Fluor Corp. Predicts Loss of $27 Million in 4th Quarter Due to Sale of Drilling Unit
Fluor Corp. said it will suffer a fourth-quarter loss of about $27 million from the sale of its offshore drilling operation, a setback that is expected to contribute to a net loss for the year.
“It will be a loss year, no question about it,” said Herb Hart, an analyst with S.G. Warburg Co. in San Francisco. Hart estimates that Irvine-based Fluor will post a net loss of about $50 million for its fiscal year ending Oct. 31.
Tom Samuelson, an analyst with Duff & Phelps Inc. in Chicago, said Fluor’s net loss for the current fiscal year could be as high as $80 million.
For its fiscal year ended Oct. 31, 1985, Fluor posted a net loss of $633.3 million, its first annual loss since 1959.
The company said Friday that it had agreed to sell its Fluor Drilling Services Inc. unit for $17.5 million--significantly less than its book value--to New Orleans-based Ocean Drilling and Exploration Co.
Sees Tax Benefit
Terms of the sale include an initial payment of $7.5 million, Fluor said, with the balance to be paid over the next eight years. In addition, Fluor said it will realize a fourth-quarter tax benefit of about $20 million on the sale, which will partially offset the loss on the transaction.
Sale of the unit was a “good move,” said Samuelson, and “fit in with their plans,” said Hart. “They had a minimal market share.”
Fluor said the sale of the unit completes the disposal of all its drilling operations, part of a restructuring of the engineering, construction and natural resources company that began last year. A dwindling number of large energy projects that were once Fluor’s forte prompted the company to redirect its efforts to general industrial engineering and construction. And in that arena, “they gotta play ball with other E&C; (engineering and construction) companies,” said Samuelson. “They lost their niche.”
Low commodity prices and a sluggish economy have made it difficult to establish a new niche thus far.
Although Fluor chairman David Tappen has said the company’s restructuring will be an on-going process, sale of the drilling unit “essentially” completes the restructuring of the company’s non-core business, a spokesman said.
Despite the continuing downturn, analysts and the company said the worst is behind Fluor.
Last month, Tappen said the company was continuing to improve over 1985, “though unevenly.”
Samuelson predicts the company will break even next year, noting that Fluor is “still one of the premier engineering and construction companies.”
The company is “gradually turning around, although a bit more gradual than we thought,” said Hart. “We probably will see a turnaround (for next year); the question is how big.”
When complete, Fluor’s restructuring will improve its profitability, said Richard Rossi, an analyst with Merrill Lynch, Pierce, Fenner & Smith Inc. of New York. He said the company’s engineering group “is in the early stages of a significant business recovery” driven by a stream of public and private project opportunities “that could continue to grow well into the next decade.”
For the nine months ended July 31, Fluor posted a net loss of $3.9 million, compared with a net loss of $63.5 million for the same period a year earlier. The results for the most recent nine months included gains of $27 million from the sale a year earlier of its 162-acre corporate complex and $24.1 million from the sale of 10% of the company’s St. Joe Gold unit.
Fluor declined to discuss its earnings for this fiscal year except to say it does not anticipate any further credits or charges for this year nor any dramatic operational gains.
In composite trading Friday on the New York Stock Exchange, Fluor closed at $13.25, up 12.5 cents for the day.
