Fluor (FLR) Q2 2026 earnings call transcript

At this time for opening remarks, I would like to turn the call over to Jason Lane gamer vice president investor relations. Please go ahead Mr Lane gamer.

Thank you Jade. Good morning and welcome to floors twenty twenty six second quarter earnings call Jim Brewer floors chief executive officer and John Regan floors chief financial officer are with us today. Floor issued at second quarter earnings release earlier this morning and a slide presentation is posted on our website that we will reference while making prepared remarks.

Before getting started, I would like to refer to our safe harbor note regarding today's forward looking statements, which is summarized on slide two during today's presentation will be making forward looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences in our twenty twenty five form 10 K and in our form 10 Q, which was filed earlier today.

During this call, we will discuss certain non gap financial measures, reconciliation of these amounts to the comparable gap measures are reflected in today's slide presentation and posted in the investor relations section of our website at investor dot floor dot com. I'll now turn the call over to Jim Brewer floors chief executive officer Jim.

Thank you Jason and good morning everyone. I'll start by reviewing some highlights from the quarter. Please start into slide three.

First, as we previewed on our call in Q one, the pull through capture of our prospect pipeline is taking flight. New awards for the quarter were strong at over six billion dollars and backlog grew to almost twenty seven billion. These figures support a book to build ratio above one for the full year.

We didn't expect some of these awards until the back half of the year. So it's a positive outcome that our clients are accelerating these decisions.

Second, an equally important. This growth is coming from a range of end markets clients are choosing for our ability to deliver large complex projects. Third, in the quarter, we completed two legacy infrastructure projects and expect the other two remaining projects to complete by the end of the year. And finally, with the award of the centrist fuel enrichment project, floor continues to build its presence in the nuclear value chain.

I will expand my thoughts on this in a moment turning to slide four. Last quarter, I discussed our prospect pipeline and the work required to mature these opportunities into full EPC awards, which then drive backlog and EBITDA. This quarter, we had significant front and work translate into full EPC programs supporting nuclear fuels, fertilizers, copper and midstream. This is shown in the dark blue area of the chart.

Furthermore, as these front end projects graduate to EPC status, we are replenishing the pipeline with new front end opportunities in our target markets. Shown in the lighter blue, these opportunities include fertilizers in the UK, data center work, copper in the Americas, domestic refining, nuclear power, chemicals in the Middle East, and LNG.

We are leaning into these growth markets and investing time and effort with our clients during the planning phase to set projects up for success once they are fully funded and released.

Turning to slide five. Urban solutions continues to contribute a majority of our revenue and will drive further growth over the next several quarters. In mining and metals, our clients have signaled more robust capital spending over the next 18 months.

Our in-house M&M pipeline includes nearly $30 billion of potential awards in this timeframe. And we expect to capture a significant amount of these opportunities.

In infrastructure, we've had an active quarter on the LBJ project. All main lanes, toll lanes and side roads have been turned over to TechStop. We also completed the Oak Hill Parkway in Texas, the Red Purple Line Elevator Rail Project in Chicago, and the Gordy Howe International Bridge. The bridge opened to traffic on July 27. During the quarter, results for this project were impacted by the effects of foreign currency fluctuation, the bankruptcy of one of our subcontractors, and client-driven changes.

We continue to work collaboratively with the client, our partners, and subcontractors to resolve the remaining commercial matters. For the quarter, Urban Solutions' new awards were $3.2 billion, and include construction management for a copper mining chillet, a feasibility study for Anglo-sertilizer project in the UK, and expanded scope for a fertilizer project in Canada, additional scope on the life sciences project in the US, and an infrastructure project in Europe.

Looking ahead to our prospect pipeline, we're well positioned for new life sciences work, a rare earth magnet facility, two copper projects in South America, and an aluminum rolling mill for an existing client in the Middle East. We're also advancing work for Terawolf and their data center in Kentucky. On a limited release basis, we're currently providing project management and engineering services, and are working towards finalizing the commercial terms of the EPC contract.

Moving to slide six. In energy solutions, as you know, we have closed out several mega projects in recent months. We're now executing front-end work that we've booked over the past e-quarters, which will support the next wave of EPC projects. Starting with power, demand for electricity generation continues to build, driven by data center growth, industrial expansion, and broader electrification.

That demand is creating a meaningful set of opportunities in domestic gas-fueled power, where clients are engaging us and seeking to advance work under reasonable commercial terms.

We are working on the front-end basis for a combined cycle project on the East Coast, and we recently submitted our proposal to another client for two single cycle projects in the Midwest.

