid out $79 million in dividends. In its most recent meeting, Fluor's Board of Directors voted to increase the quarterly dividend to a new rate of $0.21 per share, up from $0.16 per share.

With regard to share repurchases, we repurchased $200 million worth of shares in the fourth quarter and are in the process of repurchasing another $200 million more in the current quarter. As a result Fluor's Board has approved a 6 million share increase in the Company's share repurchase authorization, which after considering first quarter repurchases will bring the total number of shares available for repurchase to over 12 million shares.

I will conclude my remarks by providing an update on our guidance for 2014, which is on Slide 10. We are encouraged by the Company's strong prospects for continued growth, especially Oil & Gas. We are maintaining our EPS guidance for 2014 at the previously announced range of $4.10 to $4.60 per diluted share. We expect the first quarter 2014 to be lower than the fourth quarter of 2013 as reported and then expect steady quarterly improvement for the balance of 2014. Guidance for 2014 assumes that G&A expense will be in the range of $170 million to $180 million, an effective tax rate of 32% to 33%.

With that operator we're ready to take questions.

Question-And-Answer Session

Operator

Thank you. [Operator Instructions] We'll go first to Andy Kaplowitz with Barclays.

Andy Kaplowitz - Barclays

The Oil & Gas margins had a nice uptick in 4Q; you've been talking about it. Do you think you're still on track for the 5% margin that you sort of alluded to in the second half of this year? And could you tell us how much of the improvement that you saw in 4Q is based on better mix versus better pricing? And then maybe just a follow on to that David around, do you have to take extra risk to get to these higher levels, because we do notice more of us can [indiscernible] that Flour is taking. So maybe you can talk about that?

David Seaton

First, I am pretty bullish on where we're headed with Oil & Gas. I think the early wins that I mentioned and have been in the press here the last couple of days, I think do a couple of things for us. One, it validates our ability to capture our fair share or maybe more than our fair share of some strategic programs at margins that should see rise. I stick with my previous comments about the margin going up. I wouldn't predict when but I think that I would be disappointed if we didn't start with a five as we get towards the end of this year or early next year, because I think we're kind of in the early beginning stages of these programs and as you say, there are some fixed price projects that will be like the Power and Infrastructure programs where significant profitability drops in at the end.

We have not seen our risk profile increase based on the new awards that we're booking right now. Yes, there are some that are fixed price in nature but I would say that we feel very comfortable in taking the projects that we are on a fixed price basis and that's not just in Oil & Gas but I would say across the Company. We feel pretty good about our ability to execute against that.

I think the increase that you're seeing is part of the mix change but I think it's also a recognition that we've got a value proposition that lets us get paid for the value that we provide. I just feel really positive about where we are and where we're headed. I have great confidence in our teams in being able to deliver the profitability that we expect.

Andy Kaplowitz - Barclays

David, that's really helpful. And then maybe kind of a similar question around backlog. Can you talk about your confidence that your overall backlog can rise from here as mining sort of washes out here and as you continue to book Oil & Gas and then do you need one of the big LNG projects that we've booked in 2014 Oil & Gas backlog to continue to rise?

David Seaton

There is no doubt in my mind that backlog will increase as we get started in 2014.

Operator

Next we move on to Jamie Cook with Crédit Suisse.

Jamie Cook - Crédit Suisse

Well, I guess, a couple of questions. One, your wins in Oil & Gas have been fairly impressive. Your market share is sort of at unprecedented levels. Can you talk about your concerns overall with capacity that you have, just given how much work that you've won? And I think the other dynamic that was very interesting last cycle was you were -- the market got high enough and you were in such demand that you got to a point where you really wouldn't do the feed work unless you pretty had a higher than average probability of getting the EPC. Can you talk about where you are with your customers and in that regard? And then I guess my last question is you won so much in Oil & Gas already. I mean, when you think about your prospect list for 2014, can you just sort of size that versus where we were sitting here last year, just because you've already won so much work year-to-date? Thanks.

