Riding Worldwide Growth, Fluor Engineers Keep Busy

Fluor doesn't turn lights on. But many people around the world would be hard-pressed to turn theirs on without it.

The Irving, Texas-based company provides design, engineering and construction management on large industrial projects. It builds car plants in the Midwest and develops gold mines in Asia.

And with energy demand rising, Fluor (NYSE: - ) is building oil refineries and power plants all over the world.

Its oil and gas segment, its largest, was up 65% in the second quarter. Its power plants business is still its smallest. But it surged ahead 164%.

Company officials were unavailable for comment. But in a conference call with analysts, Alan Boeckmann, chairman and chief executive, said there's still room to grow.

"As you can see, our operations are really hitting on all cylinders," Boeckmann said.

Growing Backlog

Fluor's new-project backlog grew to a record $25.7 billion at the end of June, up 43% from a year earlier. More than half of those pending projects were outside the U.S.

Aging roads, bridges and ports, along with a ceaseless appetite for energy, are fueling a boom for large commercial contractors.

"The need has been there. What's really changed, though, is there is funding for all this. Part of that is the $70 oil," said D.A. Davidson analyst John Rogers.

Collectively, the top 400 contractors saw double-digit revenue gains in 2006, according to the trade magazine Engineering News-Record.

The magazine ranked Fluor the top contractor last year based on the value of new contracts. Industry giant Bechtel Group, which tops some of the magazine's categories, was No. 2 in new business.

Fluor's global services division and industrial and infrastructure unit both saw double-digit revenue gains. Only its government segment revenue fell. It was down 60%.

But that line was inflated the previous year by post-Hurricane Katrina work, Iraqi reconstruction and a uranium plant cleanup project, since completed.

Costs on a California highway project crept up -- a $6 million hit in Q2. But the company says that project is nearing completion.

And Fluor is in the midst of a raft of other large projects.

It's building a solar-grade silicon plant in the U.S. and expanding a refinery in Poland. And it's widening 23 miles of the German autobahn.

Reuters reported that Fluor is in talks for a possible $2 billion contract for a new refinery in Kuwait. And earlier this month, it won an engineering contract for two planned nuclear reactors in southern Texas.

Many energy watchers think nuclear power is on the brink of a resurgence in the U.S. But coal-fired plants are sprouting up faster despite that fuel's dirty reputation.

Fluor won a $1.7 billion contract for the TXU Oak Grove coal-fired power plant in Texas in the second quarter. It expects opportunities to bid on more coal projects.

"There's just not another solution in the U.S. in the time frame that is required for meeting the power demands than coal," Boeckmann told analysts.

In its most recent quarter, Fluor won a record-tying $5.8 billion worth of work. And the company could pick up more from state transportation departments to review bridges in the wake of the highway bridge collapse in Minnesota.

The company increased its earnings guidance for the year to between $4 and $4.20 per share. It had previously forecast a range of $3.50 to $3.80.

Analysts surveyed by Thomson Financial expect $4.20 per share. That would be a 42% surge from the $2.95 per share it posted for 2006. Sales for 2006 were $14.1 billion, up 7% from the year before.

Through the first half of 2007, the company posted sales of $7.9 billion, up 11% from a year ago. Earnings per share in the first half were $1.99, up from $1.74 in the year-ago period.

Sailing Downwind

Richard Rossi, an analyst at Ferris Baker Watts, wrote in a client note that Fluor has the wind at its back.

That sector is driven by "rising demand, geopolitical issues, and previous under-spending on the sector's infrastructure."

"We believe Fluor is extremely well-positioned to benefit from favorable spending trends that are present in several end markets that the company serves," he wrote.

Credit Suisse analyst Jamie Cook says she believes there are some large oil and gas projects still to come.

But there have been some worries.

Margins for refiners have tightened, causing some to question future projects. And Fluor says it has seen its own construction and equipment costs rising.

But Boeckmann told analysts he didn't see plans being scrapped. Some plans have been modified, but overall the investment is being made.

"I think the commitment to spend particularly to upgrade these refineries to accept the heavier crude is a change that has to be made," Boeckmann said.

Rogers says the question now is whether the industry will be able to catch up and convert those long backlogs into revenue.

"The issues in this industry are not the amount of work. There's plenty of work to do," he said.