Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fluor Corp (FLR, Financial) reported a strong revenue of $4.2 billion for the second quarter.
- The company secured new awards worth $3.1 billion, with a significant portion coming from the Urban Solutions segment.
- Fluor Corp (FLR) has a robust backlog of $32.3 billion, with 81% being reimbursable.
- The company achieved a segment profit of $194 million and an adjusted EPS of $0.85, reflecting strong financial performance.
- Fluor Corp (FLR) is seeing strong demand in advanced technologies, life sciences, mining, and energy transition sectors, indicating future growth potential.
Negative Points
- The Energy Solutions segment reported a decline in profit to $75 million from $89 million a year ago, reflecting challenges in this area.
- The LAX automated People Mover Project remains in a loss position despite a $39 million improvement from a settlement.
- The company recognized a modest charge on a construction-only subcontract in Mexico, indicating ongoing project challenges.
- Fluor Corp (FLR) has a high effective tax rate of 30% to 35%, which could impact net profitability.
- The company is still managing legacy projects that require significant funding, with an estimated $50 million needed for the remainder of 2024.
Q & A Highlights
Q: Can you tell us more about the plan to return cash to shareholders and the timing of that?
A: By the end of the year, we will firm up the plan and timing for returning cash to shareholders. We are currently in the process of finalizing our 2024 strategic plan, and once completed, we will communicate the details of the shareholder allocation plan.
Q: Is the lower lost project outlay a reflection of the positive adjustment at the LA People Mover project?
A: Yes, the settlement value and the fact that we don't have that cash outlay is a fair logic tie to the lower lost project outlay.
Q: What drove the increase in cash flow guidance?
A: The increase in cash flow guidance was driven by distributions from joint ventures, customer payments on large projects, and an IRS refund. We initially planned for a $360 million outlay for legacy projects, which has now been reduced to $126 million due to reestablished entitlements and excellent execution.
Q: Can you provide more details on the data center market and Fluor's positioning?
A: The data center market is growing rapidly due to cloud-based technology and AI. The US market alone is expected to reach 35,000 megawatts by 2030. Fluor is well-positioned to take on large data center projects, which are primarily reimbursable with incentives on cost and schedule.
Q: What is the visibility for revenue growth in Energy Solutions over the coming quarters and into 2025?
A: Energy Solutions has a strong backlog and is transitioning to front-end work, which includes $420 billion of potential projects. We expect continued growth in chemicals, refining, nuclear power, and downstream production and fuels.
Q: How should we think about the trajectory of margins going into backlog from here?
A: We expect margins to continue to come in above our planned expectations, driven by higher-margin services work. Our backlog margins have been improving, and we anticipate this trend to continue.
Q: What is the expected normalized cash conversion rate for Fluor?
A: We expect a 60% to 70% cash conversion rate as we transition through the next few quarters. Historically, Fluor has achieved up to 75% in a similar asset-light model.
Q: Can you provide an update on the potential for NuScale Power and other nuclear opportunities?
A: Interest in SMR technology and carbon-free power has never been greater. We are supporting NuScale's commercialization globally and expect significant opportunities in the US and internationally. We are also working on monetizing our majority holdings in NuScale.
Q: Why did the upper end of the EBITDA guidance range come down?
A: The adjustment reflects the pace of deployment of some programs and where we are in the project burn cycle. The backlog will continue to burn through 2024 and into 2025.
Q: Is the increase in Urban Solutions backlog a new look for Fluor going forward?
A: The growth in Urban Solutions backlog aligns with our strategic priority to diversify beyond traditional energy. We expect continued growth across all business lines, including Energy Solutions and Urban Solutions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