David Seaton

There's always a but with you, Jamie.

Jamie Cook - Crédit Suisse

And Peter got a promotion. So I assume that means great -- better than 5% margin towards the end of the year.

David Seaton

You're not asking that question. I think we've just began with regard to Oil & Gas. Granted, I think that there are some very large programs that will come into backlog in the first half of the year but there is a lot more out there that we're pursuing. So I think that what's in front of us today is much bigger than what it was in the last cycle. And I think what we've done and how we've invested in our people and our tools and systems over the last two or three years have really taken a lot of the question relative to capacity out of our equation.

We feel really good about the talent that we've got to execute these projects. We feel really good about how we've kind of changed the game and how we plan to execute these projects. I think the teams have an outstanding job. Now whether that translates into higher prices, I think the market will tell. I think we're pretty pleased with the margin and backlog that's going to come in over the several quarters. But as far as capacity, we feel good about where we are. I think the other element that I would suggest is we have seen some of projects kind of get pushed a little bit -- Shell, GTL, which we were doing some work on has obviously been postponed if not cancelled. Sasol is kind of pushed out a little bit.

So when you think my comment a couple of quarters ago, I was worried about the craft content and whether we could turn the crank and add those kind of people. I was worried then, I'm not worried now. I feel really good about our ability to attract the best and brightest globally frankly on the craft side to get these things done. So I feel pretty good about where we are. As I've said to you guys before -- I want the clients project all the time; not just on a onetime basis. So price gouging and doing those things don't make good strategic sense to me. So we're going to be comfortable that that we're getting the return we expect and so far I would suggest that we're doing quite well in adding to the value that's in our backlog from a gross margin standpoint.

Jamie Cook - Crédit Suisse

Okay and then I guess just one follow-up. On the quarter while the Oil & Gas was great and I guess that's all that people care about. If you backed out the gains that you got in Government, which I understand happened but whatever and you look at the underlying profitability of Government, the underlying profitability, the decline that you saw in Industrial, in Infrastructure and the Power business, those businesses, I feel like the profitability were below what I would have expected. Can you just talk about where the quarter on those businesses shaped out relative to your expectation? Then I'm done, sorry.

David Seaton

There is a lot of moving parts. Biggs can comment on any specifics that he cares to but I'd remind you guys that we're probably the only company in our space that's as diversified as we are from a market perspective. And if you go back a year and half ago, we're really happy about the margins coming out of Mining and the margins coming out of Industrial and Infrastructure in general; and that will return. There is a cyclical nature to our business and I think our diversity and our focus on that I think helps us over the long term provide profitable growth for our investors. So I feel really good about that strategy of diversity.

Now, with regard to the puts and takes in the quarter, I think we are pleased with where we are given those circumstances. As Biggs said in his prepared remarks, what would be considered by some when they read the data as onetime events; we don't look at that way. It's profitability that we expected in the closeout of some of those projects and how the government deals with contractors. So whereas it looks on usual, it didn't surprise us at all, given where we are. We didn't think that one of the settlements would actually come in the fourth quarter. So we're pleased it did but I think the value of the margin in backlog and all our market segments, I'm pleased with given where they are in their cycles.

But I'd also tell you that we're really focused on the cost side of the equation and I think as we go through one of the -- to answer part of the Andy's question, part of it is I think, Peter in Oil & Gas has done a really job of rightsizing their organization and readying it for this next wave.

Operator

And next we will move onto Jerry Revich with Goldman Sachs.

Jerry Revich - Goldman Sachs

David, can you update us on your expectations for final investment decision on Mozambique LNG, how is that project tracking and can you just talk about your intent to bid on the project -- should we look for a similar full fabrication cost paid that you delivered on Kitimat.

David Seaton

Yes. We have submitted our technical proposal in March, which is followed up I think in six weeks with a priced proposal. I'm not exactly sure. It's close there behind. And then they will go into a quite mode and evaluate which ones will be their contractor. We feel good about how we worked with the customer. We feel good about the offering that we've got. We're really pleased with our partner JGC and how they are helping us and how we are helping them. So we will see, but I think any decision is probably late year, and we'll see where it goes from there.

