Tuesday, August 11, 2009

Fluor Who Controls Margins

Fluor Corporation (FLR) reported Q2 results. As Chairman and Chief Executive Officer Alan Boeckmann said “While we have posted strong results to date, we remain sensitive to the pace of global economic recovery which could impact the timing of future new awards.” The concerns for this company are to keep the backlog full so that the work and margins keep flowing in.

When you listen to the conference call the analyst Andrew Kaplowitz of Barclays Capital he was very focused on the margin question. Everyone was assured that all is good.

But when you read the press release you see this comment under business segment oil & gas “Results were driven by a reduced level of project execution activity, offset by an increase in segment margin in the quarter.”

There is a spigot here. The pace of activity can be affected by more than on site construction issues. The question is how many clients can turn the taps down and affect cash flow and profits. Management does not deal with the issue and hides behind the macro-economic verbiage.