A Member of Pat McKeough’s Inner Circle recently asked for his advice on Fluor Corp, an EPC (engineering, procurement, and construction) company that operates across energy, urban, and mission solutions segments.
Pat likes the firm’s financial progress with rapidly rising revenue, as well as management’s strategic shift toward higher-margin and less risky contracts. However, he notes the company pays no dividend.
Fluor Corp. (Symbol FLR on New York; www.fluor.com) is a global provider of engineering, procurement and construction (EPC) services, an off-site fabricator of building components, and a project manager.
The company operates through three principal business segments: Energy Solutions, Urban Solutions, and Mission Solutions.
The Energy Solutions segment provides EPC services for the oil and gas, fuels, chemicals, liquefied natural gas and power markets.
The Urban Solutions segment provides a variety of services, such as consulting, program management and EPC services, to several markets—advanced technologies and manufacturing, healthcare, mining and metals, infrastructure, and project staffing.
The Mission Solutions segment provides high-end technical services to the U.S. and other governments. These include nuclear security and operations, as well as operations, maintenance, and other services in the areas of defence and intelligence.
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Fluor is part of a joint venture that was recently selected by the U.S. Department of Energy to execute the Hanford Integrated Tank Disposition contract. The joint venture, which is led by BWX Technologies Inc., also includes Amentum, a government and commercial services contractor. The focus is on operating the Hanford tank farm facilities in the state of Washington.
The facilities include 177 underground storage tanks that hold highly radioactive waste left over from 40 years of plutonium production, which ended in 1987. The contract, which will involve the eventual operation of a waste treatment plant, is worth as much as $45 billion over a 10-year period. Fluor’s share of this is about 25%.
Flour Corp: Revenue is up—but earnings hurt by legacy contracts
In the three months ended December 31, 2024, Fluor’s revenue rose 11.5%, to $4.26 billion from $3.82 billion. Excluding one-time items, the company earned $84.0 million, or $0.48 a share, in the latest quarter. That was down 28.2% from $117.0 million, or $0.68. The decline was due to lower-profit-margin contracts, plus additional costs associated with a legacy infrastructure contract.
Fluor’s long-term outlook remains positive. However, in the near term, it needs to complete a number of large-scale, fixed-price construction projects. Some of these have underperformed due to delays and cost overruns. Fluor has since moved toward focusing on higher-profit-margin work and less risky contracts.
Fluor trades at just 13.3 times its forecast 2024 earnings of $2.53 a share. The company stopped paying a dividend in late 2020 with the onset of COVID-19.
Recommendation in Pat’s Inner Circle: Fluor Corp. is okay to hold.