Jerry Revich - Goldman Sachs

And David, just to clarify the decision by end of year, do you need a final investment position or down select how the process will play out?

David Seaton

You'd probably have to ask Anadarko. I mean I know that they've extended some of the delivery dates in the past. I think that we are going to stick with the plan and they make a down select decision in late this year and there never was a final FID in '14. I don't believe. So I think the final, final is sometime next year.

Jerry Revich - Goldman Sachs

And U.S. infrastructure opportunities, can you give us an update how the opportunities set for Fluor bookings over the next 12 to 18 months based on major projects that you are evaluating?

David Seaton

While we have had several -- a lot of proposal activities at this second place over the last little bit, waiting on several programs. I think we're kind of in a lull, to be honest with you. I think that the public-private partnership approach is gaining speed in the United States and I think we've got a distinct advantage in that. I think state laws are having to look at how they allow that because not all states allow for a public-private partnership approach. But I also think a lot of the states have been involved in but what Governor Cuomo has done in New York with Tappan Zee. He moved that forward at breakneck speed, and I think with all of the issues that the U.S. infrastructure is facing, we got to do something. And the governments can't afford it. So I think that PPP market is going to be the approach of choice.

And as I said, I don't know if anybody does it any better than we do. So I feel pretty good about that market in the next - I think that's got a lot longer tail on it than the Oil & Gas Sector, frankly, because some of those programs are going to be very large and the gestation period is going to be prolonged. So I think, I go back to my diversification comment. When you get to 16-17-18, I think there's going to be some really faster moves on the infrastructure front.

Operator

And from Vertical Research we will hear from Brian Konigsberg.

Brian Konigsberg - Vertical Research

David, actually just going back to Oil & Gas. I, mean its clear your enthusiasm for the project pipeline, but I guess just curious about just general discussions with project owners. We have been obviously hearing about pressures on operating cash flows and decision making on deployment of capital, whether they proceed with projects that are on the board today, or do pay dividends are buyback stock or other avenues of allocation. I mean are you using any type of pressure on kind of the large projects in the pipeline at all, or is it kind of smooth sailing and there has just been a lot of overreaction to that in the market.

David Seaton

Well I think that the companies are doing what they think, what they thinks right and you probably -- I'm not -- that's above my pay grade to practices on their practices but we really have not seen a whole lot of change recently. And let me put some color on that. We have seen some change going back probably three years ago where a little more diligence taking place by the project teams, the projects are getting so large that you know they're going through one more quarter for FID funding, they're going for one more review with their boards, get'em out is different than that.

So I think there is more scrutiny, but I don't think it is any different today than it was two years ago. I think that we haven't seen anybody other than Shell cancel a project of any significance. But I think they are just rationalizing where they are going to spin their money. I wouldn't say that it's any different, but also wouldn't say its smooth sailing. When these guys are deciding to spend, you pick the number $12 billion $15 billion $18 billion on a project; a lot of people take a big swallow and ask for more information. So I think that's what's happening, but I wouldn't say there's any different than it's been for the last two years.

And also there is no difference in what the mining guys are doing because I think what we are seeing the mining guys dusting off some of these projects again and looking at some rationalizations that we have seen taken place with different cancellations. But I don't think that you have seen a really pull back on fall back on the developments that are going to put ore in the water and that's what they get paid to do and we're going to help them.

Brian Konigsberg - Vertical Research

Well actually that was kind of my next question, just on the mining side. So you have been -- I guess I'm always saying there saying that we will see the return of some of these projects and there's been some more commentary about copper project, specifically kind of the shortage that might be emerging on that front. Maybe just talk about, are you seeing something that could potentially hit in '14 or is this more '15 type of development and how substantial…..