We're also advancing a standardized combined cycle design for a third client. These collective efforts will support meaningful growth in our backlog in the first half of 2027.

In nuclear, we're progressing the feed work for the X Energy Dow project, and are preparing a detailed cost estimate for the Chernobyl project in Romania.

We're also in discussions with SMR and traditional nuclear technology providers for several opportunities. In the oil and gas phase, we recently signed a long-term agreement with Aramco. This contract positions flew to support a broad portfolio of capital projects around the globe, and extends our decades-long relationship with this important client.

Last month, we announced the sale of our equity in the Mexican joint venture for $175 million. Over the past 30-plus years, our joint venture completed numerous projects across Mexico's oil and gas, power, mining, and manufacturing markets.

We are grateful to our partner and to our employees for the tremendous successes we shared, and we are proud of the legacy we have built together. Now, given our current strategic priorities and the expected capital spending cycle in Mexico for the rest of the decade, we determined it was the right time to conclude this joint venture. This step gives our former partner more autonomy to pursue opportunities in the entity.

And for Flour, it sharpens our focus on our targeted growth areas and bolsters our liquidity further. New awards for the quarter include the limited notice to proceed for phase two of the LNG Canada project. This award enables early planning and advances key activities in support of the client's proposed final investment decision expected later this year.

We also started execution of a fee package for a new aromatic facility in Bahrain, and booked a gas compression project for a West Coast client.

Over the next few quarters, we are positioning for front-end work in the Canadian oil sands, and we're seeing a notable uptick for front-end refinery work domestically that could translate into EPC work in 2027 and 28.

With regards to the Middle East, we continue to monitor the evolving situation. The well-being of our employees and their families continues to be our highest priority, and we have been able to execute the work and backlog without significant disruption.

We remain engaged with our clients on additional opportunities, and our well-precision to support them once the situation stabilizes, and they're ready to move forward.

Turning to slide seven. Mission solutions continues to work for the Departments of Energy and War, while expanding into additional EPC opportunities.

During the quarter, we received an additional task order to support Operation Epic Fury, and an extension to an intelligence services contract. When combined with a two-year extension received last month, every ongoing intelligence contract in our portfolio has been extended this year.

Prospects for the next few quarters include the Rebid for the Savannah River Program. As a reminder, under the Rebid, the M&O scope and the plutonium pit project will be combined.

Our proposal is in, and we're confident in our value proposition. While we anticipate a decision early next year, we do expect a six-month extension for our current work at this site later this year.

Finally, during the quarter, we booked an award on the Centris fuel enrichment facility. This significant award demonstrates our ability to apply our project delivery experience to the combined mission of national security and energy independence.

And while we're on the topic of nuclear, and before I turn the call over to John, I'd like to expand on our broader nuclear offering, and how it supports our growth strategy. Please start to slide eight.

Fluor's experience spans the full lifecycle of the industry, including commercial power generation, plant operation and maintenance, SMRs, nuclear fuels, national security, lab management, decontamination and decommissioning.

Started with conventional power gen, Fluor has performed design or construction work on 21 nuclear power plants. Beyond initial construction, we have supported ongoing operation of the domestic nuclear fleet through maintenance, outage and operational services at more than 90 reactors nationwide.

Internationally, we're currently executing front-end development work for a two-reactor expansion at an existing power gen station in Europe. In SMR technology, we continue to build capability across multiple platforms, including new scale, X energy, and a third technology partner, which we hope to unveil in the near future.

Across nuclear fuels, Fluor is helping expand uranium enrichment capability in the U. S. With our recent award, this work complements decades of experience spanning uranium mining, conversion and enrichment.

In national security and site management, Fluor supports some of the nation's most critical nuclear security and strategic infrastructure programs across DOE and NNSA sites.

And finally, in environmental cleanup and decommissioning, Fluor has led some of the world's largest and most complex nuclear remediation, waste management, and site closure programs.

Taken together, Fluor has meaningful experience across the full nuclear value chain. And as global investment in nuclear infrastructure accelerates in the coming years, we believe this capability will continue to create attractive opportunities for us.

I'll now turn the call over to John for a financial update.

Thanks, Jim, and good morning, everyone. Today, I want to spend some time covering a few topics. Namely, Q2 results, the divestiture of our JV in Mexico, and our updated 26 guidance, including the capital returns expected in the second half. Please turn to slide 10.

For the second quarter, revenue was $4.3 billion, up 9% from a year ago, as we saw strong execution across our portfolio.

This also drove adjusted EBITDA to $149 million compared to $96 million a year ago, and Q2 adjusted EPS was $0.91 compared with $0.43 last year.

