Fluor 4Q15 Earnings Call Notes

David Thomas Seaton – Chairman & Chief Executive Officer

Global economic growth is weak but we serve a diverse set of markets

“Global economic growth continues to be weak and commodities prices remain low. We expect economic growth of the year to be similar of the past few years. Yet we also expect commodity prices to stabilize during this year and perhaps even begin to improve in the last part of the year. The lower commodity prices obviously continue to impact our customers’ cash flows and, therefore, their ability on fund certain new projects at the same pace as they’ve done previously. Many of our customers have already announced significant reductions in their capital expenditure budget of 2016. However, Fluor serves a diverse portfolio of industries and regions, which provides the company opportunities even in difficult market environments.”

This year will probably be more lumpy and back end loaded than previous years

” I think it’s going to be even more lumpy in 2016 than we’ve seen in the past. The – what we’re going to see is that many of the customers are still taking an extra quarter or so to make their decisions. So we run the risk of having a project go from first quarter to the second quarter or second quarter to the third quarter. So I think it’s going to be somewhat more lumpy and I believe backend loaded more so this year than in previous years.”

I don’t see the doom and gloom that a lot of people see out there

“I guess there’s a bit of a bearish tone in terms of the overall, and most of that bearish tone is coming from the press. I’m fairly bullish about our ability to deliver on 2016. I’m pretty bullish about our position in the marketplace to add backlog as – at least stay flat with backlog as we enter 2017. So the glass is half full, and I don’t see the doom and gloom that a lot of people are and I guess your question kind of leads us towards.”

Seeing opportunities in infrastructure, pharma/biotech and gas fired power plants

“We’re seeing an uptick in opportunity in the Infrastructure group. They kind of hit a lull as you ended 2014 and early 2015. And we’re seeing a significant slate of opportunities that are there, and part of that is I think the U.S. government focus on infrastructure and the things that are necessary to keep the U.S. economy going. So that’s a bright spot. We’re seeing an uptick in terms of pharmaceutical and biotech opportunities. With the FDA approving drugs, some of those projects are getting off of the mark. We’re seeing a significant amount of frontend work, study work on gas-fired power plants, and we see a pretty robust opportunity slate there.”

The awards slate is pretty robust heading into 2017 and the glass is half full

“we’ve got good visibility into – the priority of the projects that our customers were taking, the economic viability of those projects based on current economic factors, and that’s what leads us to say that we’ll have a pretty robust – the award slate that’s – in robust to me means equal to this year, and certainly provides some visibility into the opportunities of 2017. So again I go back to what I said during Jamie’s question, the glass is half full. And it’s half full for us because of the fact that we’ve really stuck to our customers, and we’ve answered their call for integrated solutions and capital efficiency.”

Swings in energy prices will fix themselves

“This isn’t the first time me or people within our industry or our company have seen these kind of swings and volatility in markets. And they will fix themselves. I mean when you think – right now, there’s an oversupply of oil products. There’s an oversupply of gas. There’s an oversupply of LNG. It’s going to take a while for that to clear, but it will clear.’

I don’t think you’re going to see the supply situation change until the middle part of the year

“As I said, I don’t think you’re going to see the supply situation change dramatically until as we get into the mid part of the year. But once that glut kind of clears, I think you can see commodity prices kind of stabilize if not rise as we get to the backend. But the other thing that I’d warn everybody about is when you think about the long-term nature of Oil & Gas developments, from exploratory well to production, it’s a decade. So they’re not thinking about spending today for tomorrow. They’re thinking about spending today so that either the reserve base or their product mix or whatever is just focused on that further longer view”

Taxing regimes mean that pharma is not going to be a US based business by and large

“I mean, when you think about life sciences, pharmaceuticals, well, the taxing regimes in places like Ireland and Singapore and some of the other places around the world have attracted those businesses, so that’s not going to be a U.S.-based business by and large.”

People aren’t focusing enough on demand growth

“I think the one thing that’s not being spoken off is the demand growth in this discussion. And when you look at those demand growths, we’re still looking at 1 million barrels a day kind of growth in the midterm, I would say. So when you think about some of the production that’s going to naturally come off due to depletion curves, you look at – I guess, the Saudis and the Russians kind of put, for lack of a better term, a ceiling on production. You can see where that glut’s going to clear pretty quickly.”

Right now people are nervous

“I go back to what Buffett says, and I am not signaling any more acquisitions. But Warren Buffett says that he’s nervous when people are greedy, and he’s greedy when people are nervous. Well, right now people are nervous.”