“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 is becoming more selective about what projects it bids on, and will consider 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. Such speculation won’t be allayed by Thursday’s financial report.
Fluor’s situation could improve later this year, however, if the company lands at least one of two potential multibillion-dollar, 10-year contracts at the Energy Department’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 per diluted share, for the quarter ended June 30, constituted a drastic downturn from net earnings of $115 million, or $0.81 per diluted 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 cut 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 per diluted share, compared to a net loss of $18 million, or $0.13 per diluted 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 recently, 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.
Fluor Idaho has a five-year, $1.6 billion cleanup contract running through May 2021 at the Idaho National Laboratory. Fluor-BWXT Portsmouth is working on its second and final 30-month option period as part of its 10-year, $3.4 billion decontamination and decommissioning contract at the Portsmouth Site in Ohio. It runs through late March 2021.
Fluor is an integrated subcontractor to Triad National Security, which in 2018 secured the potential $20 billion, 10-year contract to manage the Los Alamos National Laboratory in New Mexico.
The two big-dollar Hanford contracts could be out this month, according to an Energy Department procurement schedule issued in May. Schedule delays, though, are common.
The present Central Plateau remediation contract is held by Jacobs subsidiary CH2M. The work, currently valued at $5.8 billion, began under a 10-year contract in October 2008. CH2M is now working under an extension that runs through September of this year.
Tank operations at Hanford are managed by AECOM-led Washington River Protection Solutions. The work, which WPRS started in October 2008 under a 10-year contract, is worth $6.8 billion. The contractor also has an extension through next month.