Fluor 4Q16 Earnings Call Notes

David Thomas Seaton

Energy and chemicals pipeline probably coming off the bottom

“Looking back, 2015 and 2016 represent one of the most difficult times in our industry. In fact, Energy and Chemical awards during this two-year period were the lowest they’ve been since 2009-2010. Even with that headwind, we were able to grow our backlog and focus our resources on non-commodity markets and opportunities. So what does that mean for 2017? I think it means that our Energy and Chemicals pipeline of opportunities will be coming off the bottom of the cycle. Clients focused on higher return projects and capital efficiency match well with what our talents provide.”

We think we’re at the bottom of the cycle

“I think as my prepared remarks suggest, we think we’re at the absolute bottom of the cycle and what we see is an improving slate of things to chase. And we’re not changing our selectivity sieve at all from a quality of project perspective, but we’re seeing that what I predicted two years ago, and that is, there’ll be pent-up demand on things because customers have kind of delayed projects for their own financial reasons, but now reached to the point where they’ve got to spend again.”

A sustained positive capital cycle

” I think we’re kind of in the beginning stages of what I would argue would be a sustained positive capital cycle that we’ve seen in the past. And I believe we’re positioned as good as anybody to win better than our fair share of those projects.”

We’re seeing an increase in projects but maybe with a little more prudent gating

“In terms of going forward, I mean, as I said, just in E&C alone we see a 50% rise in what we’re looking at during 2017 over 2016. So those projects are moving forward, but as we’ve said in the past, they move forward at their own pace. And even though the customers are a little more eager to get some of these things done, they’re still going through what I would argue is a more detailed gating process than they’ve gone through maybe in that last boom. And I think prudently so, because I think there were some projects that our oil & gas friends would have probably avoided had they not believed that $100 oil was there forever. So I think it’s just a matter of good, prudent gating processes. But as I said, we’re seeing an increase in activity.”

Haven’t seen a dramatic shift in inflation

” I would have thought that some of the pressures would have already started to creep up in terms of cost of commodities, cost of engineered equipment items and the like. But we’re in a middle of a couple of significant mid-cycles and we haven’t seen any dramatic increase or expectation of increase in terms of the bid validity from some of these vendors. In lot of cases, when you start to see inflationary pressures, you’ll start to see the bid validity on some of these things shorten. And we have not seen that phenomenon yet in the marketplace.”

Business will do what business needs to do to perform

“I was on a panel back in October, it was before the election. And a question from the audience was, under which presidential candidate would business be more successful under. And my answer was simply it doesn’t matter. Business will do what business needs to do to perform given any of the regulatory issues, changes that are there. Border tax may have some impact on our customers, very little on us. We have the ability to fabricate in a lot of different places. With our work right now being 52%, I think it is, U.S. based business, it would have very little impact in terms of the short-term.”

Biggs Porter

Engineering is much higher margin rate than construction

“engineering is just a much higher margin rate than construction is as it goes through the books. So, what you’re looking at in 2017 is just the burn-off of the engineering on the projects that we got new awards in ECM over the last few years, and transitioning more fully to construction on those projects which should have had enough inflow of new engineering work to sustain the mix for now. ”