Fluor Increases Earnings Despite U.S. Slowdown : Profits: The Irvine-based corporation expects more gains, but looks to foreign contracts as a hedge against a continued downturn.
Continuing its resurgence despite a softening national economy, Fluor Corp. on Monday reported net earnings of $146.9 million for the year ended Oct. 31, up 35.4% from net income of $108.5 million in the previous year.
The Irvine-based engineering and construction giant said that while it is seeing a slowdown in domestic orders for industrial work, it is beginning to benefit from a revival of the international petrochemical production and processing business that was once Fluor’s mainstay.
Fluor’s revenues for fiscal 1990 rose 18.6% to $7.45 billion, compared with $6.28 billion in 1989. For the fourth quarter of 1990, the company’s net earnings rose 39.9% to $40.7 million from $29.1 million for the same quarter a year ago. Fourth-quarter revenues were $1.97 billion, up 18% from $1.67 billion in the 1989 period.
The report was well received on Wall Street. Fluor’s stock closed at $38.875, up $1.125 Monday in trading on the New York Stock Exchange.
Herb Hart, an analyst with S.G. Warburg & Co. Inc. in San Francisco, said Fluor’s earnings were in line with Wall Street’s expectations. While the company’s domestic business appears to be slowing down, Fluor is landing a lot of big international projects, he said.
“We are getting back to the good old days when the mega-projects are more significant,” Hart said. “I don’t think Fluor is recession-proof, but I think they are definitely recession-resistant.”
Les McCraw, Fluor’s chief executive officer and vice chairman, said the company’s construction and engineering unit, Fluor Daniel, is starting to capture contracts for new capital projects as the world’s oil processing plants are running out of capacity.
“Fluor Daniel’s geographic and market diversification has allowed the company to respond to a changing business mix resulting from volatile oil prices and economic uncertainty,” he said in a statement.
“While a slowdown on the consumer side of the economy has resulted in a fewer short-term U.S.-based industrial projects, the prospects for larger longer-term international projects have improved substantially.”
McCraw noted that Fluor’s work outside the United States has increased to 30% of the company’s total backlog.
Fluor once specialized in designing and building petrochemical mega-projects before that industry collapsed a decade ago. The company restructured and diversified to compete for a broader array of business, showing strong annual growth in earnings since 1987.
Fluor’s net earnings for 1990 included a one-time, $12-million gain from the sale of Pea Ridge Iron Ore Co., while 1989 earnings included a $43-million gain from a lawsuit settlement with the National Iranian Oil Co.
The contract backlog at Fluor Daniel, the company’s principal engineering and construction arm, grew 14% in 1990 to $9.6 billion from $8.4 billion for the prior year. That reflects new awards of $7.6 billion this year, compared with $7.1 billion in 1989.
The only sour note for Fluor was that new contract awards of $1.76 billion for the fourth quarter of 1990 were slightly below the $1.85 billion in awards for the same quarter a year earlier.
Alan Dorsey, an analyst with Dillon, Read & Co. in New York, believes that Fluor’s fourth-quarter downturn in new orders signals a trend that will last only another two quarters or so “before the big hydrocarbon jobs kick in.”
He noted, for example, that Fluor’s backlog does not yet reflect the recent award of a management contract by Saudi Aramco, the state-owned Saudi Arabian Oil Co., that some estimate may be worth up to $6 billion over the next 10 years.
The biggest backlog gain was in the hydrocarbon sector, which represented $2.9 billion in contracts in the fourth quarter of 1990, up 53% from $1.9 billion for the same quarter a year ago. Hydrocarbon contracts have grown to 31% of Fluor’s total backlog, up from 16% in 1986.
But Fluor’s industrial sector backlog--while still representing 25% of the company’s total workload--declined from $2.9 billion a year ago to $2.3 billion as of Oct. 31. Contracts in the industrial sector include design and construction of manufacturing plants and commercial office buildings.
While Fluor divested most of its minerals operations as part of its restructuring, it still retains investments in coal and lead. The company said that in 1990, its combined operating earnings from coal and lead were up slightly from 1980 due to gains by A. T. Massey Coal, a wholly owned Fluor subsidiary.
But operating earnings from Doe Run, Fluor’s lead investment, declined primarily because of lower levels of zinc and copper byproducts that bring additional dollars.
On the strength of new international contract awards, Fluor Corp. reported a 35.4% increase in net earnings and a 18.6% increase in revenue for the year ended Oct. 31.
1990 1989 1988 1987 1986 Revenue $7.45 $6.28 $5.1 $3.9 $4.3 (in billions) Net income (loss) $146.9 $108.5 $56.4 $26.6 ($60.4) (in millions) Per share (loss) $1.81 $1.35 $ .71 $.33 ($.76)
Source: Fluor Corp.