David Seaton

…it's a lot of steady work. Rather certain projects come back in the same scope that they were is questionable so is probably some rescoping and some additional front end engineering and technology selection work to be done. So I'm not looking for any big stuff in '14 but I am looking for growth as we get into '15.

Brian Konigsberg - Vertical Research

And can you please sneak one last in Biggs, I just noticed that the shareholders equity is down sequentially [indiscernible] -know earnings in the quarter. Is that just a reflection of the backlog removal or are there other items playing in there.

David Seaton

No the backlog removal wouldn't affect the shareholders' equity other than earnings. You've got other comprehensive income and you've got the share repurchases.

Operator

And we'll move on to Steven Fisher with UBS.

Steven Fisher - UBS

Wondering if you still assume a typical, call it 4% to 5% margin in the government business for 2014. And I assume the other proposal costs that you mentioned were the reason for the kind of sub 2% margins excluding the $57 million and I guess as it relates to the margin assumptions, I know you kept the overall $410 million to $460 million guidance unchanged, but was there anything notable that shifted around within that expectation for the year since October 31st.

David Seaton

Your last question first. I don't think there's anything real notable that would be shifting around and on the Government group; yes, you're right. I think that the margin expectation between 4% to 5% is a reasonable one for 2014. The 2013 fourth quarter did have that offsetting effect of the higher than normal proposal costs and also some increases, otherwise an overhead which wouldn't necessarily be recurring. So those two things had some degree of offsetting the $57 million.

And I'll just reinforce something there, that $57 million - we started out looking at the fourth quarter and gave original guidance. We did assume there would be some benefit there. We just didn't assume there was going to be a full $57 million. And it really is in nature similar to what we have in other periods and that's because there's some government groups margins to bounce around on a recurring basis anyway. In this case it's just a lot of it hitting in the fourth quarter and it happened at different times, kind of reinforcing the notion there and the fact that these probably were three separate items. It's just unusual to have them all happening in one quarter. So I'd be reluctant to you know throw it all together in one $57 million number and treat it as a singular, absolutely distinct kind of a event.

Steven Fisher - UBS

Okay that's helpful. And then maybe David, digging in a little bit more on the fixed price mix in Oil & Gas, if you could talk a little bit more about, the basis of your confidence and the ability to price it appropriately; is it -- maybe this time around you're doing more engineering, getting that more completed before you actually start the construction or is it, your approach to construction with more modular. What's the sort of the basis for the confidence in that, sort of the pricing of that risk?

David Seaton

Well I mean I think it's all of the above. As I said we've taken a lot of time going back three years from a project that we lost spectacularly in the Middle East and kind of did a ground up review of how we're doing projects, how we estimate things, what is in our designs, what does it take to make sure we can mitigate the risk of construction is that fabrication and I think all of the above have led to us being, I think a lot more competitive in the marketplace which I hope translates into higher margin.

But I think I've got great confidence in how we kind of retooled the system and that system is in its entirety, the designs that we're using, how we're applying our supply chain expertise, where we're buying things, how we're buying things, the partners that we choose to work with and how we're going to execute the project in a much more efficient manner. I think what we're trying to focus on is a better delivery of both cost and schedule to our customers and I think my confidence in this will lead to I think additional awards because we're going to be able to do it better than anybody else and that's what we are focused on.

So, I know that sounds like motherhood and apple pie here but I forgot to tell you what the teams have done in deleveraging. As an example the Oil & Gas guys leveraging the expertise from a power group. 100% of that backlog is lump sum and leveraging the logistical capabilities of some of the infrastructure projects and taking the lessons learned from that. What we have done on direct-hire construction and large step of what we have done to secure our position with fabricated modules, all of that goes into us, I think having a much more competitive offering with much more surety of execution.

Operator

And from Stephens Investments we will go to Will Gabrielski.

