Flowserve 1Q15 Earnings Call Notes

Broad based spending decline in oil and gas, did not get usual uptick at quarter end

“Our first quarter 2015 results were challenged by a broad based capital spending decline originating in the oil and gas markets as well as currency headwinds caused by a stronger dollar. Going into the quarter, we anticipated some customer hesitancy and reduced activity due to oil price volatility but did not foresee the full extent of the reaction both in our downstream and midstream markets as well as in other served industries.

We also saw restrained spending in our customers’ repair and maintenance budgets occur in the quarter. This market slowdown was further compounded by economic and geopolitical conditions in Latin America and the Middle East and by strikes at several U.S. refineries. Specifically in March, we did not experience the typical uptick in activity that we usually see towards quarter end.”

Activity may pick up as oil has stabilized

“We do see signs of some activity ahead as oil has stabilized, albeit at a lower level, but recognize the market will be competitive and not all industries will move in sync. Customers will remain deliberate and driving value for them will be increasingly important. We have the capability to drive their short-term and long term value.”

Stronger dollar does offset some of the benefit of weaker gas prices for chemicals plants

“We continue to expect ethylene expansion in North America with the derivative plants related to the new capacity expected to come online over the next few years. Although the current strong dollar is partially offsetting the advantages of the low cost U.S. natural gas and may be a cause for a delay in some derivative plants.”

Increasing uncertainty in China and other emerging markets

“in addition to a volatile oil market and currency challenges, there were a multitude of other factors that emerged late in the quarter. We increasingly saw larger project work not materializing, increased macro uncertainty in China emerging, Latin America continuing to experience issues and a more uncertain Middle East environment.”

People are in a wait and see mode, but you can’t defer maintenance spend forever

“if you think about that from a project standpoint and then you step back again and look at what happens on some of our run-rate and aftermarket business, again, the environment we’re in in the first quarter is people are uncertain about their capital budgets. If you look at the integrated oil companies, they’re focused on cash flow. What that will cause folks to do is wait and see and develop their budget and certainly defer maintenance. We saw that in the beginning of 2009 but you can’t defer it forever. So we do expect that to stabilize over a period of time.”

You run your refineries in good times and bad

“It’s not like an oil well where they cap the oil well or shut the oil well for a period of time or the production platform. They continue to operate these downstream facilities in good times and bad. In good times and bad they’re looking for ways of course to keep them maintained and operating for safety purposes but also, they’re looking for ways to drive additional efficiency.”

Currencies impact multinationals in the short term but they balance out over the long term

“That’s the benefit of having a global footprint. We have the ability to do work in low cost regions of the world or there are certainly other parts of the world. I would tell you Deane, if you look at currency movements, over the short-term they do impact multinationals but over long term things balance out.”

Fluor 4Q14 Earnings Call Notes

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.”

Jacobs Engineering 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

The market is still very price sensitive

“The market continues to be very price sensitive. We are not finding any areas in the market where the conditions are such that we can get significant improvements in price, and we are finding areas where price pressures are still pretty high.”

Buildings business is coming back

“On the building side, our buildings business is getting steadily better. As you know, we repositioned the business to deal with the downturn in the federal contract environment. It looks like federal business will be coming back. We’re seeing it come off a pretty significant weakness with some strength. We’re seeing high-tech is a particularly strong aspect of the business, both mission-critical and data-related activities”

Pharmbio industry has gone from blah to boom

“The product pipeline is picking up. In fact, I would characterize this industry has gone from somewhat blah to somewhat boom.”

Oil and gas still a very strong market globally

“Moving on now to oil and gas, still a very strong market globally, still a lot of investment in North America. CapEx is at historic highs. We see a lot of opportunity in the midstream and pipeline services areas.”

capable of doing $1 B projects

“these $1 billion jobs that I’ve talked about remain things that Jacobs is capable of doing and we continue to win some of those projects and lose some, just as you would expect.”

Don’t have double digit market share at any of the big spenders right now, but winning repeat business

“Our business is built around working for the big spenders in all the industries that we serve. And in no case do we have a share of wallet of any of those big spenders that even approaches double digits. So there’s huge opportunity for us to grow on the back of repeat business, and the high-repeat business is an indication that we’re putting our energies and focus where we should, which is with those clients that have big capital budgets where we can grow share and build relationships.”

Work can fall out of the backlog, but that’s unlikely to happen right now

“Certainly, for example, construction-related backlog is more vulnerable to cancellations than service-related backlog, has a longer tail and it’s the bigger part of the costs that the customer might incur. So those risks are out there. But I don’t see any evidence that those risks are things that are likely to materialize.”

Customers more hesitant on timing than doing the work

“When we talk to customers about their projects and programs, it’s not about not doing the work, it’s more about timing of doing the work in terms of when is it going to happen.”

Customers still perceive the environment as weak, so they’re trying to get favorable terms

“our main customers are perceiving the market as being weak, that’s certainly an expression of the pricing discussion that we had earlier, and they’re trying to take advantage of that by imposing more challenging contract terms.”

It’s really difficult to say when we’ll get backlog growth acceleration

“As I sit here and look at where we are with our customers and what they’re telling us about the drivers for them to make investment decisions, I’m not seeing a significant certainty time-wise about when they’re going to make those decisions. So in terms of real backlog acceleration, I just — I’m very frustrated, but I can’t predict when that’s likely to happen.”

Maybe this isn’t such a boom like construction environment

“I certainly don’t see any evidence that the cycle is over. I do see an abundance of caution from our customers about the cycle and where they are in it and what the likely outcomes are for their projects. And I think that’s actually turning this in from sort of what I think we all believed a couple years ago was going to be boom-like into a much more protracted, less boom-like environment.”

The CEOs I talk to don’t feel the economy is good as the pop press says

‘When I talked to some of the executives at the tops of the organizations we work for, the general belief about the strength of the economy is not as good as what the popular press would have you believe. And I think that’s also affecting that sort of on-the-border decision, should we go ahead and commit or not, let’s wait a little while”

Spending has become more choppy in telecom

“There’s no question in my mind that the spending has become a bit more choppy in the telecom business.”

Engineering has become increasingly fungible globally

“Pricing pressure is probably strongest in the heavy-process industries and in mining and minerals. Mining and minerals driven obviously by the shortage of work, and the heavy-process industry being driven largely because most of the work today is engineering-related, and engineering has become increasingly fungible globally”

The competition is coming from big E&C players

” the more low-cost EPC-lump-sum-oriented organizations. We generally don’t compete with those companies and so I can’t really speak to pricing there…We see the big U.S. and European players, so the CB&Is, the Foster Wheelers, the AmEx, the Atkins, as well KBR, URS, AECOM, Fluor, Bechtel, those folks from the States. And there’s the place where I’m describing what I see as the cost pressure.”