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Fluor's Arm Wins 4-Year Turnaround Contract From Ecopetrol

Zacks Equity Research

Fluor Corporation’s FLR unit, Stork has received a four-year framework contract from Ecopetrol S.A. EC to provide turnaround maintenance services for the latter’s’ Barrancabermeja and Cartagena refineries situated in Colombia.

Stork — which is part of Fluor’s Diversified Services business — and its consortium partners will maintain Ecopetrol’s plant process units, as well as provide emergency measures, and other preventive and corrective maintenance services.

Per the deal, Stork will work as an international lead partner, while its consortium partners Rampint and Servimant will act as local partners in Barrancabermeja and Cartagena, respectively, to optimize the performance of refineries. Moreover, the contract, which is projected to begin in September, has two additional two-year extension options.

Notably, the undisclosed contract value will be booked by the company in second-quarter 2019.

Since 2013, Stork has been providing maintenance and turnaround services to Colombia-based Barrancabermeja refinery. The company is planning to implement detailed professional solutions, along with a range of innovative products and techniques.

New Awards to Revive Fluor’s Diversified Services

Revenues from Fluor’s Diversified Services segment — which accounted for 13% of total revenues in the first quarter of 2019 — sharply declined 14.5% year over year. Also, operating margin decreased 100 basis points, primarily due to cancellation of a large operation and maintenance project in North America, along with lower number of such projects in Australia. Lower contributions from the power services business added to the woes.

We believe new contract wins will help revive the segment. Over the last few quarters, major wins have allowed Fluor to expand long-term recurring revenue opportunities. During the first quarter, new awards of $810 million in the said segment were significantly higher than the year-ago level of $433 million. Quarter-end backlog was $2.6 billion compared with $2.3 billion a year ago. Solid backlog level will aid the company to generate higher revenues in the near term.

Meanwhile, shares of the company have started reviving of late. The stock has gained 7.2% in the past month, in line with the industry's growth. The company believes that the diversified service business will improve in the upcoming quarters as clients have already started to increase their maintenance spend. It has initiated certain restructuring activities to optimize costs and improve operational efficiency in the Stork business during the first quarter.

Zacks Rank & Key Picks

Currently, Fluor carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same space include KBR, Inc. KBR and Quanta Services, Inc. PWR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

KBR and Quanta Services’ earnings for the current year are expected to increase 8.5% and 29.5%, respectively.

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