Will Gabrielski - Stephens

Can I push a little more on Oil & Gas margins. And I am just counting it's been three years since you were last over four and now you are back over four, but it sounds like you have the conviction that you are going to get, another 90 bps or so between now and year end into that margin. And I'm just curious, is it an accelerating burn associated with the big wins you had last year or is it something around the cost side or a combination of both that gives you some at least comfort that/or trending that direction?

David Seaton

I think it's both, I mean I think it's both. What we are seeing is the payoff of the investments that I just mentioned. It's effective utilization of our resources. It's the deployment of the results of the strategies around expanding our offerings both in terms of market and in geography. I think what the team has done is really open the aperture of the market without risking the risk profile of the project and with that come some efficiencies. So, we are seeing improved margins in backlog and part of that's because of how we have developed the strategies to deploy and execute its additional leverage from the use of, utilization sorry, utilization of the people we have.

But it's all the above. i mean I think we are starting as a company; not just Oil & Gas, I think we are starting to click on oil cylinders and that gives me great confidence in saying that yes, we are going to put more margin over the next three quarters on the books for Oil & Gas. And I think you are going to see the overall margin improve for the bigger Fluor. So I hope I'm not too overly optimistic or sound too overly optimistic on the phone but there is a lot of good things to be talked about with where we're headed and the successes that we are having.

Will Gabrielski - Stephens

Okay. Was the North West upgrade also a lump sum EPC win?

David Seaton

No.

Will Gabrielski - Stephens

When you talked about Mozambique LNG or when you think about Anadarko, I guess that you are doing the feed for, how is the timing of that project shift if Anadarko wasn't involved there, if there's in ownership, is that something that you think about in terms of FID targets and getting the EPC nod?

David Seaton

Well I don't have any indication that they are looking to parleys with that project. Obviously if I did, there would be a delay, because there is not anybody working in the lease to pick that up but we haven't gotten any indication that a significant change is eminent.

Will Gabrielski - Stephens

Okay. Then lastly if you don't mind just on NuScale, I am just curious where, one, where do you think the organic Power margin is in ‘14, if you want to comment on that and two, where are you on the pursuing strategic alternatives or looking for partners and how much of that is embedded in the guide at this point?

David Seaton

There's two questions there. I think the margin question was around power in general, without NuScale. Is that right?

Will Gabrielski - Stephens

Yes, that's the first part.

David Seaton

I mean I think that that's a very competitive market right now and I don't foresee us getting back into double-digit margins anytime soon with regard to Power. However I do think we are going to see some improvement as we move into '14. We've got a lot of projects that have been bid and we are in the negotiation stages of as we speak. Whether we win or not is yet to be seen, but I have confidence in growth in Power overall and improving the margin sum in that segment during ‘14.

With regard to NuScale, we're still in the negotiation process with Department of Energy, on exactly what that sharing looks like. So, it's hard for me to really predict what the expenditures will be; but what I committed to you guys in the last quarter I maintain and that is that Fluor's investment will not be what it was in '13. And what that exactly means, I can't tell you right now but I can tell you when in FOA, it was that good housekeeping seal of approval that we needed to attract interest from investors. There's a lot of dialog with certain investors that we're in other less definitive dialogs before FOA but until the ink's dry on the FOA, it's hard for me to say who is ready to write a check or become an owner. But I can tell you that there is a lot of interest from partners, both in terms of technology owners and power companies and a significant interest in some of the suppliers for the equipment that will be required to build those facilities.

So we're a little bit behind what I hoped would be, but A, as I said in the prepared remarks, I think it was validation that the DOE selected only NuScale, and I think that that was what we needed to get the dialog and interest from potential investors to the table.

Biggs Porter

I'll elaborate just a little bit on with the math on NuScale. As David said we're still on negotiation on FOA arrangements so there is some things to be full defined but generally talking about FOA a word of just over $200 million which would be over 4 year period, so that's about $50 million a year that would come from the government as a match. So our corresponding spend would be $50 million. Now having said that, plug in $50 million for this year for NuScale in our outlook and our guidance, because they will be influenced by two things, one is how much pull back there is, which is one of the things that gets negotiation, how far back the past we effectively get some degree of match for. And secondly, what happens from a standpoint of selling down our interest. Until we're done with the negotiation, until we're able to come and just how successful we’re going to be, how fast in selling down the interest, it's hard to be finite as to what the expectation is for NuScale for the year. But that helps to figure out kind of what ceiling is and it's a little down also.

