“All options are on the table” at Fluor after the company’s $555 million loss in the second quarter of 2019, CEO Carlos Hernandez said Thursday.
The government contractor — one of the main industry subcontractors at the Los Alamos National Lab, the manager of the Naval Nuclear Laboratory and leader of the team running the Savannah River Site — will consider among other things asset sales and staff reductions, Hernandez said during a teleconference call with Wall Street analysts.
Rumors have circulated recently that Jacobs Engineering could be looking to buy all or part of Fluor.
Fluor’s situation could improve later this year, however, if the company lands at least one of two potential multibillion-dollar, 10-year contracts for legacy nuclear-weapons cleanup work at the Department of Energy’s Hanford Site in Washington state.
Hernandez indicated Fluor is a player in competition for both the Hanford Tank Closure Contract and the Central Plateau Cleanup Contract.
Fluor’s net loss of $3.96 a share for the quarter ended June 30 is a drastic downturn from net earnings of $115 million, or $0.81 a share, one year earlier. Contributing to the earnings hit was a $714 million pretax charge stemming from the company’s ongoing internal review of operations. The earnings were also hurt by $46 million in restructuring charges, mostly due to its Stork subsidiary.
Hernandez said the review-related charge reflects the tough business reality facing many of its major projects. The company has previously said business segments including Energy & Chemicals and Mining, Industrial, Infrastructure, and Power are facing changes.
The Texas-based engineering and construction company’s revenue for the quarter ended June 30 was also down roughly 16% from $4.9 billion a year ago to $4.1 billion.
The deep-dive strategic review started in May, when Hernandez took over as CEO. It will be finished within a few weeks and discussed during a public conference call Sept. 24, Fluor executives said.
Hernandez and Chief Financial Officer Michael Steuert are meeting with clients, subcontractors, and suppliers across the company’s government and commercial sectors to evaluate current projects. The Fluor team is seeking a better handle on which business lines look attractive going forward.
Like other major engineering and infrastructure companies, Fluor has already been cutting its exposure to the overbuilt natural gas power plant market in the United States. Executives noted the company is also exiting Mexico and other countries where it is doing poorly.
Don’t look for any big restructuring news before Sept. 24, Steuert said: “You can rest assured that we are looking at the entire portfolio.”
Hernandez, formerly Fluor’s executive vice president and chief legal officer, took the top job May 1 on an acting basis after weak financial performance coincided with the resignation of CEO David Seaton. The Fluor board appointed Hernandez to the CEO spot on a continuing basis within a couple weeks.
During the dismal first quarter that led to Seaton’s departure, Fluor recorded a net loss of $58 million, or $0.42 a share, compared to a net loss of $18 million, or $0.13 a share in the first three months of 2018. The company’s revenue was also down to $4.2 billion, compared to $4.8 billion a year earlier.
The company is now withdrawing all previously issued earnings per share guidance for 2019. The prior guidance was in the $1.50 to $2 range.
“We understand the implications of the magnitude of these results,” Hernandez said. “I believe this strategic review, coupled with our increased scrutiny on new prospects, will deliver improved value for our shareholders.”
Across its portfolio, the company will seek contracts with a stable return on investment, and where it enjoys a distinct advantage, Hernandez said, without elaborating.
Revenue for government services during the latest quarter was $612 million, a steep drop from $868 million a year ago. Government services suffered a $226 million loss during the quarter, after posting a $27 million profit during the same period in 2018. A major contributor was $233 million in engineering changes and cost increases for a Department of Defense contract.
Second quarter new awards for the sector amounted to $543 million, down from $747 million on a year-over-year basis.
There was recent good news, Hernandez noted, with the 14-month contract extension for Fluor-led Savannah River Nuclear Solutions as manager of the DOE Savannah River Site in South Carolina. The $1.5 billion agreement keeps the vendor on through Sept. 30, 2020. There is also the possibility of two additional one-year extensions.
The Los Alamos prime contract is worth about $20 billion over 10 years. Neither Fluor, Triad nor the National Nuclear Security Administration (NNSA) publish Fluor’s share of the take.
The company’s Fluor Marine Propulsion subsidiary, meanwhile, snatched the Naval Nuclear Laboratory contracts from Bechtel Marine Propulsion in 2018. The contracts from the Navy and the NNSA are worth a combined total of roughly $30 billion over 10 years.
Dan Leone, staff reporter for Nuclear Security & Deterrence Monitor, contributed to this story from Washington.
