Fluor (FLR) Gears Up for Q3 Earnings: What's in the Cards?

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Fluor CorporationFLR is scheduled to report third-quarter 2018 results on Nov 1. In the last reported quarter, the company's earnings came in at 81 cents per share, beating the Zacks Consensus Estimate of 69 cents by 17.4%.

How are Estimates Faring?

Let's take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. For the quarter to be reported, the Zacks Consensus Estimate is currently pegged at 58 cents, trending downward over the past 30 days. This also reflects a decrease of 13.4% from the year-ago earnings of 67 cents per share. Revenues are expected to be $4.61 million, down 6.7% year over year.

Fluor Corporation Price and EPS Surprise

Fluor Corporation Price and EPS Surprise | Fluor Corporation Quote

Factors at Play

Earlier in October, the company released preliminary third-quarter results, which were hindered by another round of project charges. Pre-tax earnings are expected to come in at approximately $125 million. Notably, the company's third-quarter preliminary results include pre-tax charges of $46 million, pertaining to close out efforts on a downstream project in Europe and $35 million for estimated revisions on a gas-fired power project in Citrus County, FL. Preliminary results also comprise $124 million pre-tax benefit owing to the sale of Seagreen offshore investment.

The company anticipates third-quarter revenues to be nearly $4.6 billion, which compares unfavorably with the prior-year figure of $4.94 billion.

Although disappointing preliminary results may weigh on its performance, backlog appears to be showing some sign of relief with roughly $9 billion in new awards expected in the third quarter and a similar level expected in the fourth quarter. Despite bleak preliminary results, Fluor expects to make a turnaround in 2019.

Segment Discussion

Fluor has been enhancing its competitive position in the market through prudent leadership initiatives and strategic alliances. Notably, starting from first-quarter 2018, the company shifted the mining business to its industrial, infrastructure and power segment to better align external reporting with its operations.

Fluor's revenues from the Energy & Chemicals segment, accounting for 41.3% of the total revenues, registered a 7.5% year-over-year decline in the first six months of 2018. Currently, the company's margins are under pressure as it is transitioning from higher-margin engineering to lower-margin construction activities, particularly related to Energy & Chemicals segment. This migration is a result of the natural maturing of EPC projects, as well as low level of new awards over the past several quarters, which is the most prominent reason that causes year-over-year variance in results.

The Zacks Consensus Estimate for Energy & Chemicals revenues of $1,892 million reflects a decrease from $2,413 million in the year-ago quarter and $2,015 million in the second quarter.

Meanwhile, Mining, Industrial, Infrastructure & Power segment, accounting for 27.4% of the company's total revenues, has been reporting dismal results. The company's mining segment picked up pace from the second quarter and it currently holds a positive outlook for the mining infrastructure market.

The Zacks Consensus Estimate for second-quarter revenues for the segment is pegged at $1,444 million, reflecting growth from $1,340 million in the last reported quarter and $1,139 million in the year-ago period.

Robust pipeline of work in North America and Europe is expected to be favorable for the company's Diversified Services business. Further, it has grown its maintenance, fabrication and construction capabilities, as well as invested in systems and processes that are expected to improve project delivery. The segment registered 8.2% year-over-year revenue growth in the first six months of 2018. Revenues from the segment are expected at $663 million versus $666 million in the second quarter.

Meanwhile, Government segment (contributing 17.7% to the total revenues) has been performing pretty well. Fluor enjoys a solid track record of contracts, and management remains optimistic that the trend will continue even in the future, thereby driving growth of the company. Over the past few quarters, major wins in the government business allowed Fluor to expand its long-term recurring revenue opportunities. The trend is expected to have continued in the to-be-reported quarter as well.

Revenues at the Government segment soared 45.1% year over year in the first six months of 2018. The Zacks Consensus Estimate for the segment's revenues of $834 million reflects growth from $766 million in the year-ago quarter but a slight decline from $863 million in the preceding quarter.

Over the past few quarters, Fluor's market diversity has remained a key strength and allowed the company to mitigate the cyclicality of markets in which it operates. Fluor continues to be optimistic about its investment projects, particularly the LNG projects in North America. Furthermore, the company has a strong track record of receiving awards, which is anticipated to prove conducive to bottom-line growth in the to-be-reported quarter as well.

Quantitative Model Prediction

Our proven model does not conclusively show that Fluor is likely to beat on earnings in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Currently, the company carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions. You can see the complete list of today's Zacks #1 Rank stocks here .

Notably, Fluor, which shares space with Jacobs Engineering Group Inc. JEC and AECOM ACM , surpassed the Zacks Consensus Estimate in three of the trailing four quarters, recording an average positive surprise of 3.3%.

A Stock With Favorable Combination

Here is a construction stock that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat in the upcoming release:

MasTec, Inc. MTZ has an Earnings ESP of +2.2% and a Zacks Rank #2. The company is slated to report quarterly results on Nov 1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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