Fluor Expects to Meet Profit Forecasts, but There’s a Catch

Fluor Corp. said Tuesday that its operating results should meet expectations for the first quarter and full year, but the Aliso Viejo company added a caveat.

The global engineering and construction giant said its stock price has surged to the point that incentives granted to executives could erode the bottom line.

Fluor issued about 2 million stock appreciation rights in 1997 in an effort to retain executives during a difficult time, said Lila Churney, who handles investor relations for the company.

Executives can exercise the rights as the stock price increases, receiving cash from the company. About 1.6 million rights remain to be exercised before they expire next year, Churney said.

As a result, a change in the company’s stock price can affect the bottom line.

Indeed, every stock movement of a dollar per share could result in a $1.2-million change in net earnings projections, Fluor said.

“The concept is if you get people trying to get the stock price up through higher earnings, then they will be compensated in that same manner,” said John McGinty, an analyst with Credit Suisse First Boston.

He called the compensation program extremely generous for a company “that hasn’t done very well.” McGinty has a “hold” rating on the stock.

Fluor’s stock has moved up 30% this year, prompting the company to issue the alert. The shares, which hit a 52-week high of $47 during trading Monday, fell $3.29 to close Tuesday at $43.06 on the New York Stock Exchange.

The company, noting that its major projects around the world continue to bolster its bottom line, said earnings will range from 35 to 40 cents a share for the three months ending March 31 and should hit forecasts of $2 a share for the year.