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Fluor Sinks a Fast 11% After a Slow Quarter

Earnings: Irvine giant's stock falls $6 in late trading on word of $70-million loss. Investors also spooked by Fluor Daniel drop-off.

May 07, 1997|JOHN O'DELL | TIMES STAFF WRITER

IRVINE — Fluor Corp. said Tuesday it expects to post a second-quarter net loss of about $70 million, or 83 cents per share, later this month--its first quarterly loss in five years.

While the company was expected to release bad news Tuesday, the numbers shocked some analysts and sent investors scrambling to sell Fluor shares. They plummeted $6.125 in the last 30 minutes of the trading day to finish at $50--a drop of 11%.

The loss in large part is the legacy of a massive cost-cutting drive and previously announced problems at two power plant projects. But Fluor also revealed that ongoing operating profits of its major subsidiary fell sharply to just $30 million. Analysts had expected the Fluor Daniel engineering and construction unit to post operating earnings of about $60 million.

Because Fluor posted a $62-million first-quarter profit, its net loss should drop to about $8 million.

Chairman Leslie McCraw said Fluor does not expect to take significant write-downs in coming quarters and that the company will post a profit for the year. He declined to predict its size but said Fluor Daniel should generate an operating profit of $140 million in the second half and that Fluor's A.T. Massey Coal Co. subsidiary is profitable now and is expected to remain profitable.

Fluor has been struggling with a reorganization of its corporate and Fluor Daniel units since late last year. The company made some of its problems known in mid-February when it reported its first-quarter earnings and failed to meet analysts' expectations of a 15% profit gain.

But Fluor officials held off revealing the extent of the company's woes until now, saying they knew what to do but still were trying to get a handle on how to do it.

Among the details that surfaced Tuesday is that Fluor expects to lay off as many as 575 employees, including 75 of some 600 senior managers, as part of its effort to return to profitability.

The company would not identify any of the executives scheduled to get the ax, except to say that the four top officers, including Chairman Leslie McCraw, were not on the list.

As part of its drive to slash $100 million from operating costs, Fluor is closing a number of domestic and overseas offices. It is likely some of the casualties will come from those closures and will include some of the company's group presidents.

Already, said Fluor Daniel President James Stein, consolidations have cut the number of operating units in the engineering and construction subsidiary by almost 30%, to 17 from 24.

McCraw said the company has pushed hard for profit growth in recent years and in its push "asked too much of certain operating executives."

Stein--one of three top executives who report directly to McCraw--said his cost-cutting program so far has shaved about $50 million from ongoing costs and that the entire $100 million in savings should be "in place" by November when Fluor begins its 1998 fiscal year.

The giant engineering and construction services company has not had a quarterly loss since it took a $59.3-million hit in the final quarter of its fiscal 1992.

McCraw said Tuesday that Fluor will take $140 million in charges during the second quarter related to cost overruns on the two power plant projects and to the costs of its reorganization.

The total hit will be reduced to a net $70-million loss because of the $30-million Fluor Daniel operating profit and earnings from the company's coal mining subsidiary.

McCraw said that Fluor does not expect to take an additional charges for cost overruns in the second half but could write down another $15 million in costs from its restructuring.

Fluor is expected to post a net profit for the year but the total will be far below the $268.1 million reported for its fiscal 1996.

The company has long told analysts and investors that its goal is to increase earnings by 10% to 15% a year.

Fluor stock had risen to an historic high of $75 a share on Feb. 18, when the company first revealed that it had allowed operating costs to get out of hand during a two-year expansion drive. The stock plunged to $62 a share the next day, then fell to $50 after a March meeting with analysts before edging back up to $56.125 on Monday.

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Fluor Falls

Fluor Corp.'s stock dropped 11% in the final 30 minutes of Tuesday's trading:

3:30 p.m.: $56.25

4:30 p.m.*: $56.13

4:33 p.m.*: $52.00

5:02 p.m.*: $51.00

5:06 p.m.*: $50.00

* Trading after New York Stock Exchange closed at 4 p.m. EDT

Source: Bloomberg News

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