Fluor Corporation (FLR)

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Fluor Corporation (FLR)

December 06, 2011 8:20 am ET


Kenneth H. Lockwood - Vice President of Corporate Finance and Investor Relations

David T. Seaton - Chief Executive Officer and Director


Unknown Analyst

Andrew Obin - BofA Merrill Lynch, Research Division


Andrew Obin - BofA Merrill Lynch, Research Division

And we also have Jason Landkamer, who works on the team as well, on IR team. Fluor is the largest publicly-traded U.S. engineering and construction company, with a leading position in a diverse range of industries from oil and gas and petrochemicals to mining and power gen. We have a buy rating on the stock as we think people underestimate our company's ability to grow its backlog and revenues long term and as well as company's very steady execution. And with that, I will let Ken talk. Thank you.

Kenneth H. Lockwood

Thank you, Andrew. Good morning, everyone. I'll give a brief overview of the company and a lot of time for Q&A, I think that will work best. So I'll get through this fairly quickly. As Andrew said, Fluor is the largest publicly-traded U.S. C&C in the space and by a wide margin.

Just very briefly, I'll show you our Safe Harbor Statement there. For those of you who may not be familiar and those of you listening on the webcast, Fluor is a -- definitely a leader in the engineering procurement construction and maintenance space. We call it EPC or E&C as the sector is called. Important that we do everything from the very conceptual work to -- and through the maintenance after we've built the project. Very, very long-term global presence. So we're not in the mode of necessarily trying to go out and pursue the markets that have developed over the last couple of years. Fluor has been in the Middle East for 60 years, been in China for nearly 40 years, been in South America for many, many years. And so we're really already positioned in all the places that are both emerging and continuing to develop. We are a very diversified company. I think most of the companies in our peer group have sought to diversify over the years to try to blend out some of the cyclicality of various markets. I think we've done that better than anybody else and in a material way. I'll show you some charts in a moment that demonstrate that.

We're diversified in the energy space. That includes not only oil, gas, petrochemical but also power, and we're very diversified in the industrial space as well. I'll show you some charts that demonstrate our backlog in mining in particular. And then also in infrastructure space in the U.S., we built significant road programs and rail programs.

And then finally, for the U.S. Government, which is, as you might imagine, a very, very large market, we work for the Department of Energy, Department of Defense. We've effectively tripled the size of that business over the last several years. We're very proud of that accomplishment.

The next point is key, and I will touch on it several times as I talk about our markets. That's in terms of this front-end engineering and design work. We call it FEED for short. Basically that's the very technical front end work that goes on before a major industrial client pulls the trigger on a multibillion-dollar investment. So it's important if you can position yourself to do that work, get inside the fence with the customer, help them solve their problem, help them create solutions that create value for their shareholders and then ultimately, position yourself for the follow-on EPC engineering procurement construction work that follows that. And that's where we get the very, very large programs.

We do have a very strong balance sheet, as you might imagine in this market, particularly given our performance. We ended the quarter with $2.8 billion in cash and marketable securities. We also have very robust bonding capacity, which we need as a major EPC contractor in the space. So as you might imagine, these multibillion-dollar infrastructure programs do require bonding of the contractor. And then finally, in the E&C space, new awards and backlog are absolutely key in monitoring the performance. We did book $6.7 billion in new work in the quarter, which was substantial and that led to a record backlog for the company of $41.8 billion, not insignificant given that really over the last couple of years, the markets have not been that strong.

We're going to move to the next slide now and look at some of the segmentation of the business. On the left side of the chart is our revenue performance in the most recent quarter, and you can see that 40% of the business was from our industrial infrastructure business, which is mining and infrastructure principally. Oil and gas business was a little over 1/3 of the business, and that's an interesting point there because in our history I would say that fairly consistently, the oil and gas business is the largest business. So we're actually encouraged by that. It says 2 things: Number one, we've very dramatically grown our industrial business, which we're proud of but also, oil and gas is poised really to be the growth driver again for the company.

At the top there, you see Global Services, 6% of the business. That's our operation and maintenance business, long-term renewable business and the 15% represents our Government Business, as I mentioned. If you look to the right side, you see the backlog, the $41.8 billion at September 30, about half of the business again industrial infrastructure, and you can see the other balance there. We don't typically carry a large backlogs on our Global Services operations and maintenance business or our Government Business. We tend to book those on a very conservative basis, tend to book an annual amount rather than very large long-term contract values.

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