Fluor Stock Nears 10-Year Low After Credit Rating Cut
Fluor Corp.’s stock, falling steadily since the company said earlier this month that it faces several years of weak sales and earnings, slipped to its lowest level in nearly 10 years Monday after a key credit service lowered its rating on the company’s corporate credit.
The Irvine engineering and construction service firm’s stock closed at $27.31 a share, down 38 cents, in moderate trading on the New York Stock Exchange. The last time Fluor’s shares traded lower was in May 1989.
The stock closed at $36.06 the night before Fluor announced its restructuring on March 8. Since then it has plunged 24.2%, or $8.75 a share.
Standard & Poor’s on Monday lowered its rating on Fluor’s senior subordinated debt--essentially the company’s corporate IOUs--to “A” grade from “A+.”
The bonds still are classed as worthwhile investments, but the lower S&P; rating suggests that the market is growing concerned about Fluor’s indebtedness and its ability to carry out its substantial reorganization plan without increasing that debt.
“The company’s debt levels are up considerably,” S&P; debt analyst Steven Bauml said.
Last year, Fluor said it was going to sell its equipment rental unit and use the proceeds to buy back some of its stock. The sale of the unit fell through, but Fluor already had borrowed to start its stock repurchase plan. Now, the company is carrying that debt on its books, and spending much-needed income on interest payments, he said.
Despite its problems, the company will continue to benefit from a “superior technical reputation . . . and broad geographic coverage,” Bauml wrote in his analysis, adding that Fluor’s “financial flexibility will remain good.”
Still, Fluor’s stock decline is based on more than the S&P; rating.
Fluor Chairman Philip Carroll told shareholders March 8 that the company faces several years of weak performance because of economic and political problems in key markets in Asia and Latin America and because of falling demand for the low-sulfur coal produced by its A.T. Massey coal mining subsidiary.
As part of a plan to cut costs and refocus on the most profitable parts of its business, the company said it will fire 5,000 salaried workers, close 15 offices and pull out of scores of markets over the next nine months. Fluor also will take a second-quarter charge of $130 million to cover restructuring and payroll-cutting costs.
Some analysts say it will take more than two years for Fluor’s sales and earnings to bounce back.
“It could take more than five years to get back to 1997 levels,” said Christopher Gutek, an industry analyst with Morgan Stanley Dean Witter in New York. “And that’s pretty depressing to a lot of people.”
The stock decline, he said, reflects that depression.
