Irvine’s Fluor to Cut Units, Lay Off 5,000
In its second major restructuring in as many years, Fluor Corp. on Tuesday unveiled a dramatic plan to lop off dozens of business units and eliminate 5,000 jobs--about 8% of its salaried work force--over the next few months.
The moves are geared to help the Irvine construction and engineering giant overcome its problems with soaring overhead and weak profit margins in a struggling global economy.
Company officials declined to provide specifics about the dismissals until after employees are notified, but said more than half the jobs would be cut from payrolls in the U.S.
With 1998 revenue of $13.5 billion, Fluor is one of seven companies in Orange County big enough to be listed on the Fortune 500. But most of its work is done outside of the region. Only 2,500 of its 31,000 salaried employees work at the company’s headquarters in Irvine--and hundreds of those jobs are expected to be eliminated in the cost-cutting drive.
The company’s restructuring shows how some industries can suffer even as the overall economy roars along. Employment, both locally and nationwide, is at near-record levels, as is the stock market, which continues to bump upward. Most economists see few negative signs on the horizon.
As Fluor prepares to lay off engineers, accountants and other well-paid employees, many companies in Orange County are complaining that they cannot find skilled workers to fill empty positions.
Fluor Chairman Philip J. Carroll, explaining the company’s new direction Tuesday morning to investors at its annual stockholders meeting in Irvine, said a weak world economy and intense competition in Fluor’s core businesses demand a complete rethinking of the company’s mission.
No longer will Fluor attempt to compete in scores of markets for jobs that it can only win by slashing its prices to the bone, said the former Shell Oil Co. chairman, who joined Fluor in July.
Instead, the company will concentrate on the 40% or so of its business that traditionally provides the largest profit margins, withdrawing from markets in which it has no competitive advantage and typically makes meager profit.
Carroll, who oversaw even bigger layoffs at Shell a decade ago, said the cuts are “painful but necessary” if the company is to shrink its swollen overhead. Still, the fixes won’t do anything to improve Fluor’s financial performance for most of the next two years, Carroll said.
He and other Fluor executives say their company has been hurt by its global exposure. While the U.S. economy is booming, the economies of many Asian and developing nations are in turmoil--and Fluor does a lot of its business overseas.
The company, which has major contracts designing and building petroleum refineries, also has been hurt by the worldwide slump in oil prices, which has caused many companies to cancel or delay expensive refinery projects.
Employees ‘Used to These Cyclical Things’
Employees seemed to be resigned to the situation. “We’re used to these cyclical things,” said a 10-year Fluor veteran, who asked that his name not be used. “But there’s no need for panic.”
Fluor workers were notified of the pending layoffs in an e-mail message from Carroll sent to the various offices Tuesday morning. A series of meetings with employees has been scheduled for today.
“Everyone was expecting something like this,” said one woman, a Fluor employee for the past three years. “We were just too slow” responding to changing business conditions. “I don’t want to lose my job, but what can you do?”
Carroll said some of the job cuts stem from the long-range plan to permanently reduce Fluor’s operating costs while others are linked directly to present market conditions.
He said Fluor will close 15 of its 75 domestic and overseas offices this year and reduce or consolidate others. Combined with the payroll cuts, the moves will enable the company to slash $160 million from its annual overhead.
Without such cuts, Carroll said, the company cannot support its operating costs. Continued pursuit of growth for the sake of growth, he said, is “a siren’s call” that could lead to a replay of Fluor’s disastrous 1997. That’s when the company acknowledged that a five-year expansion program had gotten out of hand, causing top management to lose control of critical operating processes.
Shareholders at Tuesday’s meeting greeted the chairman’s message with polite applause, and in an interview afterward, several expressed relief that Carroll had been honest about the problems the company faces.
“He really put it on the line,” said Jack Triplett, a retired stockbroker from Santa Ana who has purchased Fluor stock for himself and for hundreds of clients over the years. “It’s a gloomy story, so anything he does now is going to look better than what’s been done.”
Carroll is reorganizing Fluor into four quasi-autonomous business units and spending $90 million over the next three years to rebuild internal information management systems. He said Tuesday that he doesn’t expect improvement in the company’s business environment for several years.
Industry analysts were impressed with Carroll’s long-range plans but echoed the chairman in writing off this year and, likely, next year because of the costs of the proposed reorganization and the external pressures that Fluor faces.
Fluor’s stock price fell $1.75 Tuesday to close at $34.31 on the New York Stock Exchange as some investors reacted to the company’s immediate prospects by abandoning their positions.
“Five years is a long time for some to wait,” said Morgan Stanley analyst Chris Gutek, who said that while the promised revamp isn’t as dramatic as some might like, it is a sound approach to fixing Fluor’s woes.
Fluor to Choose Work With Profits in Mind
In the short term, Carroll’s new plan means Fluor will concentrate on its 200 largest customers--mainly governments and large mining, petrochemical, power and industrial clients.
In the past, the company has kept more than 400 potential customers in its databanks. Fluor will not abandon any existing contracts, Carroll said, but will walk away from most work in areas such as lumber processing, commercial building and pipeline construction.
