- Fluor announced Friday it lost $107 million in the first quarter of 2023, compared to a $48 million profit a year ago, due to project forecast revisions and sale of AMECO South America, according to the company’s first quarter earnings report.
- Revenue for the first quarter hit $3.75 billion compared to $3.12 billion a year ago, about a 20% increase, due to projects in midscale LNG chemicals, advanced technologies and life sciences, said Fluor CEO David Constable during an earnings call. Backlog reached $25.62 billion, a 33% jump from $19.25 billion in the prior year.
- The Irving, Texas-based company reported its new awards for the first quarter totaled $3.2 billion, a 68% increase from $1.9 billion a year ago, according to the report. “New awards for the quarter were in line with our expectations and on track relative to our four-year plan,” said Constable during the call. “Our optimism for the future of Fluor is further supported by a robust prospect pipeline.”
While the $485 billion Inflation Reduction Act and $52 billion CHIPS Act have been touted as promoting investment in U.S. manufacturing projects, Constable highlighted a drawback to that funding during the call.
He said the firm’s clients aren’t relying on that funding for their projects, while Fluor isn’t actively seeking projects tied to it, because the application process is proving to be “very tricky.”
That’s particularly true for the CHIPS Act, which requires companies to share a percentage of profit with the government if subsidies surpass $150 million, bars them from investing in China for 10 years, discourages share buybacks and requires union construction, said Constable.
“It’s something that we’re certainly interested in, but it’s not holding us back,” Constable said. “Where we’re playing right now in Asia, with the likes of Intel, is a very strong market. We also see clients here in the U.S. going forward with major builds [without it.]”
New awards for the first quarter included a large automated distribution center program in North America, continued work on an existing semiconductor plant in Malaysia and large semiconductor projects in both Idaho and Oregon, said Constable.
About 81% of the new awards are reimbursable, while total backlog moved up to about 64% reimbursable contracts, said Constable. These types of contracts require the client to cover the cost of all completed work, meaning the final price is determined once the project is finished, reducing risk for the contractor.
A drag from older awards
But lingering legacy projects continue to hamper results.
Results for the first quarter included $80 million in charges on two legacy projects, namely a $59 million charge on the LAX People Mover job in Los Angeles and $21 million charge on the Warren Air Force Base in Wyoming, as well as a $60 million impact from the sale of AMECO South America.
Common issues on those legacy infrastructure contracts include lack of contractual protection for supply chain volatility, labor escalation costs and overall labor availability, said Constable.
“The underlying performance of our healthy backlog continues to be impacted by a few remaining legacy projects,” said Constable.
Takeaways from earnings
The $80 million in charges from those two legacy projects cloud an otherwise healthy quarter, said Andrew Wittmann, senior research analyst at Milwaukee-based financial services company Baird, in a research note.
“While future cash recovery on these [projects] may occur, today the charges are bad news,” said Wittmann. “Excluding, signs of better profitability in Energy and Missions [segments] are notable positives.”
The $59 million charge on the LAX Automated People Mover project includes rework associated with subcontractor design errors, the related schedule impacts and systems integration testing timeliness, said Constable. Construction on the project is 88% complete, according to the company earnings presentation.
Meanwhile, the $21 million charge on the Warren Air Force Base is due to government directed change orders. The project is over 70% complete, according to Fluor.