Will Gabrielski - Stephens

It does, thank you Biggs.

Operator

And next we'll hear from Michael Dudas with Sterne Agee.

Michael Dudas - Sterne Agee

I don't know what law there is in infrastructure we can fill in all these potholes around New York City, beat the numbers.

Biggs Porter

We'll just stick bridges.

Michael Dudas - Sterne Agee

You picked the right one over here of course. So my question is relative to again law in infrastructure like the government, mining and et cetera looking at INI. Is there opportunities for Fluor to make some acquisitions to fill in some holes or skill sets or technologies winning that broad scope in 2014? Seems like you may be fairly generous with the share repurchase and dividends or it could be enough capital to show some opportunities there. So just wanted your thoughts on that.

David Seaton

Well I think what we have always told you is that, if there is not any strategic reason for the cash returning it to shareholders through dividend and share repurchases is the next usage. I think that hopefully the increase in the dividend shows you the confidence we have in our earnings streams over the next few years and also kind of recharging the repurchase program also shows that we have got an expectation of cash generation there. But I can tell you that does not hamper us from looking at niche acquisitions.

As I have said in the past it's hard to move the needle for us because of our diversity and we're going to be very careful in how we look at acquisitional growth. But I do believe that some level of acquisition over the next couple of years is needed to fill some skill gaps. But I can commit to you that we're going to be very careful in how we look at that and what pieces that we get. I think that I go back some of the other terms we have used around like niche to describe those acquisitions, and I think we'll stick with that.

Michael Dudas - Sterne Agee

I appreciate that. And my follow up is David maybe with the recent reorganization internally promoting Peter to the COO. What's the vision behind that and are there -- is there opportunities for more cost saving streamline opportunities or more or area to kind of focus on getting better and deeper penetration with the current client base.

David Seaton

I appreciate that question, we really flattened the organization so that we could be more nimble and agile with our customer base, we eliminated a layer of management basically so that both Peter and I can spend more time with the projects and with the customers. Clearly, there is a benefit from an overhead reduction, from the elimination of positions. But really Peter and I looked at the commercial side of the business. Now government still is a direct report to me but when you look at the commercial business looking for the synergies, looking for cost optimization as I mentioned when we're talking about lump sum some of it is becoming much more cost competitive in how we deploy our resources, no duplication of efforts. So this was an opportunity for us to really get ready for the wave that's in front of us and I'm really pleased that Peter took that position. But I think what I really like is it created a lot of opportunity for the next wave of leadership in this corporation. And I think from a long term perspective it gives me great confidence that we're here for long term, I'm certainly here for the long term. But I'd tell you I am really excited about this change and the effect it's going to have on how competitive we can be.

Operator

And next we'll move on to Vishal Shah with Deutsche Bank.

Vishal Shah - Deutsche Bank AG, Research Division

Yes. Hi, thanks for taking my question. David I just wanted to get a sense of how you're thinking about the guidance for the full year what are the puts and takes ongoing to the upfront or the lower end of the range and whether this government resolution was included in your 2014 guidance?

David Seaton

As I've said before I'm not going to give guidance within guidance. I think we're comfortable with maintaining that guidance as I think the question the last quarter was how confident are you that you can stay in that range if you don't win either the LNG plants. We've won the one that we wanted because it starts early. So it gives confidence that we're within the range and right on target with what we expect from an internal earnings target perspective.

Vishal Shah - Deutsche Bank AG, Research Division

Great, I appreciate that. And then just within I&I segment do you think about the profitability of that segment at this low run rate of revenues? Are we still looking at a 3% to 4% margin number for this year or is that going to be difficult to achieve?

