92.4% Earnings Jump Punctuates Fluor Recovery

Citing growth in its engineering and construction business--particularly overseas--Fluor Corp. on Thursday reported net earnings of $108.5 million for fiscal 1989, up 92.4% from income of $56.4 million last year.

The strong earnings punctuated Fluor’s continuing three-year recovery since it began a painful restructuring, shedding its minerals business and putting less emphasis on petrochemicals. The company’s revenues for the year ended Oct. 31 were $6.23 billion, up 21.4% from 1988’s $5.13 billion.

For the fourth quarter, the company, the largest publicly held firm based in Orange County, reported earnings of $29.1 million on revenues of $1.67 billion, compared to earnings of $23.6 million on revenues of $1.61 billion a year ago.

Industry analysts said Fluor’s performance was on target with expectations. Wall Street reacted favorably to the earnings report, as Fluor’s stock closed Thursday at $33.625 a share on the New York Stock Exchange, up $1.25 for the day.

David S. Tappan Jr., who is stepping down as Fluor’s chief executive officer next month, said in a prepared statement that Fluor Daniel, the company’s chief operating unit, “achieved significantly improved earnings due to higher margins and increased market share.”

He also attributed the company’s financial growth to a 44% expansion of its international business, which accounted for $2 billion of the company’s $8.4 billion backlog of orders as of Oct. 31. He added that the company’s coal and lead investments also were profitable.

“We are naturally pleased with our earnings progress last year but we still have a long way to go to produce the superior results we are capable of delivering,” Tappan said in an interview Thursday. “I think Fluor Daniel’s market strength and geographical diversification makes us very confident that we’ve only scratched the surface of the growth and earnings potential that lies ahead of us.”

Leslie G. McCraw, Fluor’s president who is being promoted to CEO in January and will succeed Tappan as Fluor chairman in 1991, is taking the day-to-day reins at Fluor at a time when most observers predict its fortunes are on the upswing.

“I think McCraw is taking over at a time when the momentum at the company is very, very strong. The backlog and the profit margins are still rising,” said Mark Altman, a securities analyst with Paine-Webber in New York.

Industry analysts expect Fluor to achieve greater profitability in 1990. Altman said he believes that the company will generate net annual income of $150 million, and Alan Dorsey, a securities analyst with Dillon, Read & Co., said he expects the company will generate net income of between $160 million and $165 million.

Tappan said with the prospects good for an extended growth cycle the company will be investing in development and training of engineering and construction personnel and in computerized engineering and internal communications systems.

Tappan, 67, postponed his retirement for two years to preside over the restructuring of Fluor. In 1985 and 1986 Fluor suffered heavy losses due to an ill-timed investment in the minerals business and a dive in oil prices that killed demand for the large petrochemical projects that were then Fluor’s main source of revenue.

In the restructuring, the company’s financial position was improved by the sale of most of its natural resources businesses, large layoffs of employees and paying down of debt. Tappan delegated to McCraw the task of integrating Fluor Engineering with its Daniel subsidiary, creating a more diversified engineering and construction organization. McCraw’s success at this undertaking, Tappan said, is what gave him an edge over other likely contenders to be his successor.

Diversification, industry analysts say, now is enabling Fluor to take full advantage of a surge in capital spending, which they note is a rolling trend affecting different industries at different times.

Altman pointed out that while the capital spending of some Fluor customers such as pulp and paper manufacturers recently has started to taper off, plant expansion is growing hot in other industries such as biotechnology and pharmaceuticals. “That shows the importance of diversification,” Altman said.

Reflecting Fluor’s promising business prospects, the company said Fluor Daniel has been chosen by the U.S. Department of Energy as one of three finalists in the bidding for a $1.6-billion contract to design and construct research facilities as part of the “superconducting supercollider” project.

The research facilities, in which scientists hope to test theories about the building blocks of the universe by smashing together atomic particles, will include about 53 miles of underground tunnels. It is planned to be built in Waxahachie, Tex., about 18 miles south of Dallas.