Fluor Stock Takes Big Hit on News of Lower Profit
Disappointed investors dumped nearly 7 million shares of Fluor Corp. stock Wednesday, driving the price down by $13 a share, after the company said problems with a pair of power plant projects diminished its first-quarter profit.
Fluor’s financial report raised questions about management’s grip on internal operations, some analysts said, and shattered a nearly universal belief that the international engineering and construction services company would continue chalking up a double-digit annual growth rate.
The company said its profit for the three months ended Jan. 31 rose 8% to $62 million, or 73 cents a share, from the year-earlier $57.4 million, or 68 cents a share. Analysts had estimated earnings of 77 cents a share for the quarter, however. Revenue for the quarter ended Jan. 31 rose 43% to $3.43 billion from $2.40 billion.
Fluor’s stock had risen to a 52-week high of $75 a share on Tuesday, apparently on expectations that the company would meet analysts’ estimates. It plunged to $62 a share Wednesday, down more than 17% for the day in heavy trading on the New York Stock Exchange.
The company’s first-quarter results missed analysts’ expectations “by a country mile, and we aren’t getting a clear view that the second quarter will be much better,” said Tobias Levkovich, an analyst with Smith Barney Inc. in New York.
The quarterly financial report led some analysts to suggest that Fluor has spread itself too thin in its quest for major international business.
James Rollans, Fluor’s senior vice president, characterized the stock market reaction to the company’s financial report as “an emotional and dramatic response [to] a couple of isolated problems.” He said Wednesday that the project management team at one of the power plant jobs has been replaced.
Fluor officials blamed the weak earnings report on higher-than-normal operating costs, especially associated with high costs of preparing and presenting bids on international projects and increased travel expenses associated with visiting job locations in places like Indonesia and Kazakhstan.
Fluor declined to identify the power plant projects, saying only that one was in the U.S. and the other abroad. The company said it discovered the magnitude of the overruns just last week and immediately took steps to account for them in the first quarter.
The timing of the discovery troubled some analysts, though.
“You’ve got to believe they have some loose internal controls if they didn’t see this until last week,” said Levkovich.
Fluor won’t be able to charge its customers for the extra costs because it bid the jobs on a fixed-price basis, meaning it cannot increase its bill.
The construction company’s total costs and expenses rose 45% to $3.34 billion during the fiscal first quarter from $2.31 billion in the year-ago period.
Still, no one is writing off the company.
“Even with all their near-term troubles, they are the best engineering and construction company in the world,” said Johnson.
He suggested that Wednesday’s sell-off opened up a brief opportunity to buy Fluor shares before the price starts climbing again. “I’m not convinced the stock decline is over,” he said Wednesday, “but I believe it will start climbing at some time in the future.”
The company still is a well-run business, said analyst Richard A. Henderson of New York-based Pershing, a division of the Donaldson Lufkin & Jenrette brokerage. The company’s strategy of growing through geographic expansion and by entering new industry segments “is a legitimate one,” he said.
The company reported that it had $15.9 billion worth of work on backlog at the end of the quarter, up 6% from the year-earlier first quarter’s backlog. New awards during the quarter totaled $3.6 billion, a 20% increase from a year earlier.
Levkovich, the Smith Barney analyst, issued a report Wednesday downgrading his previous “buy” recommendation on Fluor stock but said he still believes the stock could bounce back to hit $70 or more over the next six months.
He said he now is rating Fluor as “outperform,” meaning he believes the company’s stock will continue to outpace the market but is no longer recommending that clients aggressively buy the shares.
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Fluor’s Fall
Fluor Corp.’s stock plummeted to $62 Wednesday after the firm announced disappointing first-quarter earnings. The drop follows a closing high of $75 during the previous day’s trading. Recent stock highlights and Wednesday’s hourly closing stock prices:
Tuesday close: $75.00
Wednesday opening: $65.25
10:30: Trading delayed
11:30: $66.25
12:30: 64.88
1:30: 63.13
2:30: 62.63
3:30: 62.63
* Market close: $62.00
Sales and Income Trend
Although Fluor’s first-quarter net income was higher than last year’s, earnings fell short of analysts’ expectations based on projected performance of engineering and construction units. Sales and earnings, in millions:
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1996 Net sales Earnings 1st qtr. $2,402.4 $57.4 2nd qtr. 2,582.2 63.7 3rd. qtr. 2,702.8 68.1 4th qtr. 3,327.7 78.9 1997 1st qtr. 3,434.1 62.0
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Source: Bloomberg Business News; Researched by JANICE L. JONES / Los Angeles Times
