Engineering and procurement giant Fluor said Tuesday it has decided not sell its government contracting business, which does business with the Department of Energy’s nuclear weapons complex and the Department of Defense.
The Irving, Texas-based company announced the now-canceled sale in September. Belt-tightening over the past year, along with the anticipated sale later in 2020 of the AMECO equipment leasing and services business, are relieving Fluor of the need to part with its federal contracting unit, CEO Carlos Hernandez said during a quarterly earnings call with Wall Street analysts.
“As Fluor worked through the fourth quarter and realized some of the early benefits of its restructuring plan, the company gained confidence in its solid liquidity position and its viable options for generating cash flow such that the company no longer deemed it advisable or necessary to proceed with the sale of this business,” Hernandez said.
Investors punished Fluor for the decision a day after the announcement, sending the company’s stock plummeting about 25% to $14.79 a share on Tuesday from its Friday closing price of $19.54 a share. The stock had dipped even lower as of the closing bell on Thursday, to $14.56 a share. Markets were closed Monday for the President’s Day holiday.
Over the past year, Fluor stock has sold as high as $41.91 a share and as low as $14.30 a share.
Management knows government contracting is a valuable business with good cash flow, Hernandez said, adding that Fluor was approached by several viable buyers during the time the unit was on the market. The company’s government branch has roughly 28,000 employees and more than 40 projects, including DOE work.
Through subsidiaries or other partnerships, Fluor is a major player in the Department of Energy’s National Nuclear Security Administration (NNSA), which manages the entire civilian nuclear weapons complex.
Fluor subsidiary Fluor Marine Propulsion runs the NNSA’s Naval Nuclear Laboratory in New York state and Idaho. The unit conducts research, development, and design for nuclear reactors and nuclear fuel to power Navy warships and submarines. The contract, awarded in 2018, is worth $30 billion over 10 years, with options.
Fluor is also one of two major industry subcontractors for Triad National Security, which since November 2018 has managed the Los Alamos National Laboratory in New Mexico under an NNSA contract potentially worth more than $20 billion over 10 years, including a five-year base worth about $10 billion. Los Alamos is the older of the two U.S. nuclear-weapon design laboratories.
On the other side of the country, Fluor is the lead partner on Savannah River Nuclear Solutions, which manages DOE’s Savannah River Site in Aiken, S.C. The site hosts the NNSA’s refining operation for tritium, the radioactive hydrogen isotope that boosts the yield of all current U.S. nuclear weapons. Natural radioactive decay requires the NNSA to refill and replace tritium reservoirs on all nuclear weapons periodically.
In October 2019, DOE extended Savannah River Nuclear Solutions’ management pact for the second time in as many years. The extension includes guaranteed work through Sept. 30, but DOE holds a pair of one-year options that could stretch it out to 2022. The base extension is worth about $1.5 billion. Including the 14-month base, the DoE pact awarded in 2008 — which mostly funds work other than NNSA tritium extraction — will be worth at least $12 billion or so through September 2020.
Fluor is also a major player at DOE’s Office of Environmental Management, which with an annual budget of upward of $7 billion cleans up nuclear weapons production sites that helped build up the U.S. nuclear arsenal during the Manhattan Project and Cold War.
With the planned sale of the government business now canned, the Fluor subsidiaries and joint ventures that serve the Energy Department will maintain their ability to reach back to headquarters for help with various nuclear security missions. Had the business been sold to a buyer without a history in the DOE weapons complex — as Amentum, the former AECOM Management Services, was earlier this year — those sites could have lost a reach-back capability that is closely marked at DOE headquarters.
In forming joint ventures or subsidiaries to manage DOE sites, contractors typically maintain a reserve of nuclear subject matter experts at their parent companies. That deeper bench can provide human capital ahead of busy times at sites, and flexibility to respond to unforeseen developments.
Meanwhile, Fluor is not reporting final quarterly and 2019 yearly earnings numbers this week because it is under a Securities and Exchange Commission (SEC) investigation of its accounting and financial reporting for the second quarter of 2019.
“We do not believe at this time that we have material errors,” Fluor Executive Chairman Alan Boeckmann said during the call. But the books remain open, he added.
Full-year new awards for the government segment were nearly halved, from $4.1 billion in 2018 to $2.2 billion in 2019.
Fluor’s 2019 ending backlog is expected to be $3.8 billion, compared to $4.6 billion a year ago.