Carroll said his plan was developed after meetings with scores of Fluor’s major clients to assess their views of the company. It caps months of uncertainty by employees worried about their futures as word of a new and potentially major housecleaning rolled through Fluor’s far-flung empire.
Fluor’s future now lies in concentrating on major projects that are accompanied by significant technical or logistical problems, said James O. Rollans, Fluor’s chief financial officer. Those projects will allow it to exploit its strengths, minimize competition and book the maximum profit on each job, he said.
The new plan includes an effort to find outside investors or operating partners to help Fluor with its profitable A.T. Massey coal mining subsidiary, a unit whose market has dried up in the past year with no immediate relief in sight.
Under the plan, Fluor will split into three main operating units supported by a new Shared Services company--under Rollans--that will provide administrative support services at competitive prices to the other three and ultimately will be allowed to market its services outside the company.
Carroll said the new strategy will reduce projections for new engineering and construction contracts for 1999 to about $6 billion, down from $10 billion in 1998 and $12 billion in prior years. But because Fluor expects the business that it retains to have high profit margins, the decline should not have much impact on annual earnings.
But the “deteriorating” business, he said, will hurt.
The company expects 1999 net earnings from continuing operations, including a second-quarter charge of $130 million before taxes, to drop to about $107 million, or $1.42 a share. Analysts had been predicting earnings of about $2.80 a share. Fluor reported net profit of $235 million, or $2.99 a share, for 1998.
Times staff writer Greg Hernandez contributed to this report.
* MORE O.C. SLICES: Medtronic plans to shutter its Anaheim plant, eliminating most of its 560 jobs. C1
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Floundering Fluor
Fluor Corp.’s new reorganization plan comes in the face of a stock price that has fallen steadily over the last eight months. The company has also seen its future commitments, in terms of new contracts, plunge an estimated 50% in two years.
Closing Stock Prices
1998
July 3: $50.44
July 10: $47.25
July 17: $45.19
July 24: $43.94
July 31: $42.06
Aug. 7: $41.31
Aug. 14: $38.50
Aug. 21: $45.06
Aug. 28: $40.13
Sept. 4: $38.63
Sept. 11: $40.63
Sept. 18: $41.56
Sept. 25: $40.38
Oct. 2: $39.19
Oct. 9: $35.81
Oct. 16: $40.31
Oct. 23: $38.31
Oct. 30: $38.81
Nov. 6: $42.38
Nov. 13: $43.75
Nov. 20: $44.44
Nov. 27: $44.50
Dec. 4: $42.25
Dec. 11: $43.00
Dec. 18: $42.00
Dec. 25: $43.00
1999
Jan. 1: $42.50
Jan. 8: $41.88
Jan. 15: $40.06
Jan. 22: $40.75
Jan. 29: $37.88
Feb. 5: $36.75
Feb. 12: $37.00
Feb. 19: $35.06
Feb. 26: $35.19
March 5: $37.00
Tuesday close: $34.31
****
Salaried Employees
1994: 39,807
1995: 18,880
1996: 27,514
1997: 31,392
1998: 30,751
****
New Contracts (millions)
1994: $8,072
1995: $10,257
1996: $12,488
1997: $12,122
1998: $9,992
1999*: $6,000
* Estimated
****
Key events in the 1990s:
1990
Fluor Corp. becomes sole owner of Doe Run Co., North America’s largest lead producer.
Company reports earnings of nearly $150 million for the year ending Oct. 31, a 35% increase from the previous year.
1991
Record net earnings of $161 million surpasses previous high, $151 million, in 1981.
1992
Doe Run Co., an unprofitable lead refining concern, sold.
1993
Reacting to shrinking markets in Middle East and Europe, company opens offices in Mexico and strengthens position in China, Thailand and Indonesia and expands into Philippines, Vietnam and Peru.
1994
Major corporate restructuring eliminates two levels of senior management.
Net earnings increase 15% to $192 million.
1995
A.T. Massey, a coal operation, delivers record profits of $111 million, up 17%.
1996
Fluor lands $1.6-billion contract to construct and manage major gold/copper mine in Indonesia.
Wins $4.8-billion contract to manage development of high-speed rail system in Florida.
Its $7.5 billion in contracting revenue ranks Fluor Daniel unit as nation’s largest contractor for third consecutive year by an engineering trade journal.
Annual revenue tops $10 billion for first time.
1997
Competition and financial turmoil in East Asia cause profits to dip while revenue increases.
Losses on several major projects result in second-quarter write-off of $140 million.
Share price falls from record $75 in February to below $37 in November.
Reorganization cuts 600 jobs.
1998
Continued effects or reorganization and weak Asian market blamed for decreased first-quarter profits.
Shell Oil Co. president Philip J. Carroll tapped to become new Fluor Corp. chairman and CEO.
Annual profits plunge 45%, to $146.2 million.
1999
Florida high-speed rail project in which Fluor is a partner is killed by Gov. Jeb Bush.
Carroll announces major restructuring that involves getting rid of several business units and eliminating 5,000 jobs--about 8% of the company’s workforce.
Sources: Fluor, Bloomberg News
