Fluor Looks Past Power Plants as Fading Business Hits Stock
By CHRIS CZIBORR
Wall Street is looking for more of the same from Fluor Corp. next year after the company fell short of earnings expectations for the third quarter.
The engineering company’s stock is down more than 10% since late last month when Fluor released its third-quarter results and offered its outlook for the current quarter and 2004.
The day after Fluor’s Oct. 29 announcement, the company’s stock plunged as sellers pushed daily volume up to 3.6 million shares, or more than seven times Fluor’s normal trading.
The main culprit: Fluor missed Wall Street’s third-quarter consensus profit estimate by a penny.
“The company provided preliminary guidance along the lines of what we were expecting but below what the Street was hoping to hear,” said Sanjay Shrestha, an analyst with First Albany Corp.
Fluor reported third-quarter earnings of $44.1 million for the quarter, down from $46.1 million a year earlier.
Revenue was $2.1 billion, down from $2.5 billion a year earlier.
For the year, Fluor said it expects profits to come in at $176 million to $184 million, up from $128 million in 2002.
For 2004, Fluor gave a wider than usual profit range of $164 million to $197 million.
First Albany is keeping a “buy” rating on Fluor’s stock, calling the recent stock dip “a long-term buying opportunity,” according to Shrestha.
Others didn’t see it that way.
Credit Suisse First Boston downgraded Fluor from “outperform” to “neutral.”
And D.A. Davidson & Co. downgraded Fluor from “neutral” to “underperform.”
Last week, Fluor’s shares were trading at about 35, with a market value of $2.9 billion.
For the year, Fluor’s stock was up about 25% last week, though down from its yearly high of 40.54 hit on Oct. 14.
Power Plants a Drag
Fluor Chief Executive Alan Boeckmann (photo) downplayed the investor reaction.
“We’ve had strong performance over the last couple of years, and in the past 12 months the stock price has increased 50%,” Boeckmann said.
“The drop after the announcement only totaled about 10%.”
A year ago, Fluor’s stock was at about 25.
Analysts say the problem is a familiar one for Fluor: power plants.
A couple of years ago, during California’s energy crisis, promise in the electricity market buoyed Fluor’s stock.
But demand for power plants slowed last year.
In July, Fluor and Duke Energy Corp. dissolved a power plant building venture.
“Everyone has to recognize the company is going through cycles,” Shrestha said. “One of its major markets,power,has been a great business for them but is no longer such a great contributor to the bottom line and won’t be for at least the next couple of years.”
Shrestha and others see 2004 as a transition year for Fluor in which the company looks to offset lost power plant business with new work in the oil and gas sector.
“But in the meantime the stock will take a hit,” Shrestha said.
Last week, Fluor said it’s heading a team that won a $700 million contract to build a Chinese chemical complex near Shang-hai.
Fluor’s stake in the contract is 50%, according to company.
Fluor is managing partner on the project and is working with South Korea’s Daelim Industrial Co., Tai-wan’s CTCI Corp. and three Chinese design institutes.
Another question mark for Fluor: Iraq.
The company has seen rivals Bechtel Group Inc. and Halliburton Co. grab most of the early work rebuilding the country.
Fluor has won $102 million worth of electrical system work, awarded by the Army Corps of Engineers.
Fluor is eyeing future contracts.
The company submitted a bid to the U.S. Agency for International Development for $1.5 billion worth of general rebuilding work in Iraq.
It also submitted bids to the Army Corps of Engineers to do oil sector work that could be worth as much as $2 billion.
Despite initial setbacks and confusion in the bidding process, Boeckmann said he is confident of Fluor’s chances.
“We have significant capabilities and resources and can quickly marshal those resources to be effective in that theater,” Boeckmann said. “One of the lessons we’ve learned is that it’s a very dynamic situation.”
The Corps last month said it had delayed awarding the oil work contracts. It also doubled the size of those contracts from $1 billion to $2 billion after reassessing the scope of work.
“I’m a bit disappointed that it’s taken as long as it’s taken and is still in a delay mode,” Boeckmann said. “I think that could’ve been done much faster. I still think we’re in extremely good shape for those bids.”
Cutting Jobs
Meanwhile, Fluor said last week that it’s been bringing its workforce in line with changes in its business.
In the past year, the company cut 16,752 jobs, bringing employment to 31,861 people.
In Orange County, Fluor employs 1,926 people, down 35%, or 966 jobs, from a year earlier.
