Fluor’s Poor Second Quarter Disappoints Analysts

Fluor Corp., the Irvine-based engineering and construction giant, Tuesday reported net second-quarter earnings of $38 million, but half the gain came from a one-time adjustment of tax reserves it is no longer required to maintain.

The company said net earnings increased 59% for the three months ended April 30 from a year ago when it reported net income of $23.9 million. But without the non-recurring $19-million tax adjustment, its net operating income declined 20.5%.

The earnings report disappointed Wall Street. As a result, Fluor stock, which has been a strong performer for the past 18 months, closed down $1.875 at $46.88 in heavy trading Tuesday on the New York Stock Exchange.

“Earnings from Fluor’s operations were only 24 cents a share, compared to everyone’s expectations of 35 cents plus, and last year for the same quarter the earnings were 30 cents,” said Herbert E. Hart, an analyst for S. G. Warburg & Co. in San Francisco.

Fluor said that second-quarter revenue was $1.83 billion, compared to $1.63 billion a year ago. The tax adjustment related to reserves it had to maintain during a federal tax audit of its A. T. Massey Coal Co. The audit, for tax years 1975-80, is now complete.

For the first six months of fiscal 1990, Fluor’s net earnings were $66.2 million on revenue of $3.71 billion, compared to net income of $45.5 million on revenue of $3.05 billion for the same period last year.

The company said that for the first half of fiscal 1990, Fluor Daniel, its primary engineering and construction unit, achieved a 25% increase in operating profits compared to the year before.

“The markets driving the growth of our core business, engineering and construction, remain strong,” said Les G. McCraw, Fluor’s chief executive officer and vice chairman.

But the profitability of the company’s natural resource investments declined slightly. While profits from its coal operations improved, that gain was more than offset by the declining profitability of its lead investment.

Fluor officials said that in order to offset the one-time extraordinary gain from the tax reserves, the company in the second quarter had accounted for expenses it has been incurring to prepare for aggressive business expansion.

“Basically, what impacted the quarter was our reinvestment in the company. We are positioning ourselves for the future,” said Fluor spokeswoman Deborah Land, adding that some of the spending was for personnel training and equipment, including an international telecommunications network.

Despite the fall in the company’s stock, several analysts remain bullish on the company. They noted that Fluor received $2 billion in new contracts during the second quarter, which was a 17% increase from a year ago, and that its backlog of orders increased 24% to $9.1 billion from $7.3 billion in 1989.

“The outlook is for continued strong order rates,” said Mark Altman, analyst for PaineWebber in New York, who conceded he had been “a little disappointed” with Fluor’s earnings report.

But Altman said, “Fluor is looking at some very large projects, including some work from Saudi Arabia. To exploit these markets takes a lot of investment. On a near-term basis that is eating into their profits, but the payoff is out there.”

FLUOR CORP. PERFORMANCE

2nd Qtr. 2nd Qtr. 6 months 6 months 1990 1989 1990 1989 Revenue $1,831.2 $1,633.2 $3,707.4 $3,053.6 Net Income $38.0 $23.9 $66.2 $45.5 Per Share (cents) 47 30 82 57

Source: Fluor Corp.