Fluor Corp. (FLR) Q1 2014 Earnings Call Corrected Transcript: 01-May-2014
Kenneth H. Lockwood - Vice President-Finance & Investor Relations, Fluor Corp.
David Thomas Seaton - Chairman & Chief Executive Officer, Fluor Corp.Biggs C. Porter - Chief Financial Officer & Senior Vice President, Fluor Corp. Other Participants Michael S. Dudas - Analyst, Sterne, Agee & Leach, Inc. Jamie L. Cook - Analyst, Credit Suisse Securities (USA) LLC (Broker) Alex J. Rygiel - Analyst, FBR Capital Markets & Co. Andy Alec Kaplowitz - Analyst, Barclays Capital, Inc. Jerry D. Revich - Analyst, Goldman Sachs & Co. Andrew J. Wittmann - Analyst, Robert W. Baird & Co., Inc. (Broker) Tahira Afzal - Analyst, KeyBanc Capital Markets, Inc. John B. Rogers - Analyst, D. A. Davidson & Co. Tate H. Sullivan - Analyst, CLSA Americas LLC Vishal B. Shah - Analyst, Deutsche Bank Securities, Inc. Steven M. Fisher - Analyst, UBS Securities LLC Brian Konigsberg - Analyst, Vertical Research Partners LLC MANAGEMENT DISCUSSION SECTION Operator: Good afternoon and welcome to the Fluor Corporation's First Quarter Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's presentations. A replay of today's conference call will be available at approximately 8:30 p.m. Eastern Time today accessible on Fluor's website at www.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 8:30 p.m. Eastern Time on May 7 at the following telephone number: 888-203-1112. The passcode of 9590125 will be required. At this time, for opening remarks, I would like to turn the call over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood. Kenneth H. Lockwood, Vice President-Finance & Investor Relations Thanks very much, operator, and welcome, everyone, to Fluor's first quarter 2014 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer, and Biggs Porter, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed and we have posted a slide presentation on our website, which we will reference while making our prepared remarks. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which we've summarized on Slide 2. During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors which could potentially contribute to such differences in the company's Form 10-Q, which was also filed earlier today. During today's call, we may discuss certain non-GAAP financial measures, and reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are also posted in the Investor Relations section of our website at investor.fluor.com. With that, I'd like to turn the call over to David Seaton, Fluor's Chairman and CEO. Please go ahead, David. David Thomas Seaton, Chairman & Chief Executive Officer Thanks, Ken. Good afternoon, everyone, and thanks for joining us. On today's call we'll review our results for the first quarter and discuss our outlook for the remainder of 2014. If you'll turn to Slide 3, I want to start by covering some of the highlights from our first quarter. Net earnings attributable to Fluor for the quarter were $149 million or $0.92 per diluted share, which compares with $166 million or $1.02 per diluted share a year ago. This is consistent with our expectations and previous guidance for lower earnings in the early part of the year followed by a ramp-up in the second half of 2014 and into 2015. Consolidated segment profit for the quarter was $268 million, which compares to $294 million the first quarter of 2013. Segment profit results were driven by a 32% increase in Oil & Gas profit offset by lower contributions from the company's other segments, which, as we have discussed, are experiencing varying degrees of market challenges. Consolidated revenue for the quarter was lower than expected at $5.4 billion, down from $7.2 billion a year ago, again mainly due to significantly lower revenues in the Mining and metals business line. We are very pleased with our new awards for the quarter, which were a record $10.7 billion. New awards were primarily driven by Oil & Gas orders of $8.8 billion while Industrial & Infrastructure booked $924 million and our Government group booked $748 million. Consolidated backlog at the quarter-end rose to $40.2 billion, up $5.3 billion over last quarter and up from $37.5 billion a year ago. Our financial results are summarized on the next slide in the table. And I'll continue my remarks on Slide 5. The first quarter the Oil & Gas segment booked, as I've said, the new award number of $8.8 billion, which included a portion of the engineering, procurement and construction on an LNG project in Canada as well as a major clean fuels refinery program in Kuwait, a refinery expansion in Canada, a pipeline project in Mexico, and a chemicals project in Malaysia. Ending backlog for the Oil & Gas segment rose 38% from a year ago and now sits at $25.7 billion, the fifth sequential quarterly increase. Turning to Slide 6. The Industrial & Infrastructure new awards were just under $1 billion, including additional scope on a copper project in Peru and an iron ore facility in Australia. Backlog at the end of the quarter was $9.9 billion, down from $16 billion a year ago. This decline was driven by the Mining and metals business line, which was impacted by lower awards and a project cancellation in 2013. In Infrastructure, opportunities continue to evolve and we are tracking a number of road and rail projects that are expected to be awarded later this year. If you'd turn to Slide 7. The Government group posted new awards for the quarter of $748 million, including a five-year contract to maintain the United States Strategic Petroleum Reserve for the Department of Energy. This is a great win for the group as they focus on expanding their service businesses. Ending backlog was $2.6 billion, up from $2.4 billion last quarter. I'm also pleased to report that last month we were informed that the Nuclear Decommissioning Authority in the United Kingdom selected the Cavendish Fluor partnership as the preferred bidder on Magnox for the decommissioning of 12 nuclear sites. This project will leverage our considerable experience in nuclear remediation. In the Power segment, new awards were $166 million and ending backlog was $1.9 billion, comparable with the $1.9 billion a year ago. Although the market is very competitive, we're bidding a number of gas-fired power generation facilities and expect awards over the next few quarters. Although book and burn from these projects would be light in the current year, the number of opportunities is important to our prospects for growth in Power in 2015. In other Power-related news, I want to provide a brief update on NuScale. As you know, the DoE selected NuScale for the second round of FOA funding. We're in a process of working towards financial close with the DoE, which will be a key step in attracting potential investors, manufacturers and other supply chain partners. With that, I'll now turn the call over to Biggs to review some of the details of our operating performance and the corporate financial metrics for the quarter. Biggs? Biggs C. Porter, Chief Financial Officer & Senior Vice President Thanks, David, and good afternoon, everyone. Please turn to Slide 8 of the presentation. I want to start by providing some additional comments on our performance for the first quarter. As David mentioned, revenue for the first quarter was down fairly significantly year-over-year, mainly due to the continued fall-off in Mining activities. Revenue was also down from last quarter mainly due to Mining but we also saw a modest reduction in Oil & Gas. This reduction is a reflection of a change in the mix of the work there with a larger FEED and engineering content as compared to construction. This mix change had a favorable impact on Oil & Gas margins in the quarter. We expect construction work on a number of large Oil & Gas projects to pick up later in the year, once the engineering work has progressed. Corporate G&A expenses for the first quarter were $38 million, up from $33 million a year ago. A majority of this increase can be attributed to higher compensation expenses. The effective tax rate in the first quarter was approximately 29% including a positive effect from deferred tax benefits in certain foreign jurisdictions. We expect our tax rate for the remainder of the year to be between 32% and 33%. Shifting to the balance sheet on Slide 9. Fluor's financial condition remains very strong, with cash plus current and noncurrent marketable securities totaling $2.6 billion. This compares with a balance of $2.5 billion a year ago. During the quarter the company generated $187 million in cash flow from operating activities and repurchased approximately $200 million worth of Fluor shares. Consistent with our announcement last year, we've retired about $400 million worth of shares over the past two quarters.