Fluor Corp (FLR) 2008 Q1 法說會逐字稿

Good afternoon. Welcome to Fluor Corporation first quarter conference call. This call is being recorded. (OPERATOR INSTRUCTIONS) A replay of today's conference will be available at approximately 8:30 p.m. eastern time today, accessible on Fluor's website, www.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 8:30 p.m. eastern time on May 19 at the following telephone number: 888-203-1112. The pass code of 6743150 will be required. At this time for opening remarks, I would like to turn the call over the Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, operator. Welcome everyone to Fluor's first quarter 2008 conference call. With us today are Alan Boeckmann, Fluor's Chairman and Chief Executive Officer; Mike Steuert, Fluor's Chief Financial Officer, and also joining us today is Steve Dobbs our Senior Group President in charge of the Government, Global Services and Industrial and Infrastructure segments. Our earnings announcement was released this afternoon after the market closed and our 10-K was also filed today -- 10-Q, excuse me. We have posted a slide presentation on our website which the presenters will reference during their prepared remarks. Before getting started, I would like to read our cautionary note regarding forward-looking statements which is summarized on Slide 2 of the investor presentation.

In discussing certain subjects we will be making forward-looking statements regarding projected earnings, market outlook, new awards, margins, tax matters and other statements regarding the intent, belief or expectations of Fluor and its management. These forward-looking statements reflect our current analysis of existing trends and information and there is an inherent risk that actual results and experience could differ materially. These differences could arise from any number of factors, information concerning factors that could cause actual results to differ materially from the information that we will give you is available in our Form 10-K filed on February 29, 2008, which is available online or upon request. The information in this conference call, related projections or other forward-looking statements may be relied upon subject to this cautionary note as of the date of this call. The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or for any other reason. With that, I will now turn the call over to Alan Boeckmann, Fluor's Chairman and CEO.

Good afternoon, ladies and gentlemen, and thank you for joining us today. We're going to be reviewing our results for the first quarter, our market outlook, and discussing our increased guidance for 2008. I'm pleased to report that our first quarter was very strong with revenues, earnings, new awards and backlog all increasing substantially from a year ago. Most importantly, we continue to see substantial strength in our key markets, which bodes very well for our future growth. I'd like to provide some highlights of our financial performance for the quarter, and I will reference Slide 3 at this point. Net earnings rose by 63% to $138 million, or $1.50 per diluted share, and that compares with $85 million or $0.94 per share in the first quarter of 2007. Consolidated operating profit for the quarter grew by 40% to $249 million. These results reflect very strong growth in Oil & Gas, Global Services, Industrial & Infrastructure, and our Power segments. Revenue increased 32%, up $4.8 billion up from $3.6 billion in the first quarter of 2007 reflecting growth in all of the segments except Government.

As I move to Slide 4, you will note that we had another very strong quarter of new awards, booking $5.7 billion which is up 28% from that a year ago. And while we had awards across the portfolio, this quarter was heavily driven by Oil & Gas awards which totaled $4.3 billion. Consolidated backlog for Fluor rose to $31.5 billion, up 33% from a year ago. This is our tenth consecutive quarterly increase and has set another new company record.

I'd like to make a few comments on our markets and prospects going forward. Overall, we continue to see very strong demand for major new energy, Industrial & Infrastructure projects globally, and we've seen very little effect from tightening credit markets and recessionary pressures. The level of front end activity is substantial and major prospects are proceeding on the schedule that we anticipated. I think our significant first quarter awards provide compelling evidence that our markets remain robust. I'd like to talk a little about each of our segment markets, but first let me ask Steve Dobbs to provide some highlights on your segments and then I'll comment on Power, Oil & Gas.

Thanks, Alan. I'm going to provide a short summary of each of the three reporting segment that Ken mentioned at the start of the call. Turning to Slide 5, the first group is the Industrial & Infrastructure which consists of three business lines. The first of these business lines is mining and metals, which has seen a significant growth over the last few years as a result of a high demand and high prices for the associated commodities. Recently, the primary drivers for Fluor's volume in this business line have been iron ore in western Australia and copper in South America. We continue to see strong demand in these areas as well as increased interest in Asia, North America, and Africa. We have viable prospects associated with [aluminum] refining, gold mining, tar sands, and the metals associated with alloy steel, such as nickel. We're also seeing a renewed interest in Uranium. Fluor has a strong geographic presence and relevant experience in each of these areas. We continue to anticipate strong demand from large capital projects in this market segment well past the end of this year.

