10-Q: Fluor Corporation Reports Third Quarter 2024 Results, Announces NuScale Deconsolidation

Fluor Corporation's Q3 2024 results show a mixed performance with revenue growth offset by lower segment profits, and the company announces the deconsolidation of NuScale Power.

Summary

• Fluor Corporation reported a revenue of $4.094 billion for the third quarter of 2024, compared to $3.963 billion in the same period last year, and $12.055 billion for the first nine months of 2024, compared to $11.654 billion for the same period last year.
• The company's net earnings attributable to Fluor were $54 million for the quarter and $282 million for the first nine months of 2024, compared to $206 million and $161 million respectively for the same periods in 2023.
• Segment profit declined in the Energy Solutions segment due to the initial recognition of inflation-adjusted variable consideration on certain downstream projects during the 2023 periods and lower contributions from a large project in the late stages of execution.
• Urban Solutions segment profit improved due to an agreement on a change order on a legacy infrastructure project, while Mission Solutions segment profit improved due to increased execution activities on DOE contracts.
• The company's effective tax rate was 70.9% for the third quarter of 2024 and 44.0% for the first nine months of 2024, compared to 30.4% and 59.1% respectively for the same periods in 2023.
• Fluor received a $169 million tax refund from the IRS during the first nine months of 2024.
• The company's backlog increased to $31.319 billion as of September 30, 2024, from $29.441 billion at the end of 2023, primarily due to a large life sciences project award.
• Fluor will deconsolidate NuScale Power beginning in October 2024 and expects to recognize a gain of $1.6 billion in the fourth quarter of 2024 based on a stock price of $13.15 for its 126 million shares.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with revenue growth but declining profits and a higher tax rate. The deconsolidation of NuScale is a positive development, but the company faces ongoing challenges with project execution and legacy issues. The sentiment is neutral to slightly negative.

Positives

• Revenue increased in the third quarter and first nine months of 2024.
• The Urban Solutions segment saw significant revenue growth and improved profitability.
• Mission Solutions segment profit improved due to increased activity on DOE contracts.
• Operating cash flow significantly improved for the first nine months of 2024.
• The company received a substantial tax refund from the IRS.
• Backlog increased due to a large life sciences project award.
• Fluor anticipates a significant gain from the deconsolidation of NuScale Power.

Negatives

• Net earnings attributable to Fluor decreased in the third quarter of 2024 compared to the same period in 2023.
• Segment profit declined in the Energy Solutions segment.
• A $57 million charge was recorded due to cost growth on a construction subcontract in Mexico.
• The effective tax rate was significantly higher in the third quarter of 2024 compared to the same period in 2023.
• New awards in the Energy Solutions segment were lower in the 2024 Quarter and 2024 YTD compared to 2023.

Risks

• The company's earnings are subject to volatility due to recurring fair value measurements of its investment in NuScale.
• The price of NuScale's stock is subject to significant volatility.
• The company faces risks related to project cost overruns, delays, and performance of subcontractors and partners.
• The company is subject to litigation, claims, and other contingencies.
• The company's credit facility contains provisions that will require it to provide collateral if downgraded.
• The company's backlog includes $859 million for ongoing legacy projects in a loss position.

Future Outlook

Fluor expects to recognize a $1.6 billion gain in Q4 2024 from the deconsolidation of NuScale and will begin accounting for its investment in NuScale using the fair value option. The company also anticipates closing the sale of Stork's U.K. operations as early as the first quarter of 2025, pending regulatory approval. Fluor will soon be initiating a plan to return capital to its shareholders.

Management Comments

• Management believes that total segment profit provides a meaningful perspective on our results.
• Management is unable to estimate the possible loss or range of loss for certain legal matters.
• Management believes that anticipated cash generated from operations, along with unused credit capacity and cash position, is sufficient to support operating requirements and debt maturities for at least the next 12 months.

Industry Context

Fluor operates in the global EPC industry, which is cyclical and subject to economic conditions. The company's performance is influenced by capital investment decisions of its clients, competition, and project execution risks. The deconsolidation of NuScale reflects a strategic shift in Fluor's portfolio, while the sale of Stork's operations aligns with the company's focus on core business segments.

Comparison to Industry Standards

• Fluor's performance is compared to other large engineering and construction companies such as Bechtel, KBR, and Jacobs Engineering.
• The company's backlog and revenue are benchmarked against industry averages to assess its market position.
• The company's project execution and cost management are compared to industry best practices.
• The company's financial metrics are compared to industry peers to evaluate its profitability and efficiency.
• The company's strategic decisions, such as the deconsolidation of NuScale, are compared to industry trends and competitor actions.

Legal Proceedings

• Fluor Australia is involved in a legal dispute with Santos Ltd. regarding a project in Queensland, Australia.
• Fluor is involved in a legal dispute with the North Texas Tollway Authority regarding a highway project.

Stakeholder Impact

• Shareholders will be impacted by the deconsolidation of NuScale and the potential $1.6 billion gain.
• Shareholders will be impacted by the plan to return capital.
• Employees may be impacted by the sale of Stork's U.K. operations.
• Customers may be impacted by the company's performance on ongoing projects.
• Suppliers and subcontractors may be impacted by the company's financial performance and project execution.

Next Steps

• Fluor will deconsolidate NuScale Power in the fourth quarter of 2024.
• Fluor will recognize a gain of $1.6 billion in the fourth quarter of 2024 from the deconsolidation of NuScale.
• Fluor will begin accounting for its investment in NuScale using the fair value option.
• Fluor expects to close the sale of Stork's U.K. operations as early as the first quarter of 2025.
• Fluor will initiate a plan to return capital to its shareholders.

Key Dates

Keywords

Fluor Corporation, financial results, quarterly report, revenue, net earnings, backlog, NuScale Power, deconsolidation, segment profit, operating cash flow, tax refund, project execution, engineering, construction, infrastructure