Fluor Corporation (FLR) Q4 2025 Earnings Call Transcript

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Overview

The earnings call presents a mixed picture. While there are positive elements like increased share repurchase plans and optimistic guidance, there are concerns over decreased profit, negative cash flow, and restructuring costs. The Q&A revealed management's confidence in growth targets, but also highlighted uncertainties in margins and backlog conversion. The revised guidance and strategic plans suggest stability but not significant growth, leading to a neutral outlook for the stock price in the short term.

Key Financial Performance

Consolidated new awards $12 billion, 87% reimbursable. Year-over-year change affected by clients' concerns around geopolitical and trade uncertainty.

Backlog $25.5 billion, 81% reimbursable. Includes close to $1 billion in positive backlog adjustments as part of normal growth in project activities.

Urban Solutions profit $205 million for 2025 compared to $304 million a year ago. Decrease due to $108 million in cost growth on 3 infrastructure projects, offset by $54 million of positive developments on other projects.

Energy Solutions segment loss $414 million for 2025 compared to a profit of $256 million in 2024. Loss due to the Santos ruling, completion of several large projects, and a temporary slowdown in execution in Mexico.

Mission Solutions profit $94 million for 2025 compared to $153 million a year ago. Decrease reflects $60 million in reserves on the DOD project and a ruling on a project completed in 2019.

Adjusted EBITDA $504 million for 2025 compared to $530 million a year ago. Decrease due to various factors including restructuring costs and project-specific challenges.

Adjusted EPS $2.19 for 2025 compared to $2.32 in 2024. Decrease attributed to restructuring costs and other financial adjustments.

Operating cash flow Negative $387 million for 2025, largely due to the $642 million paid to Santos.

Net interest income $67 million for 2025 compared to $150 million a year ago. Decrease due to lower interest rates and cash balances at significant JVs.

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Operating Highlights

AI Deployment: Fluor has been an early adopter of AI since 2018, using predictive analytics for project planning and cost performance. AI is now embedded across project life cycles and functional roles, enhancing decision-making and execution.

Market Expansion in Urban Solutions: Expanded into key markets with major awards, including the largest pharmaceutical project globally, rare earth projects in the U.S., and semiconductor tool installations.

Nuclear Power Market Growth: Progress in nuclear power projects, including the Cernavoda project and RoPower SMR project, with potential multibillion-dollar awards in 2026.

Gas-fired Power Market Re-entry: Re-entered the gas-fired power market with a large-scale project for a U.S. utility, with potential for additional facilities.

Backlog and New Awards: Backlog ended at $25.5 billion, with $12 billion in new awards for 2025. Positive backlog adjustments of $1 billion were recognized.

Operational Efficiencies in Energy Solutions: Mechanical completion of BASF's largest investment in China, delivered with over 75 million work hours without a lost time injury.

NuScale Monetization: Achieved $2 billion in monetization from NuScale investment since September 2025, with more expected in 2026.

Share Repurchases: Deployed $754 million in share repurchases in 2025 and an additional $335 million in early 2026.

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Risk or Challenges

Urban Solutions Segment: Reported a profit decline from $304 million in 2024 to $205 million in 2025, reflecting $108 million in cost growth on three infrastructure projects. These projects are still in a loss position, with three expected to be handed over in 2026 and one in early 2027. Aggressive pursuit of recoveries and change orders from clients and subcontractors is ongoing.

Energy Solutions Segment: Reported a segment loss of $414 million in 2025 compared to a profit of $256 million in 2024. This was significantly impacted by the Santos ruling and a temporary slowdown in execution in Mexico. The Santos ruling alone resulted in a $643 million charge, and the appeal process is ongoing with no material updates expected until the second half of 2026.

Mission Solutions Segment: Reported a profit decline from $153 million in 2024 to $94 million in 2025. This includes $60 million in reserves related to a DOD project and a previously disclosed ruling on a project completed in 2019. Backlog decreased from $2.7 billion in 2024 to $2.2 billion in 2025.

Legacy Projects: Backlog for legacy projects decreased from $700 million in 2024 to $250 million in 2025. Funding requirements for these projects are expected to be approximately $220 million in 2026, including $90 million within operating cash flow.

Geopolitical and Trade Uncertainty: New awards in 2025 were affected by clients' concerns around geopolitical and trade uncertainty, impacting the company's ability to secure contracts.

Cash Flow and Financial Position: Operating cash flow for 2025 was negative $387 million, largely due to the $642 million paid to Santos. This payment has strained cash reserves, although the company expects to recover through ongoing monetization efforts and operational improvements.

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Guidance & Outlook

Client Confidence and Backlog Growth: Improved client confidence is observed, with high levels of new front-end work and detailed negotiations on projects expected to convert to backlog in the next several quarters, particularly in the second half of 2026.

New Awards and Book-to-Burn Ratio: New awards for 2026 are anticipated to be significantly higher than in 2025, with a book-to-burn ratio exceeding 1.

Urban Solutions Segment: Opportunities for growth in 2026 include large copper, aluminum, and green steel projects, rare earth material production facilities, and manufacturing and life science facilities for new clients. Advanced discussions are ongoing for a major data center in the U.S. and semiconductor work.