One of the most positive achievements I would like to highlight today is that we're seeing sustained growth in the market areas we have identified as being less cyclical, such as large Government programs, the operations and maintenance business line of Fluor Global Services and Infrastructure. Infrastructure's recently taken over as the largest backlog in the Industrial & Infrastructure segment. As we discussed in the past, we generally only look at one or two large infrastructure projects being awarded each year, given their complexity and extended gestation periods. Our largest active projects today are the San Francisco Oakland Bay Bridge span, the World Trade Center transportation hub, and the recently awarded I-495 hot lanes project in Virginia. In terms of new infrastructure projects or prospects, the Greater Gabbard Wind Farm is proceeding toward full EPC contract release in the second quarter. This will be the largest offshore wind farm ever constructed. Fluor is a co-developer of that project with Airtricity which was recently acquired by Scottish and Southern Energy. We see strong demand for infrastructure driven by continued urbanization and neglected infrastructure modernization in large cities around the world. In the U.S., we continue to see increased interest in private finance to support new infrastructure projects and Fluor is a recognized leader in this method of infrastructure delivery.

Moving to Slide 6, we have some great news to report associated with our Government segment. Subsequent to the end of the first quarter, the protest of our selection for two large Government contracts, LOGCAP IV and the Savannah River site, were both favorably resolved. On LOGCAP IV, as we've described in the past, we will bid on individual task orders which, if awarded, will be recorded as new awards at that time. Upon completion of a 90-day transition period on Savannah River, we will go to work and begin to generate revenue with Fluor share expected to exceed $300 million per year over the duration of the five-year contract. Fluor's selection to operate the Savannah River site can clearly be attributed to our highly successful performance at DOEs Fernald and Hanford sites. We believe that this experience also makes us a strong contender for cleanup of the Sellafield site in the United Kingdom where the U.K. government is scheduled to complete source selection some time in the next quarter. There are also a number of large DOE operating contracts scheduled for competition over the next three years. Finally, there's the global services segment.

About half of this service's revenue comes from the services in support of the engineering and construction market in general, which includes Fluor, such as our temporary labor agency, TRS, and our construction equipment and tools business, AMECO. The other half of the revenue comes from operations and maintenance services. In my opinion, this market is one of our best opportunities for long-term, sustained growth. Fluor has a great value proposition in assisting owners in driving lower operating costs and higher performance out of their existing assets. Global Services has been very successful in growing the volume of O&M work over the last three years. We see this as part of our business which can be sustained even when owners are not building large new plants. Demand for proven O&M performance continues and we expect continued growth in this segment. Alan.

Thanks, Steve. Ladies and gentlemen, we're on Slide 7 now. In Power, Fluor's depth of experience positions us well to serve this market for new Power generation whether it be from coal, gas, nuclear or alternative fuels. On the coal side, the Desert Rock plant is still out there, but we have slipped this prospect into 2009 due to the uncertainties surrounding the permit. Considering that the group has a good prospect list, this delay should not have an impact on our growth expectations for the Power segment. The inability to secure environmental permits continues to delay coal-fired projects in general. But, as a result, we are seeing number of gas fired opportunities. We are in fact pursuing several sizable prospects which we have the potential to come into our backlog during 2008. On the nuclear side we continue to support the South Texas project, as Toshiba and NRG work to complete their construction operating license application. Finally, as evidenced by the award of a large scrubber at [Lumanents Sanouw] facility this quarter, we continue to pursue and win plant betterment projects.