Ending backlog was $26.9 billion and reflects our sizable Q2 awards and the removal of just over $650 million of backlog related to our now former JV in Mexico.

We decided to remove the backlog preemptively, even though we didn't close the sale until Q3. I hope this kind of transparency helps our investors better digest the impact of our portfolio decisions.

From a legacy project perspective, the remaining backlog decreased to $120 million at the end of Q2, and will continue to wane across the back half of 26.

Now, let's review our business segments starting on slide 11. Urban solutions reported a Q2 segment profit of $38 million compared to $29 million a year ago. Profits did include $44 million in additional losses on the Gordie Howe project, which stemmed from the factors Jim discussed earlier.

Energy solutions reported a segment profit of $88 million compared to only $15 million a year ago, largely arising from higher contributions on projects nearing completion.

This evidence is the high quality of our closeout efforts on these projects. Mission solutions had a segment profit of $44 million versus $35 million last year, driven primarily by improved fee performance across our DOE portfolio.

Let's move to slide 12. We ended Q2 with $3 billion in cash and cash equivalents compared to only $3.2 billion at March 31. Meaning we have robust liquidity to support continued share repurchases and pursue in organic opportunities.

Looking ahead to July 31, that cash balance has seen a slight increase back to $3.2 billion. As reported, operating cash flow for the quarter was a negative $317 million. This includes a tax payment of $357 million associated with the conversion of our new scale shares in 2025. So the result without the tax effects would have been $40 million of positive OCF on a more normalized basis.

As a reminder, we have signaled the tax payment since Q4 of last year, so it should come as no surprise. As it relates to our loss projects, having completed 96 million in Q2 funding, including $43 million reflected inside of OCF, we only see an additional $94 million in future funding, all of which could be concluded in Q3.

We certainly have the liquidity to make those payments now, but we don't complete the funding until our partners also fund.

It will be momentous to put this execution chapter behind us. As Jim mentioned, in July, we sold out of our JV in Mexico for $175 million.

This triggers a pre-tax book gain of $90 million and a tax payment of $33 million, which we funded earlier this month.

Through the end of the decade, we saw diminishing backlog and limited prospects, so it made sense for both parties to pursue other opportunities aligned to our different growth strategies.

Turning to our revised guidance on slide 13, I want to walk you through the components of our EBITDA bridge from our previous midpoint to our new target.

First, we have incorporated the foregone profit of about $23 million in the second half of the year that would have been generated by our former JV in Mexico. This makes the comparable starting point $519 million.

By laying this out, we're trying to provide more of that heightened transparency. Second, we are managing the remaining impact from our loss contracts. The good news is that with the Gordy and LBJ projects now complete, we can focus our remaining efforts on completing LAX and I-35 Phase II by the end of this year.

Third, we continue to see improved performance across our portfolio with segments delivering at or above expectations in most cases.

And fourth, despite the continued hostilities in the Middle East, we saw no impact to our guidance directly related to the conflict. We do continue to evaluate the implications for our clients and any residual impacts on our supply chain efforts across the existing portfolio.

While the region remains a source of uncertainty, our Q2 new awards demonstrate confidence from clients generally moving forward with capital projects outside the region.

Turning to slide 14. With these considerations, our revised adjusted EBITDA guidance is 500 to 525 million, which implies an adjusted EPS range between $2.70 to $2.80 at our current repurchase tempo.

Our key full year assumptions are outlined on the slide, including an adjusted operating cash flow guide of 300 to 320 million, which exclude the Q2 tax payment directly related to new scale and the Q3 tax payment for our JV sale, both of which represent the tax bill on transactions reported within investing cash flow. I'll point out this is a slide raised to our earlier guidance.

We expect a new awards book-to-burn ratio well above one, G&A of 170 to 180 million, including up to 15 million across the full year for a potential replacement of our ERP and for other technology enhancements.

And assume tax rate of 28 to 30%, which includes the effect of taxes for the Q3 sale of our Mexican JV, a revenue split of approximately 65% urban, 20% energy, and 15% mission, which is unchanged from our may guide. Assuming these splits, as reported full year, segment margin expectations are 2.5 to 3% in urban, 6 to 7% in energy, and 6% in mission.

As we outline last quarter, our capital allocation priorities remain centered on returning meaningful value to shareholders while preserving flexibility to invest in our own business.

In the second quarter, we continue to execute against that framework, repurchasing 6 million shares and deploying $300 million. We still model 1.4 billion of repurchases for all of 26.

Beyond the share repurchases, we will seek to drive long-term growth in our chosen end markets. This includes continued investment in our capabilities, systems, and people. It also considers a disciplined evaluation of inorganic opportunities in selected growth markets that are aligned to our strategic objectives.

