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Multinational engineering and construction firm Fluor Corporation (FLR) announced lower-than-anticipated Q2 2022 revenues and earnings two weeks ago, missing analysts’ consensus estimate for two consecutive quarters and resulting in a 5.5% drop in the company’s share price.

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As the largest publicly traded construction and engineering company on the Fortune 500, Fluor Corp primarily provides services within the oil and gas, electronic power, industrial infrastructure, and government contracting industries. It is the third-largest U.S. based construction company with a combined annual revenue of $11.7 billion, according to 2021 data from the Engineering News Record.

The Texas-headquartered business primarily attributed the 11% decline from $3.7 billion to $3.3 billion in revenue to the completion of several long-term projects in their Urban and Missions Solutions segments. These included multiple data centers in Europe, a mining project in Australia, a metals project in Canada, and the closure of the U.S. Army’s Logistics Civil Augmentation Program (LOGCAP) project in Afghanistan, according to the report.

Missing the second quarter’s consensus estimate of $3.5 billion, Fluor cited recent difficulties on their $4.5 billion Gordie Howe International Bridge legacy project. After a 100-foot-long section of the 1.6-mile bridge between the U.S. and Canada border collapsed in June 2022, the site was closed for 18 days.

A review of the project following its reopening on July 23 detailed “significant inflation pressure on materials and labor” totaling $32 million according to Chairman and Chief Executive Officer David Constable on the company’s Q2 2022 Earnings Call on August 5.

“Much of Fluor’s business is driven by large project awards…Large projects result in lumpier bookings and can result in larger project charges, should project execution deteriorate.”

– Baird Senior Research Analyst Andrew Wittman

In a research note by Andrew Wittmann, senior research analyst of the financial services company Baird, Fluor’s history of working on and commitment to “large-scale, multi-billion dollar ‘mega projects’” poses as much risk as it does reward for the company’s immediate and long-term future.

Citing the fluctuation of cost for raw materials such as copper, aluminum, and iron- Wittmann cautions that concentration on massive projects in such a shaky climate may not contain commodity pricing safeguards.

“While Fluor’s average contract size is roughly $20 million to $30 million, and the firm benefits from a diverse portfolio of project work, much of Fluor’s business is driven by large project awards,” said Wittmann. “Large projects result in lumpier bookings and can result in larger project charges, should project execution deteriorate.”

Despite the frustration in not meeting their goals for the second straight quarter and the double-edged sword that completing projects causes in the short term, Fluor remains optimistic for a fruitful rest of the year.

“Our new awards for the quarter demonstrate that clients are moving forward with capital spending plans in a challenging business environment,” said Constable.

Despite losses, upcoming projects may recover revenue

There are a few awarded projects that may make up for some of Fluor’s financial losses from the first half of 2022. These include an undisclosed contract with another Australian mining project as well as the $548 million highway project in Texas.

Constable also predicted that the company will see both short and long-term benefits over the recent passage of the CHIPS Act, a $52 billion effort to entice semiconductor manufacturers to build facilities in the U.S.

“We expect to see incremental awards in that space,” Constable said on the Earnings Call. “I’m talking hundreds of millions of dollars. And then you can think about a couple billion in the first quarter of next year.”

This optimism is accompanied by PR goodwill by way of Project Director Roya Noorbakhsh and Communications Manager Laura Ware’s recognition as models of excellence in transportation leadership, finance, and innovation by the American Road & Transportation Builders Association.

Named Public-Private Partnership (P3) Champions of the Year for their work on Los Angeles International Airport’s Automated People Mover project on July 14, president of Fluor’s Infrastructure business Thomas Nilsson commended Noorbaksh and Ware’s “passion for building a better future and for the advancement of women in what has been a historically male-dominated engineering and construction industry.”

Learn more Public-Private Partnerships: An Industry Guide to P3 Projects

According to input data from Levelset, 82% of Fluor’s projects over the course of the past year had no payment issues reported by contractors. Existing records of slow payment complaints all stem from infrastructure projects across the Lone Star State.

At time of reporting, there are currently no written reviews from subcontractors on their Levelset profile.