Biggs Porter

On I&I the run rate going into the third quarter was 4% little above that it jumped up in the third quarter there is also some significant milestones and favorable events so we said wouldn't necessarily repeat themselves and then it would fall back down to that 4% or just above 4% kind of level going forward and I think that's still our expectation. Keeping in mind that yes there is the mining activity is lower margin business infrastructure is higher margin on average but does get driven somewhat by the timing of our hitting milestones and significant events which enable favorable profit pickups. And we don't necessarily see quite as much opportunity in 2014 as within '15 so that's why we'd say even though mining is going down but still fly going to be in that 4% or just above 4% kind of territory for I&I.

Vishal Shah - Deutsche Bank AG, Research Division

Thank you.

Operator

And from Macquarie we'll go to Sameer Rathod.

Sameer Rathod - Macquarie Research

Hi. How are you? Couple of questions here, first it seems like more and more of your large projects are being went under a joint venture structure. How do we think about Fluor's profitability and cash flow with an increasing non-controlling interest deduction on both income stable and cash flow?

David Seaton

Well, predominantly the joint ventures are accounted for on a partial consolidation basis. So it pick up our share of revenues, it pick up our share of profitability and therefore the margin rate really is not affected by the fact that it's a joint venture versus just something that we have and that we're the sole prime contractor on. From the standpoint of cash flow likewise we're picking up our fair share of the cash flows and nothing because it's consolidated, it really doesn't affect non-controlling interest at all because we're speaking up our shares those who picking up the 100% and they're going to back out in non-controlling interest. So for the most part it should fairly transparent or no real distortion occurring in margins in respect of the P&L.

Cash flow can be somewhat affected by virtue of cash builds the joint venture than we're all having agree about how we take cash out and that's why when we look at cash availability we first think, first thing we look to exclude is the cash that's tied up in joint ventures or in advances from customers because that's really represent something that is immediately available but over an extended period of time that is, it's just a matter of we're not the sole determinant of when the cash gets flowed back to the joint ventures.

Sameer Rathod - Macquarie Research

Okay, that's very helpful. I guess my next question is if I think about your prospect list I think a lot of these mergers LNG or natural gas like projects in some way dependent on emerging market growth and given the recent volatility and enhance the number of unexpected rate hikes, it seems like global GDP rates is about 10% of the world's GDP just saw big a hike, how do evaluate some of these larger projects in that context and I guess how do you handicap the funding of these projects given that liquidity has been drained from the market? Thank you.

David Seaton

That's a great question. I think our view into that I mean obviously I look at - we look it is kind of trends and market conditions when we're doing our plans. But I think the best granularity comes from when we have our conversations with the customers on maybe these programs and I think fit them at the great example where they seen the hikes because that product has headed to Asia and they're on tract to continue funding.

So I think the challenge that we have and this is something we spent a lot of time on is which projects are we going to chase and use that selectively or create the selectivity based on where we think these programs are going. And so far, I think, we've made wise choices of where we invest our money in terms of proposals and efforts to get positions for these projects. So I don't see any macroeconomic issues or product flows changing anything that we're really looking right now through '14.

Operator

And we'll take our next question from Alex Rygiel with FBR.

Alex Rygiel - FBR

David or Biggs, as it relates to your buy back activity, you've obviously bought back 200 million in the fourth quarter and that was at the lower end of your range of sort of 200 to 400 but yet in the first quarter of this year it appears if you're on your way to buying back another 200 million, so as we think about your buy backs should we think about it as a sort of 200 million a year sort of a strategy or is it a 400 million a year sort of strategy?

Biggs Porter

Well, I guess to clarify kind of back to 200 million to 400 million when we said that, we said it'd be over the next several months as opposed to in the fourth quarter. So we really are executing right in alignment and going to the higher level of 400 million and it's been accomplished over the fourth quarter last year, first quarter of this year. From the standpoint of how to think about it, as David already said, it always depends upon is there other higher better use of cash or is there anything else that we can get a greater return on. We always have to look at that and for that reason because you can't always predict those in advance, it's hard to say, here's what the expectations should be.