If you'll turn to Oil & Gas on Slide 8, this segment continues to be a key driver of Fluor's new awards and backlog growth representing 75% of the first quarter bookings. We absolutely expect that 2008 will be another record year for Oil & Gas. Downstream awards are expected to be substantial in 2008 following a very strong start this quarter. We are actively engaged on numerous front end contracts and expect the release of some very large EPC awards in 2008 where we began the FEED work in 2007 and those full values are not yet in our backlog. Focusing on the petrochemicals area, we are pursuing some large opportunities in chemicals and specialty chemicals internationally, and we are well into the FEED work on Eastman Chemicals $1 billion gasification plant in Texas. On the polysilicon side, we're now working for multiple clients around the world and expect that substantial investment levels should continue to benefit Fluor, given our strong market share and position in this developing area.

Finally, in upstream, we are positioning for some very large programs in the Middle East, Russia and Canada. Many of these relate to the development of gas resources as well as offshore and on-shore production facilities. We are focused on these opportunities where we can bring our significant program management capabilities to bear and that provides the best returns to Fluor. In summary, from a company-wide perspective, we are encouraged by the continuing health of this cycle which gives us increased confidence that our new award levels in 2008 should meet or exceed the record $22 billion level that we achieved in 2007. And so with that, let me turn the call over to Mike Steuert to review additional details of our operating performance, our new awards and other financial information.

Thanks, Alan, and good morning or good afternoon to everyone. First, let me provide you with a brief recap of the results for each operating segment. Please turn to Slide 9 of the presentation. Fluor's Oil & Gas segment reported first quarter revenue of $2.6 billion, up 55% from $1.7 billion in the first quarter of 2007. Operating profit grew to $138 million, up 56%. New awards in the first quarter totaled $4.3 billion, including a major refinery upgrade for Total Petrol Petrochemical USA and the world's largest polysilicon production facility for LDK Solar Company in China. Ending backlog at March 31, 2008, for Oil & Gas rose to $20.4 billion, which is a 46% increase from a year ago. Fluor's Industrial & Infrastructure segment reported revenue of $796 million in the quarter, essentially level with last year. Operating profit was $29 million which represents a 39% increase over the first quarter a year ago. Improved profit generation was a result of strong operating performance across the segment. New awards for the quarter were $386 million with awards across all business lines which brought ending backlog to $5.7 billion, up 9% from the $5.2 billion a year ago.

Moving on to Slide 10, revenue for the Government segment was $280 million for the quarter compared with $346 million a year ago. Operating profit was $8 million down from $16 million a year ago reflecting reduced contributions from various projects which largely concluded in 2007. We are pleased to report that both the Bagram Air Base and the Haiti embassy projects are now essentially complete. First quarter new awards totaled $99 million with ending backlog essentially flat at a year ago at $538 million. Moving on to Global Services, the segment reported an 11% increase in revenue to $706 million in the first quarter primarily due to growth in the equipment services business line. Operating profit for the segment grew by 14% to $54 million compared with $47 million last year. New awards were $637 million, including both new clients and existing contract renewals. Ending backlog rose to $2.6 billion at the end of the first quarter.

Now, turning to Slide 11, Fluor's Power segment reported a 104% increase in revenue, to $422 million, up substantially from $206 million in the first quarter of 2007. Operating profit grew to $21 million in the first quarter, a four-fold increase over 2007. Power segment new awards were $290 million, mainly driven by additional plant betterment programs. Backlog at the end of the quarter was $2.2 billion, which is up 58% over the first quarter of 2007. As Alan mentioned, Fluor's consolidated backlog at year-end now stands at $31.5 billion, which is a $1.3 billion sequential increase over last quarter. Percentage of fixed price work in the backlog remains at 24%, about 46% of the backlog is for projects in the U.S. and 54% is for projects outside of the U.S.

Now, moving on to corporate items on Slide 12. Corporate G&A expense for the quarter was $40 million, down from $45 million a year ago due to various factors including foreign currency gains. We had net interest income of $12 million in the quarter compared with net interest income of $4 million last year reflecting returns generated by higher cash balances. The effective tax rate for the first quarter was 38% which is about what we would expect as a run rate and is line with the 38% we reported last year. Shifting to the balance sheet. Consolidated cash and marketable securities balance at March 31 was $1.9 billion, up sharply from $1.1 billion a year ago. This increase was driven in large part by strong cash flow from operations, including client advances. Capital expenditures for the first quarter were $59 million, including equipment for AMECO and additions to our office and computer infrastructure around the world. We expect CapEx for the first -- for the year to be approximately $200 million to $230 million.