As we reflect on the quarter, our core business remains healthy. We delivered strong awards in the quarter, and we have taken decisive steps to further simplify the portfolio, complete our legacy projects, and put capital to work in ways that support long-term growth.

With that operator, let's open the line for questions.

Maybe I'll start on the closeout. So, you know, energy has been in a space where some of their mega projects have been drawing to conclusion. And so when we generally refer to closeout efforts, we are talking about subcontractor settlements. We are talking about warranty satisfaction. And so the closeout efforts themselves really represent profits that could have been recognized theoretically earlier in the process.

That said, those efforts did contribute meaningfully to energy solutions in the quarter. Looking ahead to the back half of the year, you know, you do see some diminution in the PGM or the segment profit percentage in energy solutions as they begin to reload their business with things like maybe a large LNG project and with some of the power opportunities that Jim talked about. So what you'll see in the back half of the year is a shift in the portfolio whereby urban solutions is more meaningfully contributing to the absolute quantum of EBITDA as opposed to energy solutions. So it'll be a slight inversion to what we saw in the first half of the year.

Just one clarification. Sorry, one John clarification was the favorable closeouts embedded in your original guidance. And then I wanted to thank you on the EBITDA bridge for guidance. That was very helpful. Thank you. Yeah, I would say in large part. Yes, those closeout efforts were part of our original that it may be just an acceleration from the back half or maybe from from third quarter specifically coming back into the first half.

Okay.

On the new awards, yeah, we were very pleased with the 6.1 and Q2. The prospects that we're tracking for Q3 and Q4 are looking very good, whether it's LNG or it's copper or it's rare earth magnets. There's a big data center prospect. It's always a little challenging for us to predict the exact timing of these full releases. I will tell you that we have enough.

Resilience in that plan that we feel very good about a book to the well above one. I don't know that I see a trend in many of them being accelerated, but I can I feel pretty good about pretty good book to build ratio by the end of the year. And now we're saying well above one versus above one.

We did say that. That's what we have said. Yes. Okay. Well above. Okay. All right. Thank you. I'll get back in here. I appreciate the call.

Good morning, Andy.

Thanks, Andy. I'll take that. So the project continues to advance. We have already started handing over early portions of the project to the client and will continue to do so throughout this year. Now that being said, we're working with the client on some additional scope items, Andy, that once agreed. Would likely impact the timing and the schedule of the project.

So we've made some good progress in certain areas and other areas. We need to resolve with the client to further advance them.

Conversations are ongoing. I would say would take a couple of months to resolve that.

That's right, Andy. We see power to be the best player for us and the whole data center ecosystem. And we make some great progress in recent months. I mentioned in my prepare remarks several projects working on the front end with various clients, not just with one client. And we're advancing these projects nicely towards an EPC negotiation and award.

Because we're doing it in a methodical way and we don't want to convert to lump sum until we can properly understand the price of the risk. My sense is that these things will happen first half of next year. So that's why we're saying these front end activities are going to lead to meaningful awards first half of next year.

Around data centers, we are working very closely with the one client for the data center in Kentucky. We are looking at other opportunities. But as we said before, many of those projects don't quite match our selectivity and our sweet spot. So we will continue to look at the data center market selectively and then we can find the right opportunity. We'll go after it with full force. So power number one data center is number two.

Let me start with the timing of the project. So we have been working on that project. Sanghita for at least six months in the early phases. We took the bigger awarding in Q2. We have a full team. Several hundred people working on that. We have started some early procurement and because this is a percent of cost completion, the margin take up as a function of the procurement construction. So we're going to see some of it this year.

But I think the heavier side of it, we're going to see next year and beyond.

That's right. Sanghita, maybe I'll say that when you look at the EBITDA bridge that were in the prepared materials, certainly the centrist award is part of that that pull forward effect that is giving rise to that. I think what was a gray bar in there. So the pull forward effect of Q2 nor new awards was really important. Close out effects were certainly a factor there.

But as a part of the overall bridge that that pull through was a part of it.

Yeah. So maybe I'll somewhat basically answer the question. So we we're not going to get into the mechanics of exactly how we develop the guidance range, but we are looking across the portfolio and looking at our risk adjusted outcome suite on those. And so I would say we feel pretty comfortable of the landing spot that we printed this morning.

Good morning, Michael.

Yeah, Mike. Not only are we encouraged by the revenue side of these new awards, but we're also very pleased to see that margins continue to take up in our new awards compared to what we had in backlog. So it's an encouraging trend.

