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What Lies in Store for Fluor (FLR) this Earnings Season?

Fluor Corporation FLR is expected to report second-quarter 2017 results after the closing bell on Aug 3.

In the last reported quarter, Fluor missed estimates by 14.9%. Overall, the company has a choppy earnings surprise history. It has an average positive surprise of 0.06% over the trailing four quarters, with two beats for as many misses.

Let's see how things are shaping up for this announcement.

Factors to Consider

Over the past six months, relative stability in oil prices have led to increased activity and bidding prospects for Fluor. For instance, within the Energy & Chemicals & Mining segment, relative stability in commodity prices looks promising. Especially, contracts for FEED and pre-FEED work for gold, bauxite and copper projects are expected to raise the top line for the soon-to-be-reported quarter.

Project execution after a period of sustained market weakness is expected to benefit Energy & Chemicals segments results through the remainder of 2017. Moreover, buyout of Dutch engineering and construction company – Stork Holding B.V. – has significantly boosted the company’s inorganic growth. We believe Global Services unit’s top line rise will be supplemented by this acquisition.

This apart, Fluor’s proven business model and overarching “One Fluor” initiative are likely to boost second-quarter margin expression. Moreover, the company’s cash-rich balance sheet, restructuring initiatives and industry-leading franchise within the U.S. are other major strengths. A host of restructuring initiatives has helped Fluor to improve control and delivery of projects. Cost savings associated with such efforts is likely to boost second-quarter financials.

Despite these positives, dearth of large engineering and new awards, which has hurt Fluor’s growth prospects for quite some time now, is likely to remain an overhang. We expect the company’s margins to suffer during the second quarter, as it transitions from higher-margin engineering to lower-margin construction activities. Slow backlog conversion problem is a persistent problem in this sector. Hence, slow burn on a couple of projects is also adding to the company’s concerns.

Additionally, currency fluctuation is likely to play a major spoilsport the upcoming results. During first-quarter 2017, the company witnessed significant foreign exchange expense due to strengthening of the Mexican Peso. This trend is likely to continue for the soon-to-be-reported quarter. This apart, significant cost overruns and stringent competition are likely to make matters worse for Fluor.

Fluor Corporation Price and EPS Surprise

 

Fluor Corporation Price and EPS Surprise | Fluor Corporation Quote

Earnings Whispers

Our proven model does not conclusively show that Fluor is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Fluor has an Earnings ESP of +1.70%. This is because the Most Accurate estimate is pegged at 60 cents, higher than the Zacks Consensus Estimate of 59 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Fluor carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

JELD-WEN Holding, Inc. JELD has an Earnings ESP of +7.69% and a Zacks Rank #2.

CACI International Inc CACI has an Earnings ESP of +1.83% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronics, Inc. ARW has an Earnings ESP of +1.13% and a Zacks Rank #2.

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