On July 2 our Board approved a normal dividend of $0.25 per share, payable July 2. Separately, the company's Board of Directors also approved a two-for-one stock split which will be distributed as a stock dividend to shareholders of record as of June 16. The actual distribution will occur on or about July 16. Overall, we are all very pleased with Fluor's financial condition which continues to strengthen quarter by quarter.

Finally, let's talk about our updated guidance for 2008 which is shown on Slide 13. As our clients continue to make substantial investments in major technology and energy, industrial infrastructure projects globally, our outlook is becoming increasingly positive. As a result of the substantial new awards over the last two quarters, a solid list of major prospects for the balance of this year and the earnings momentum that we achieved in the first quarter, we are increasing our full year guidance for 2008 earnings per share to a range of $6.25 per share to $6.55 per share which is up sharply from the previous range of $5.10 to $5.50 per share. This guidance has not yet been adjusted for the effect of the two-for-one stock split which the company recently announced. With that good news, Alan, Steve and I will be happy to respond to questions.

(OPERATOR INSTRUCTIONS). We'll take our first question from Jamie Cook with Credit Suisse.

Good evening. I'm speechless once again. I guess, Mike and Alan, I'm just trying to get a feel for what's changed dramatically from when you gave guidance in the fourth quarter, just the big drivers to raise your guidance $1.15 at either end, especially given we're in the first quarter, you guys generally don't raise in the first quarter.

We didn't think you'd let us slide without raising it, Jamie.

Put my numbers ahead of you. Now you guys have bigger issues. I'm trying to figure out what's changed or what gives you greater confidence.

I think it's a combination of factors, all very good. Number one, we've had outstanding new award quarters. Record backlog continues to climb. Good margins built into that backlog. Our prospect out in front of us is just as robust as ever, if not more. I would highlight that we are seeing just outstanding performance throughout the corporation. Solid performance driving very good results and we're confident we'll be able to keep that going.

Okay and then just in the Q I noticed within the Industrial & Infrastructure section you mentioned the sale of a JV which could impact the second quarter. Was that included in your guidance originally? I guess is that included in your guidance and, if so, how much?

Jamie, there's a small part of that sale where we received initial cash payment earlier that was included in the guidance for the quarter. When that sale concludes, we will probably adjust the guidance for the remainder of any kind of income on that, should that sale conclude.

All right. And then, Alan, just to play devil's advocate, if we look at your guidance the other way, you grew your earnings 60% in the first quarter and if you look at your implied earnings growth for the remaining nine months of the year and you backed out the tax gain you had in the fourth quarter, your earnings growth only implies 40%. So while it's great to raise your guidance that much, why is it going down in the back remaining nine months?

It's not, Jamie. I think we're going to have very consistent quarters going forward with hopefully and putting growth on top of those.

All right. Thanks. I'll get back in queue.

We'll go now to Andrew Kaplowitz with Lehman Brothers.

Very nice quarter.

Thank you.

The corporate expense number was a lot lower than we modeled. I'm just wondering is that sort of one of the factors in the higher guidance going forward and maybe you talked about foreign expense changes or foreign currency gains. Anything else in there that you can highlight?

No, not really. There were a lot of pluses and minuses in corporate expense. The most significant of which, which was also relatively minor, was foreign currency gains. There's really nothing special to highlight there.

But I guess, Mike, going forward, can we use sort of a similar rate as a percent of sales that you did in the quarter?

We're still looking at an overall annual corporate G&A of around 200 million, plus or minus 10 million. It's usually somewhat back end loaded in the year as we go through the year.

Got you. And then maybe if I could push you a little bit more. Did you put anything for Savannah River now in your guidance? I know you don't like to talk about specific contracts but maybe if you could just tell us if it's having a significant contribution in forward guidance.