And having said that, I think if you look back over the last few years it's been around $400 million a year on average even after considering the lower level last year it was around 400 in 2012 and it was above that in 2012. So it's averaged around 400 million but it's always going to be dependent upon, it could be higher or lower depending upon the combination of fastest generator and what the other alternatives are if there are any. But we did increase within rate to increase the cash distributed to shareholders through a different meaning.

Alex Rygiel - FBR

That's great, helpful. And then secondly as it relates to LOGCAP IV, is sort of the outlook for 2014 still around 1 billion in revenue?

Biggs Porter

Yes.

Alex Rygiel - FBR

And how's your methodology for accounting for LOGCAP IV in backlog changed?

Biggs Porter

Not a LOGCAP IV, no, that wasn't effected anyway.

Alex Rygiel - FBR

Perfect. Thank you, nice quarter.

Operator

The next we'll hear from Andrew Wittmann with Baird.

Andrew Wittmann - Baird

I just had a question on the non-controlling interest line that looks sequentially it's done descent amount just kind of wanted to know is there a project behind that potentially maybe the mining joint venture but maybe something else?

Biggs Porter

Yes, so, I'm glad you asked, it really is a good follow-on question to the one that earlier about the new joint venture because I really answer what was going on, what the new joint ventures on the Oil & Gas side. I said we anticipate being partial consolidation but we did have on the mining side one project last year which caused non-controlling interest to go up and that was in fact Pascua Lama. You may recall back at the first to last year, we took responsibility for the Argentinian side where we had just had Chilean side and when we did that it caused us to move from partial consolidation on that project to full consolidation within that non-controlling interest. But now that work has first wound down and secondly cancelled at least for the timing being then that reduces now the non-controlling interest we're going to have out of the mining business.

Andrew Wittmann - Baird

Anything else on the go forward basis as this $18 million levels kind of the right level you think going forward? Biggs.

Biggs Porter

It's going to bounce around that's really kind of hard to project. But I think that just keep in mind that that just nets out of the bottom line and it doesn't really affect our net P&L and it doesn't even effect of taxes literally, it has a cosmetic effect on the tax rate but it doesn't affect our absolute taxes. So I understand it can create a complexity in modeling but for the most part you shouldn't speculate in a day that it is neutralized.

Andrew Wittmann - Baird

And then one other question to some of these projects that you announced after the quarter, software larger ones like the Clean Fuels project, Kitimat. Can you talk about what scope we should be expecting and maybe specifically to the clean fuels, we noticed that is a consortium there. Should we think about your role as more of a engineering construction management rather than construction type role in that project.

David Seaton

No actually that project is based on scope. So each of us, say a vertical split scope EPC, and if you remember we did the FEED on that program so many years ago. How that project divides up is basically a third to third to third. But little early for us to put out any numbers.

Operator

Ladies and gentlemen that does conclude the time that we have for our question and answer session. I'll turn the conference back over to management for any additional closing comments.

David Seaton

Thank you operator and I really appreciate everyone participating in our call this afternoon. I think our performance in 2013 was very solid, particularly given the sharp decline that we experienced in Mining and Metals. However, as I said, or Oil and Gas Power and Infrastructure and Government business have all delivered marked improvement over 2012. We continue to face headwinds as we talked about in Mining and Government, as we move into '14. But we believe that we are in and only innings of a very major oil and gas investment cycle, they were very prepared for. Importantly oil and gas segment continues to gather, I think significant momentum by delivering over 30% growth in its segment profit, capturing the clear version we mentioned and growing their backlog and positioning, I think Fluor for a substantial new award output in '14 as well as beyond. With that I really appreciate your interest and support of our company and we wish everyone a good day.

Operator

Thank you ladies and gentlemen. That does conclude today's conference. Thank you for joining.

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