Fluor's Stock Dips 24% on Disclosure of SEC Accounting Probe

Fluor Corporation’s FLR shares plunged more than 24% on Feb 18, as the company reported preliminary select financial results for the fourth quarter and 2019. Also, it announced that its past accounting and financial reports are being investigated by the Securities and Exchange Commission ("SEC").

Resultantly, the company delayed the submission of fourth-quarter and 2019 financial statements, and does not expect to release the same until February-end. Investors should note that the company has not filed full-year financial results and hence, the information is preliminary and unaudited, and could be affected by subsequent events or determinations.

Full-Year Preliminary Numbers

In 2019, corporate G&A expense is expected to be $167 million, indicating 41.5% increase from $118 million reported a year ago. This can be primarily due to foreign currency exchange losses incurred during the year.

Cash plus current and marketable securities totaled $2 billion, slightly up from a year ago. Notably, the company expects to generate $668 million non-cash charge related to establishing a valuation allowance against net deferred-tax assets. Also, it anticipates non-cash impairments of $305 million, restructuring and other exit costs of $202 million ($84 million of which is non-cash) and $138 million non-cash expenses related to the settlement of the U.K. pension plan.

New awards came in at $12.6 billion, of which $3.7 billion was recorded in the Energy & Chemicals unit, $1.9 billion in the Mining & Industrial segment, $2.6 billion in the Infrastructure & Power business, $2.2 billion in the Government unit, and $2.2 billion in the Diversified Services segment. Consolidated backlog at the end of 2019 is projected to be $32.7 billion.

Segment-Wise Preliminary Discussion

In the Energy & Chemicals segment, new awards were $3.7 billion compared with $10.6 billion in 2018. Fourth-quarter awards totaled $1.7 billion, including a project for INVISTA in China and the Polyols Petrochemicals project for Bharat Petroleum Corporation in India. Year-end backlog is likely to be 14.1 billion compared with $17.8 billion reported a year ago.

New awards for the Mining & Industrial segment totaled $1.9 billion, significantly down from the year-ago figure of $8.7 billion. The same in fourth-quarter 2019 came in at $527 million. The year-end backlog is estimated to be $5.4 billion compared with $8.9 billion a year ago.

The Infrastructure & Power segment’s new awards were $2.6 billion in 2019 compared with $2.1 billion in 2018. Backlog from the segment is anticipated to be $6.9 billion compared with $6.3 billion a year ago. In fourth-quarter 2019, the segment booked new awards worth $67 million.

In the Government segment, new awards were $2.2 billion in 2019 and $146 million in the fourth quarter. Backlog at the end of 2019 is expected to be $3.8 billion, indicating a decline from $4.6 billion in 2018.

Diversified Services segment’s new awards — including certain retained AMECO operations — totaled $2.2 billion, slightly up from $2.1 billion in 2018. Fourth-quarter new awards were $574 million. Backlog for 2019 is expected to be $2.5 billion, suggesting an increase from $2.3 billion booked a year ago.

For full-year 2019, NuScale expenses are likely to be $79 million.

Strategic Divestitures’ Highlights

In third-quarter 2019 earnings call, the company planned to sell all government and equipment businesses to improve financial position. However, Fluor withdrew the plan to sell the Government segment as it gained confidence in its solid liquidity position and viable options for generating cash flow. The said business will cease to report as discontinued operations from first-quarter 2020.

Meanwhile, the plan to divest the AMECO equipment business by the end of the second quarter remains unchanged.

2020 View

The company projects adjusted earnings from continuing operations (minus costs related to restructuring and NuScale), including the Government business, within $1.40-$1.60 per share. The Zacks Consensus Estimate for the same is currently pegged at $1.49 per share.

Adjusted G&A expenses are likely to be within $40-$50 million, excluding restructuring costs. NuScale expenses are likely to be $110 million. Tax rate is anticipated to be 28%.

Segment-wise, it expects margins to be 3-5% in Energy & Chemicals, 2-3% in Mining & Industrial, 1% in Infrastructure & Power, 2.5-3.5% in Government, and 3-4% in Diversified Services.

Zacks Rank & Stocks to Consider

Fluor currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Three better-ranked players with solid near-term prospects in the Engineering - R and D Services industry are Jacobs Engineering Group Inc. J, KBR, Inc. KBR and Altair Engineering Inc. ALTR.

Jacobs has expected EPS growth rate of 10.3% in fiscal 2020.

KBR is expected to come up with earnings growth of 15% in 2020.

Altair is likely to see earnings growth of 49.4% in 2020.

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