Fluor 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Oil and gas pipeline hasn’t diminished

“The pipeline of projects is not diminished. Back in June of last year, I mentioned that we had pipeline of Oil & Gas projects totaling some $50 billion. Even though we’ve booked a number of those in the second half of 2014, a pipeline the prospects today is still roughly the same size.”

“To summarize, 10 billion projects of the original list were awarded to us, 2 billion was lost or canceled and 10 billion of new prospects have been added. With that we feel confident that are opportunities that remains in very good shape.”

There is still a tailwind in low gas prices

“More importantly, there is still tailwind – sorry – more importantly, there is still a tailwind for longer term growth is just blowing a bit softer and will cause a time over which the spending occurs to extend. Low cost gas is still a positive driver and there are customer decisions that are effected by all they see current pricing in temporary. Although there will be some delays in some cases, customers will ultimately make the decision based on those long term expectations.”

Backlog up 22%

“Full year new awards were record $28.8 billion including $19.7 billion in Oil & Gas, $4.7 billion in Government, $3.3 in Industrial & Infrastructure and $1.1 in Power. Consolidated backlog at year end was $42.5 billion, up 22% from $34.9 billion a year ago.’

Guidance 4.40-5

“We are accordingly expanding the 2015 guidance range slightly to $4.40 to $5 per diluted share. This guidance is closely effects the previously announced termination settlement of Flour GS to find benefit pension plan later in 2015.”

Some of these projects are moved into 16-17

“However, when you look at what is not in our backlog but we anticipated to be in our backlog, as we get into the first half of the year, some of it has been push to the right. So maintaining the record backlog and improving upon that in ’15, we don’t have as good feel for that. But again that really does an impact ’15, it more impact ’16 and ’17 when you think about the burn of some of these projects.”

Oil and gas customers are still feeling bullish about their plans, the only question is when. They have to answer to their shareholder base

“I’ve been in front of a lot of customers over the last couple of week, particularly in the Oil & Gas business. And for the types of things that we’re chasing, they feel pretty bullish about them going forward. It’s just a matter of when. I think they’ve got their challenges with their investor based that they are dealing with and they are taking one more look in a deep breath before they start pulling the trigger on some of these programs”

Work pending all over the globe

“I would say that in the near term and still heavily weighted towards North America, but the opportunity set is very global. I mean three or four countries in South America, three of four countries in the Middle East, China the non-sanctioned piece of Russia, the South East Asia, I mean there is just a lot of work out there that’s pending.’

Gestation period is longer, but I feel pretty good about energy still

“lot of these project are getting bigger, so the gestation period is longer which kind of speak to that lumpiness that we mentioned earlier. But as we go over the next 12 quarters, I feel pretty good about solid growth in that market place over that longer period of time. And that’s Oil & Gas.”

It wasn’t that long ago that our customers were prepping for $50 oil

“I’d remind the audience here that it was only four-five years ago that our oil company customers are making the same capital decisions on $50 oil. So that’s not that long ago’

Oil and gas customers are still going to replace their reserves, continue to improve their businesses

“I had a conversation with one customers last week as a matter of fact, they said, you know we still got to add 200,000 barrels just away to tread water. So these companies are going to continue to replace their reserved based, they are going to continue to look at a value added products, they are going to continue to improve their businesses. They are just going to be a little bit more thoughtful in which projects go forwards and which projects need a little bit work.”

You can’t paint us with the same brush as the rest of the oil market

“So yeah, I think drilling rig count is a problem, but we don’t do that business. I think some marginal field developments may take a little bit of a breath but again that’s not something that our backlog is exposed to. But at the same token, low prices are really exciting to the chemical producers, so as an example. So again I think that you really can’t paint Fluor or our market with the same brush as the – as this painted for the oil and gas market”

Real money is in the supply chain and construction implementation

We’ve had some customer that have asked for unit rate that kind of reductions but not significantly so. And to be honest, I believe that’s a little short sighted because that’s not where the real money is, real money is in the supply chain and how we implement construction.”