Fluor Reports Full Year 2019 Results
Monday, September 28th, 2020
Fluor Corporation (NYSE: FLR) today announced financial results for its year ended December 31, 2019. Results for 2019 were a net loss from continuing operations of $1.7 billion, or $11.97 per diluted share, compared to earnings from continuing operations of $9 million, or $0.07 per share for 2018. The net loss attributable to Fluor includes impairment, restructuring and other exit costs of $533 million, expenses of $138 million related to the settlement of the U.K. pension plan and $731 million related to establishing valuation allowances to reduce net deferred tax assets. Consolidated segment loss for the year was $386 million compared to a profit of $323 million in 2018. Revenue of $14.3 billion in 2019 from continuing operations compares to $15.2 billion in the prior year.
Full year new awards from continuing operations and government were $12.6 billion, and ending consolidated backlog was $31.9 billion. Corporate G&A expenses for 2019 were $159 million, up from $118 million a year ago primarily due to the effects of foreign transactional gains and losses. Fluor’s cash and marketable securities at the end of 2019 was $2.0 billion. During 2019, Fluor paid $118 million in dividends.
Results of Board Investigation
As the company previously announced, a special committee of independent members of the Board of Directors led a review of its previously issued financial information and determined there were material project-related errors resulting from the absence of timely recognition of changes in forecasted project costs, and from other errors in estimating the amount of variable consideration to be included in revenue for the Radford project. Accordingly, Fluor has restated annual financial results for 2016, 2017, and 2018, and for each of the interim previously issued quarterly periods for 2018 and 2019. In addition, the restated financial statements include other quantitatively immaterial adjustments to these annual periods. These adjustments reduced cumulative pretax earnings reported through September 30, 2019, by $3.8 million.
The special committee, along with its independent external advisors and financial experts, had full access to the company’s personnel and documentation and determined the scope of its review. The investigation included document collection and interviews across all Fluor EPC segments including both domestic and international. The quantity of projects reviewed represents a majority of the company’s lump-sum portfolio.
In addition, the company determined that its disclosure controls and procedures were not effective due to the existence of material weaknesses. To address these weaknesses, Fluor’s remediation plan includes personnel actions, additional project monitoring procedures, improved guidance on project forecasting principles, updated tools and templates to achieve more standardization of project-level documentation and reporting, and improved internal company training on required policies and procedures.
“Today’s filing marks the culmination of a thorough review of the financial reporting on a significant number of our lump-sum projects. We agree with the findings of the special committee and are moving forward with our remediation plan,” said Carlos Hernandez, Fluor chief executive officer. “Fluor continues to have substantial liquidity and dedicated employees who are ready to tackle current and future challenges.”
In September 2019, Fluor announced actions intended to drive improved cash generation and de-risk the portfolio. The company has sold portions of its equipment rental business and continues to progress on transacting AMECO, public-private partnership assets and excess real estate. In addition, the company has suspended its dividend and remains on track to realize at least $100 million in annual savings by the end of the year.
Following on from last year’s review, Fluor has initiated a broader and more comprehensive analysis of our entire business model. The goal is to reshape the company to address today’s markets and to ensure future success. An ad-hoc two person committee of the board has been formed to be an added resource to management and to provide their ideas and expertise in the upfront part of this process.
In advance of this new strategy, for the Energy & Chemicals segment the company has determined that it will only pursue reimbursable or open-book lump-sum conversion engineering, procurement and construction prospects. The company believes that competitively bid lump-sum projects create a transactional market where the allocation of risk is not appropriately distributed.
The company has experienced a significant shift in end markets in 2020 driven by volatility in commodity prices and the global disruption from the COVID-19 pandemic. As a result, the company is suspending all previously issued 2020 guidance. In addition, the company is providing updates on the following:
- As of the end of August 2020, Fluor’s cash balance was $2.1 billion and the company expects the cash balance to be approximately in that range through the end of the year.
- The company continues to have adequate liquidity to meet its operational and project needs and has no amounts drawn on the revolving loans under its committed credit facilities.
