Fluor 2Q17 Earnings Call Notes

David T. Seaton – Fluor Corp.

The current market environment is the worst I’ve seen in 30 years

“the current market environment is perhaps the worst I’ve seen in my 30-plus years. The market has contracted since 2014. The good news is that we’re starting to see prospects come back in some of our end markets including mining, which includes the Anglo American Quellaveco project in Peru and the Salares Norte project in Chile for Gold Fields, and our recent announcement of the BHP South Flank project. Having said that, creating and maintaining a diverse portfolio of work has been and continues to be a core strategy of Fluor.”

Some upstream projects that may get dusted off in 2018/2019

“I don’t see upstream spending a whole lot of money in the industry as we finish this year. But I do think there are some large upstream developments that are kind of being dusted off by our customers because they’re in a need of that capacity. So I think as we get into 2018, 2019, we’ll start to see upstream spend a little bit more than they’re spending now. And that comment, excludes LNG. I think there’s going to be a lot of study work on LNG, but I really don’t think there’s going to be a lot of projects go to the EPC phase this year or most of next year. So I think we’re just going to have to wait and see what happens. But I do see a pretty robust slate of opportunities in refining and petrochemicals.”

Feeling good about infrastructure group

“I feel pretty good about infrastructure and what’s going to happen. I would caution though, the rhetoric we all hear from the press and where it emanates from, whether it’s a federal government or state government. As you’ve heard me say, there is no such thing as a shovel-ready project. But what I’m very eager to see is that at least the dialogue is around identifying in the United States, identifying the priorities and those priorities around toll roads, bridges, ports, airports fit well into our portfolio. And I think those things are going to bode well for us. But I believe that our infrastructure group will continue to be a bright spot in our organization and continue to add to their backlog as we go through the next probably six quarters.”

A lot of these projects get held up because of regulatory

“I think the capital is there. I agree with you 100%. I think the problem is, you got to look at the Purple Line in Baltimore. Project passed all the hurdles environmentally, financially, everything else and then the regulatory environment slowed it down and actually stopped it for a while. So even though the capital is ready, some of the projects, I think, are at least to a point where you get to that next stage. I think the regulatory reform that the government is talking about has to come through before the timing of those things actually improve. And I’d put pipelines in that category.”

Cabinet is twiddling their thumbs because government hasn’t been able to give their team

“So one of the frustrations I see, and this is kind of a political commentary, there’s 2,200 – and you’ve read the same things I’ve read. There’s 2,200 Senate candidates that have to – candidates have to go through Senate approval. I think the last count was 55. And you’ve got people like Elaine Chao in transportation. You’ve got Rick Perry in energy, Rex in State. These people that we know and know well are sitting there twiddling their thumbs, so to speak, because we haven’t been able – the government hasn’t been able to give their team. So I think that is why you saw things screech to a halt. And I don’t see a whole lot of improvement until that phenomenon is behind us and the efforts that the administration are putting forth in terms of the regulatory reform actually see light of day. A lot of good intent, a lot of good thought and strategies to people that I’ve talked to, including the folks I just mentioned, but until we get those things ,done you’re not going to see these permits that are absolutely necessary to go forward actually awarded.”

Acquisitions in this market are difficult

“Acquisitions in this market are always difficult. You’re dealing with cultures. You’re dealing with people. And it’s not like a manufacturing facility or a manufacturing company where you can sell off one manufacturing facility that doesn’t fit the new strategy. These things deal with culture and individual capabilities of scale. So we’re going to continue to look at things that add to our offering. But I would say, we’ve already got the breadth to do just about any project that’s presented to us that again meets our expectations in terms of risk and profitability.”