Overwhelmingly, the awards were on the reimbursable side, but even then the margins are ticking up. So that is a combination of very selected commercial negotiations, which is us pursuing projects where we think we can add value in the client recommends that. Now, as we take on some lump sum work in the future, whether it's an LNG or power, you would also expect those margins to be higher. And we're making sure that those estimates have enough contingency in there so that we protect our margin. Well, that's part of the smart lump sum strategy.

So my hope and my plan, Mike, is to continue to drive margin up in the backlog. And as that backlog grows, we had a good step in this quarter, but we need more of that. We need to continue to see backlog growth in the next few quarters. And as that happens, I think you'll start seeing that margin translate into the income statement.

Yeah, well, it won't be heavy steel business. I'm confident we can say that. Look, I think whatever we're looking at is certainly aligned to our strategic and markets. So that's going to mean power, mining, government services, particularly those with that feature security clearance, and then certainly in the life sciences, form of space. And in terms of size, that is the art of the deal behind the curtain.

And, you know, we certainly feel like management has the bandwidth and the breadth of resources necessary to pull those across the finish line. And I think you'll understand that we can't really talk much more about specifics on anything until we have a deal in hand.

Thanks, Mike.

Thank you, Andy. Happy to answer the question. So, yeah, we did say in remarks roughly 30 billion of in-house pipelines. So we're doing the studies on these. There's other projects that we're tracking outside of 30 billion that are not currently in-house, but the 30 is just in-house.

It's copper. So let me step back. When we say mining in metals, we're talking about primarily copper fertilizers. The fertilizer market is picking up. Mine to fertilize your potash and the like. And metals, metals being steel and aluminum. So that's the primary universal commodities.

Geographically, fairly widespread South America, North America, Australia, UK, Middle East. So our mining and metals market is more global than any of our other markets, I would say.

What are the main hurdles to overcome to get to a full release combination? Some of it is regulatory and permitting. But I would say that the majority of it is clients are looking for capital efficiency. They want to make sure that their investments are going to pan out and be profitable. And so we are working very, very closely with our clients to make sure that we're only designing what's actually needed in that plant. Minimum Bible solutions is a term.

And we're working very closely to try to minimize the impact of escalation, supply chain disruption, and all the noise that you hear in the market. So I would say that's the biggest hurdle is how do we work together with the clients to make sure these projects are economically sound.

And we feel very good because the commodity pricing for these things are pretty high. So there's demand for copper, fertilizers, aluminum, steel, et cetera. So there's demand in those end markets and we feel that I can't say that all of them are going to go forward, but I think a good chunk of them will go forward.

So the vast majority of the work is going to be reimbursable, lower risk. Therefore, attracting margins that have been historic margins in the mining and metals business.

Yeah. So on the Rupo front, which we do kind of cascade across the horizon, as we think about that next year or the succeeding 12 months, what you're seeing is the impact of a lot of those large energy mega projects rolling out and with the Q2 new awards, those having several, you know, an horizon of several years of execution.

And so I don't think there's anything anomalous about it, but it does just reflect the difference between some of those maybe energy projects that are drawn to conclusion vis-a-vis the reload in Q2, extending, you know, meaningfully into 27, but with, you know, peak execution in late 27 and in early 28.

So the 90 million gain is outside of the guide. So we would not consider that part of the run rate of earnings.

With respect to the guide you're right, it does kind of imply a similar trajectory from Q2 into the back half of 26. But as I said, it is a very different profile in terms of the contribution from our segment. So by and large you'll see a similar contribution from Q from the first half of the year into the back half of the year on the mission side. Energy kind of goes from a larger contributor in the first half to a lesser contributor in the back half and urban solutions meaningfully picks up their even dog generation in the back half. And so that's part of the overall resilience of the business that we've built.

But in terms of new awards in the back half of the year necessary to attain the guide, that's not really critical because, you know, the things that we would book in Q3 generally are not going to contribute a lot in the way of EBITDA within the back half of the year. So we look for those to begin burning into our income statement more meaningfully in 2027 and beyond.

So I think that leads us to the conclusion that a majority of the expected EBITDA in the second half already reposes within our backlog today.

Yeah, that's essentially what I'm implying.

There is a little bit of a mixed implication there. But yes, we do expect a slight uptick in urban margins in the back half. I think that's more just the way the portfolio is going to perform and what the different margins are within, you know, their individual business lines. But I don't think there is anything that will be earth shattering in terms of the print when we get there for the back half.

Thank you, operator. And thank you for joining today's call. I am pleased to see solid momentum across our end markets and continued strength in our opportunity pipeline as evidenced by a strong Q2. Thank you and have a good day.