Morningstar | Fluor Reports Disappointing 3Q Results; We Maintain Our FVE
Narrow-moat engineering and construction company Fluor announced that third-quarter sales were down almost 6% and EPS declined by almost 19% year over year. Despite disappointing results, we are maintaining our $50 fair value estimate as management warned in a preliminary earnings call on Oct. 10 that third-quarter earnings would miss analyst expectations. As such, our prior fair value estimate already included revised top- and bottom-line near-term projections.The year-over-year decline in revenue was due to energy & chemicals and diversified services segment sales, which fell by approximately 21% and 6%, respectively. Government sales were roughly flat compared with the same period last year. The only segment that grew sales was mining, industrial, infrastructure & power, which posted a 22% increase in revenue. The year-over-year decrease in EPS also reflects $81 million in pretax charges for two projects in Florida and Europe as well as a higher effective tax rate than management had anticipated.
Despite disappointing third-quarter results and fourth-quarter guidance, the announcement does not change our long-term outlook for the company. We still expect Fluor to benefit from the upswing in capital spending, and we are encouraged by the company’s growing backlog.
Fluor is a holding company. Through its subsidiaries, the company provides engineering, procurement, construction, fabrication and modularization, operations, maintenance and asset integrity, as well as project management services. The company serves a set of industries including oil and gas, chemicals and petrochemicals, mining and metals, transportation, power, life sciences and manufacturing. The company is also a service provider to the U.S. federal government and governments abroad; and it performs operations, maintenance and asset integrity activities for industrial clients. The company has four segments: Energy & Chemicals; Mining, Industrial, Infrastructure & Power; Diversified Services; and Government.
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