On Aug 26, we maintained our Neutral recommendation on
). The company reported a 3.1% year-on-year rise in earnings and
a 1.4% increase in revenues. However, both the top and bottom
lines missed the Zacks Consensus Estimate.
The company is expected to benefit from improvements in the
oil and gas segment, which is expected to be partially offset by
the slowdown of growth opportunities in the company's mining and
metals business as well as unexpected claim charges. Therefore,
the company lowered its upper-end guidance for 2013 and now
expects 2013 earnings to be in the range of $3.85-$4.20 per
share, down from its earlier guidance of $3.85-$4.35.
Why the Reiteration?
On Aug 1, Fluor Corporation reported second-quarter 2013 net
earnings of $161 million or 98 cents per share, well below the
Zacks Consensus Estimate of $1.01. Quarterly earnings increased
3.1% year over year from 95 cents a share. Profits during the
second quarter were primarily driven by growth in the Oil &
Gas segment, partially offset by a charge of $17 million related
to outstanding embassy claims.
Total revenue came in at $7.2 billion, compared with $7.1
billion in second-quarter 2012. Top-line growth came on the back
of strong performance in the Oil & Gas
segment. Consolidated backlog was $37 billion at
quarter-end, down from $37.5 billion in the second quarter of
2012, primarily due to the downturn in the mining and metals
Following the release of the second-quarter results, the Zacks
Consensus Estimate for fiscal 2013 declined 1.4% to $4.08 per
share. Moreover, the Zacks Consensus Estimate for fiscal 2014
also contracted 1.1% to $4.60 per share.
Fluor has a proven track record of on-time project completion,
thereby ensuring client satisfaction. The company strives hard to
complete all its projects on schedule while meeting, or, in fact,
exceeding the client specifications. Further, in a cut-throat
competitive environment, Fluor continuously emphasizes on cost
controls so that it delivers not only the performance
requirements specified by its clients but also their budgetary
needs. Hence, these initiatives give Fluor the extra edge and a
distinct competitive advantage.
In addition, Fluor's market diversity is a key strength that
helps it to mitigate the impact of the cyclicality in the markets
in which it operates. Therefore, market diversification allows
Fluor to achieve more consistent growth and deliver solid
returns. The company's strategy of maintaining a good mixture
within its entire business portfolio permits it to both focus on
the more stable business markets and to capitalize on developing
the cyclical markets when the timing is appropriate.
However, a highly competitive business environment has
continuously pressured margins. This competitive environment is
expected to continue and may result in more lump-sum project
execution for the company. In some instances, margins are being
negatively impacted by the change in the mix of work performed.
For example, a higher mix of construction-related work and a
higher content of customer-furnished materials typically generate
lower margins than engineering work or projects without
Further, the company carries the risk of cost overruns worth
approximately 15% of the dollar value of its contracts. It may
experience reduced profits, or in some cases, losses under these
contracts if costs increase above its estimates. It depends on
third parties to complete many of its contracts.
Other Stocks to Look For
Currently, Fluor Corporation retains a Zacks Rank #3 (Hold),
which also justifies the recommendation.
Some other stocks that are performing well in the industry
where Fluor operates include
Michael Baker Corp
AO Smith Corp.
). Michael Baker Corporation carries a Zacks Rank #1 (Strong
Buy), while VSE Corp. and AO Smith Corp. carry a Zacks Rank #2
SMITH (AO) CORP (AOS): Free Stock Analysis
BAKER (MICHAEL) (BKR): Free Stock Analysis
FLUOR CORP-NEW (FLR): Free Stock Analysis
VSE CORP (VSEC): Free Stock Analysis Report
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