Finance
Fluor Stumbles on Fixed-Price Power Projects
A second-quarter charge trims the earnings estimate for the year
Gas-fired power plants, similar to this one, proved to be a source of trouble to Fluor Corp. in its second quarter of 2017. Photo: Wikimedia Commons
Problems on three gas-fired power plant projects with fixed-price contracts forced Dallas-based Fluor Corp. to book a $124-million charge in 2017's second quarter.
CEO David. T. Seaton says some members of the power team "have exited" and that the trouble projects were all acquired by the same "pursuit team." He said the team had made estimating mistakes and errors involving craft labor productivity. Equipment problems also complicated the work.
The company appointed Simon Nottingham, who had previously worked in its oil and gas unit, to head all power construction.
The charge forced Fluor to lower its earnings estimate for for the year, disappointing one analyst at an Aug. 4th telephone briefing by the company where the matter was discussed. Fluor "blew up again," wrote Jaime Cook of Credit Suisse after the telephone briefing.
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While Fluor had forecast fiscal year 2017 earnings per share in the $2.25 to $2.75 range, it now forecasts only $1.40 to $1.70 a share. Seaton took pains during the conference to explain that the company wasn't giving up on fixed-price power-related contracts. Fluor, which has had numerous recent years of profitability, has had troubles from time-to-time with unexpected charges. The company's backlog, although down somewhat, remains well stocked.
The problem projects are in various stages of completion.
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"All three projects," Seaton explained, "had a fundamental problem. And the projects did not meet the original baseline assumptions due to improper estimating, craft productivity and equipment issues." All three of the projects, and another on which the company had taken a charge in 2015, were bid in 2014 and were based on next-generation turbines or steam generators that were first of a kind for Fluor, said Seaton. He hinted that the company could possibly recoup some of its costs.
"The quality control and completeness of these turbines delivered to the site were not in line with our bid assumptions, and we are pursuing our options." Fluor also announced that it is shutting its Charlotte office and consolidating power operations in Greenville.
