Fluor’s Bad News Immediately Gets Worse
Shares of Fluor Corp. plunged 19% during heavy trading Wednesday after the engineering and construction company reported lower-than-expected quarterly earnings and issued a disappointing outlook for the year.
The stock price dipped to $26 a share in early trading but rebounded to close at $29.63 a share, off $2.56, or 8%, for the day. The number of shares changing hands, 2.5 million, amounted to more than eight times the daily average over the past three months.
Fluor’s chairman, Philip J. Carroll, said in a conference call with analysts Wednesday that executives are “extremely disappointed” with the results for the third quarter, which ended July 31. But he said that he is encouraged by the company’s progress and outlook for the coming years.
Late Tuesday, the Aliso Viejo company reported that its fiscal third-quarter net income fell 34% to $33.3 million, or 44 cents a share, from year-earlier quarterly earnings of $50.2 million, or 66 cents a share.
The company blamed a $60-million cost overrun at a Duke/Fluor Daniel power project in Dearborn, Mich. Duke/Fluor Daniel is a joint venture between Duke Energy Corp. and Fluor’s main engineering and construction division, Fluor Daniel.
The cost overrun and “significantly greater weakness” at its A.T. Massey coal business led the company to project a 15% drop in its fiscal 2000 operating earnings.
The Massey unit reported operating profit of $27.6 million for the quarter, excluding a nonrecurring excise-tax refund. The unit’s operating earnings were $33.7 million in last year’s third quarter.
In a bold move in June, Fluor said it would split the company in two, separating its engineering, procurement and construction business from Massey. Wall Street, which never cared for the disparate operations under one corporate roof, praised the deal.
Even so, the stock has remained far from its high of $48.50 in January and has lost 35% of its value so far this year.
In a conference call Wednesday, Alan Boeckmann, Fluor Daniel’s president, said substantial changes requested by the client at the Dearborn project helped to cause poor production and field construction, resulting in the overrun.
He said the “change-control process” of the joint venture didn’t perform as expected on the project. He said the project director was replaced.
Fluor officials said in the call that there are “pending action and claims ongoing,” but declined to provide further details about any legal recourse the company has.
They said that the problem is an isolated one and that the company instituted additional reviews and audits of other projects. Boeckmann said other Fluor Daniel projects are in “good shape.”
New awards increased 38% in the quarter to $2.2 billion, and that doesn’t include a $1-billion Hamaca Crude Upgrader project in eastern Venezuela that the company also announced late Tuesday.
Executives said Wednesday that the company, which is leading a consortium on the project, expects to get $600 million to $700 million in revenue from the South American deal.