- Fluor expects to file Q1 2020 results within the next month, followed approximately four weeks later by Q2 2020 results with Q3 2020 results approximately four weeks after that. The company will hold its next call with the investment community in conjunction with the release of its Q3 results.
The Energy & Chemicals segment reported a segment loss of $95 million in 2019 compared to a profit of $335 million in 2018. Segment profit in 2019 decreased significantly as a result of charges associated with forecast revisions on certain projects. Revenue for 2019 was $5.8 billion, down from $7.7 billion in the previous year. Full year new awards in 2019 totaled $3.7 billion, compared to $10.6 billion in 2018. Ending backlog was $14.1 billion compared to $17.8 billion a year ago.
The Mining & Industrial segment reported a segment profit of $159 million, up from $94 million in 2018. Full year revenue for the segment of $5.1 billion was up from $3.5 billion a year ago. Results for the year reflect increased project execution activities for several large mining projects and the favorable resolution of a longstanding customer dispute. Full year new awards in 2019 were $1.9 billion, and ending backlog was $5.4 billion compared to $8.9 billion a year ago.
The Infrastructure & Power segment reported a segment loss of $244 million compared to a loss of $30 million in 2018. Full year revenue for the segment was $1.4 billion compared to $1.7 billion a year ago. Results for 2019 include costs related to the settlement of three gas-fired power projects and forecast revisions related to several infrastructure projects. Full year new awards in 2019 were $2.6 billion, and ending backlog for the segment was $6.1 billion compared to $6.3 billion a year ago.
The Diversified Services segment, including certain retained AMECO operations, reported a segment profit of $15 million in 2019, compared to $69 million a year ago. Results for 2019 reflect reduced volumes of higher-margin operations and maintenance activities. Full year revenue was $2.0 billion compared to $2.3 billion in 2018. New awards totaled $2.2 billion for 2019, and ending backlog was $2.5 billion, up from $2.3 billion a year ago.
The Other segment, which is comprised of NuScale and the Radford and Warren government projects, reported a full year segment loss of $220 million, compared to a loss of $145 million a year ago. Results for the year include NuScale expenses of $66 million.
During the third quarter of 2019, management announced a plan to sell the company’s government and AMECO equipment businesses. The results of the government and AMECO businesses have been presented as earnings from discontinued operations for all periods presented in its 2019 10-K. In February 2020, Fluor announced its intention to retain the government business, and will reflect its financial information in continuing operations starting with the first quarter of 2020.
Results from discontinued operations for 2019 were a net profit of $154 million, or $1.10 per diluted share, compared to $164 million, or $1.17 per diluted share a year ago. Results for the fourth quarter reflect an $89 million favorable settlement related to a completed project. New awards totaled $2.0 billion for the year including a contract for the Hanford Central Plateau Cleanup Contract for the Department of Energy. Ending backlog was $3.6 billion, compared to $4.4 billion a year ago.
Fluor will host a conference call at 8:30 a.m. Eastern time on Friday, September 25, which will be webcast live on the Internet and can be accessed by logging onto investor.fluor.com. The call will also be accessible by telephone at 888-204-4368 (U.S./Canada) or +1 323-994-2093. The conference ID is 3597615. A supplemental slide presentation will be available shortly before the call begins.
A replay of the webcast will be available for 30 days. A replay of the call will be available by telephone for one week. Click Here to register for the replay.
For more information including restated financial tables, please see 2019 Form 10-K filed earlier today.
Non-GAAP Financial Measures
This press release contains a discussion of consolidated segment profit (loss) from continuing operations that would be deemed a non-GAAP financial measure under SEC rules. Segment profit (loss) is calculated as revenue less cost of revenue and earnings attributable to noncontrolling interests excluding: corporate general and administrative expense; impairment, restructuring and other exit costs; interest expense; interest income; domestic and foreign income taxes; other non-operating income and expense items; and earnings from discontinued operations. The company believes that consolidated segment profit (loss) from continuing operations provides a meaningful perspective on its business results as it is the aggregation of individual segment profit (loss) measures that the company utilizes to evaluate and manage its business performance. A reconciliation of consolidated segment profit (loss) from continuing operations to earnings (loss) from continuing operations before taxes is included in the press release table.