Energy Solutions Segment: Prospects for 2026 include re-entry into the gas-fired power market with a large-scale project and potential additional facilities. Significant growth is expected in the nuclear power market, with multibillion-dollar projects anticipated in 2026 and beyond. LNG opportunities include Phase 2 of LNG Canada and a U.S. LNG facility.

Mission Solutions Segment: Growth opportunities in 2026 include civil agency markets, national security business, additional LOGCAP work, and support services for the intelligence community. Significant growth is expected in the nuclear fuels market, with meaningful EPC awards anticipated in the second half of 2026 and into 2027.

Artificial Intelligence (AI): Fluor is advancing its AI capabilities to enhance project planning, design, procurement, and execution, aiming for shorter schedules and greater cost competitiveness in future projects.

Financial Guidance for 2026: Adjusted EBITDA guidance is set at $525 million to $585 million, with adjusted EPS expected to range from $2.60 to $3. Operating cash flow is projected at approximately $300 million, excluding a $400 million tax bill related to NuScale conversion. Revenue splits are expected to be 20% in Energy Solutions, 65% in Urban Solutions, and 15% in Mission Solutions.

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Shareholder Return Plan

Share Repurchases in 2025: Deployed $754 million in share repurchases in 2025.

Share Repurchases in 2026: An additional $335 million deployed to date in 2026.

2026 Share Repurchase Plan: Expect to spend approximately $1.4 billion for share repurchases across all 4 quarters of 2026, including $400 million for the first 2 months of the year.

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Key Q&A

Q:What changed in the initial guidance for 2025 compared to earlier expectations?

A:The initial guidance for 2025 improved slightly due to increased confidence from customers and better execution. Approximately 70% of the EBITDA guide is already in backlog, with the rest expected from book-and-burn activities. Historical trends and improved execution on backlog projects contributed to the uplift.

Q:What is the outlook for the power market and its contribution to the business?

A:The power market in the U.S. has evolved significantly, driven by high demand for reliable EPC services. The company expects to execute 2-3 large projects simultaneously by 2027, with better contract terms and risk allocation. Power is seen as a growth engine alongside LNG, with multiple projects expected to contribute to the backlog.

Q:Will the U.S. LNG project be fixed price or cost reimbursable?

A:The U.S. LNG project is a FEED for an ancillary scope, not a train. The eventual EPC contract will likely include some lump-sum elements but will be negotiated to ensure proper risk allocation. It is smaller in scale compared to LNG Canada.

Q:Why is the Urban Solutions margin outlook for 2026 lower than previously expected?

A:The lower margin outlook is due to the drag from legacy projects that are in their final stages and taking longer to complete than expected.

Q:What are the key drivers and moving pieces for cash flow in 2026?

A:Key drivers include tax payments, JV distributions, and project wind-downs. Taxes will increase as the company becomes a regular taxpayer. JV distributions are expected to decrease, particularly from LNG Canada, as the project nears completion.

Q:What caused the changes in corporate G&A expenses in Q4, and what is the outlook for 2026?

A:Q4 G&A expenses were impacted by a reversal of stock-based compensation due to corporate performance and share price changes. Restructuring costs in 2026 are expected to be modest compared to 2025.

Q:What is driving the higher margin guidance for Mission Solutions?

A:The higher margin guidance is driven by strong performance on the Savannah River project, which receives equity method treatment, allowing profit recognition without corresponding revenue.

Q:What is the outlook for Urban Solutions, including pharmaceuticals, data centers, and semiconductors?

A:The company is pursuing large, complex projects in semiconductors, data centers, and pharmaceuticals. It is executing a major project for Lilly in Indiana and is optimistic about future opportunities in these markets.

Q:How confident is the management in achieving long-term growth and EBITDA targets?

A:Management is confident in achieving long-term growth and EBITDA targets due to strong capabilities, favorable market conditions, and diversified end markets, including power, copper, and manufacturing.

Q:What is the expected backlog conversion rate for 2026?

A:The backlog conversion rate for 2026 is expected to be in the 50%-60% range, depending on execution and client-furnished materials.

Q:What is the capital allocation strategy, including share repurchases and M&A?

A:The strategy prioritizes share repurchases in the short term, followed by reinvestment in the business and smaller-scale, strategic M&A to add depth in priority markets.

Q:Which markets are the company focusing on for competitive advantage?

A:The company is focusing on markets where it has a competitive advantage, such as LNG, copper, nuclear fuels, DOE work, and large complex projects. It is also pursuing opportunities in data centers, although it is less established in this market.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the percentage of backlog that could be attributed to power in the next three years, citing uncertainty. Additionally, they did not provide precise figures for the Urban Solutions margin outlook recalibration or the exact impact of restructuring costs in 2026.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

FLR Transcript

Fluor Corporation (FLR) Q4 2025 Earnings Call Transcript

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FLR Slides

Fluor Q2 2025 slides: EPS drops 41% from Q1, guidance cut amid project challenges

2025-08-01

FLR Report

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