On Dec 5, we maintained our Neutral recommendation on Fluor Corp. (FLR) given our concerns about the company’s moderate third-quarter earnings performance.
The company is expected to benefit from growing demand for energy. Clients will continue to invest in new and upgraded capacity to meet that demand. However, we are concerned about the company’s mining and metals business, which has been witnessing declining revenues due to lower orders. In addition, the company also reported lower order growth year over year.
Why the Reiteration?
On Nov 1, Fluor Corporation reported third-quarter 2013 net earnings of $173 million or $1.05 per share, beating the Zacks Consensus Estimate of $1.03 by 2 cents. Quarterly earnings increased 19.3% from $145 million in the year-ago quarter, while earnings per share rose 22.1% from 86 cents. Profits during the third quarter were primarily driven by growth in the Oil & Gas, Government and Power segments, partially offset by the sluggish mining and metals businesses.
Total revenue came in at $6.7 billion, compared with $7.1 billion in third-quarter 2012. Growth in the Oil & Gas segment was offset by the sluggish performance of the Industrial & Infrastructure segment. Revenues fell short of the Zacks Consensus Estimate of $7.3 billion.
Following the release of the third-quarter results, the Zacks Consensus Estimate for fiscal 2013 remained stagnant at $4.03 per share, while the Zacks Consensus Estimate for fiscal 2014 rose 0.2% to $4.40 per share.
During the last reported quarter, the company reported revenue increase in only two of its five segments. The top line primarily benefited from a significant rise in Oil & Gas (13.3% revenue growth) and Power (77.5%) revenues. This was fully offset by declines in the other three segments. The company’s metals and mining business continues to remain a drag.
The company narrowed its guidance for full-year 2013 due to a lack of growth opportunities in the company’s mining and metals business line. The company now expects 2013 earnings in the range of $3.90–$4.10 per share, down from its earlier guidance of $3.85–$4.20.
The company expects 2014 EPS in the range of $4.10 to $4.60 per share, driven by increasing opportunities in Oil & Gas segment, partially offset by the Government and mining and metals businesses.
Currently, Fluor retains a Zacks Rank #3 (Hold). However, some better-ranked energy and utility stocks include VSE Corp. (VSEC), AO Smith Corp. (AOS) and EnerSys (ENS). All these stocks carry a Zacks Rank #1 (Strong Buy).
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