We're very pleased with the resolution of the Savannah River protest. Clearly, that is a 90-day period. That will come on later in the year and it could have a very modest effect for the year, which is reflected in our guidance but it's very, very modest. This is nowhere near the key driver of increasing guidance.

I understand. Maybe if you could talk about, you mentioned Greater Gabbard. Are there any other opportunities in wind energy that you are looking at or is that just sort of a one-timer or do you think long-term there's a lot of opportunity in there?

As a matter of fact, with that award being eminent and being recognized as one of the leaders in the industry, we're getting quite a bit of interest from others in terms of going forward with other wind farm projects. One of the reasons we've been a little bit reluctant to go forward with too many of them is they're just so expensive to develop. After we have proven ourselves on this first one, I think there's another wave of bids coming up in the U.K. for future wind farms offshore there and we would expect to participate in that next wave.

Great. Alan, one more question, if I may. It seems like you're not -- it seems like the overall end market outlook is still very, very strong. Are you seeing hints of delays at all outside of tower, particularly in any of the Oil & Gas markets that you serve or in general customers still sort of pushing the envelope to get these projects out?

No, we're seeing them go forward. We did see some delays last year in '07 as we started hitting some of the escalation that was coming into the market, particularly in commodity prices for steel and other equipment. But those have been rationalized and the projects that we are looking at now are all moving forward.

Okay. Thank you. I'll get back in queue.

We'll go now to Andrew Obin with Merrill Lynch.

I guess everybody told you what a great quarter you had, so I'm not going to say that.

Okay, thank you, Andrew.

Anyway, great quarter. Just a question. There was a news item about [Alzo] refinery and I'm just trying to figure out what is the potential for Fluor in that particular project? Is it $100 million or is it billions?

We are the program manager for that and also announced that the contract for the utilities and offsites portion, the EPC of that, this last year. So it's a significant project for us.

Okay. But -- okay. Should I be -- okay. I can follow it offline.

The major block of that went into backlog for us in 2007.

Okay. Just a question on margin progression, particularly as I look on the Oil & Gas side. Looking out 12 to 24 months, will margin have to decline because of more construction? Can they be flat or can they expand a bit?

It's a mixed bag. Obviously the portfolio has got projects in a lot of different stages. As we move into construction, that tends to depress the margins on those projects somewhat. I think we can stay somewhere in the neighborhood that we're at right now. And I think I said that on the last conference call.

And just a question on the new awards, I mean, they were pretty strong but at the same time looking back, they were the weakest in a couple of quarters. Can we get back to the same levels in 3Q and 4Q? Is there some lumpiness or do you think we've hit the peak in terms of new awards.

Q4 was the best quarter ever for the corporation, so just coming slightly under that one, I don't feel too bad. This was a very strong quarter at 5.7, that's, I think it ranks in our top three, if I'm not mistaken, top three or four. I think we're going to see continued strong opportunity for new awards as we go through the year. Obviously, they could be lumpy and we don't publish our forecasts for those. But I did make the comment and it's absolutely still valid, we expect that the bookings in 2008 will be equal to or greater than what we achieved in 2007.

Which would in theory imply that for the remainder of the year new awards should at least match last year, right?

Correct.

Thank you very much. Great quarter.

We'll go now to Curtis Woodworth with JP Morgan.

Good afternoon.

Good afternoon, Curtis.

Alan, if you look at the backlog in Oil & Gas it's $20 billion and you have a run rate of almost $10 billion in that segment annually, can you comment on the multi-year progression of that backlog? I mean, is it safe to say that you would today have pretty good visibility in that segment, at least through mid '09?

That's pretty true.

Okay.

Yes, we -- we get the opportunity obviously it's very beneficial to do a lot of the front end work and the feed work for some of these major programs so we get a good line of sight going out anywhere from three to four, five quarters.

And the feed work you're looking at today, I know it's substantial. Can you compare the mix of that opportunity versus last year both in terms of end market and perhaps domestic versus international?

Yes. I made the comment in previous quarters that we'll continue to get great opportunities closing on the downstream side, particularly here in the U.S. for refinery modernizations and new refineries overseas. That's still going to continue through 2008. But the front end work that we're seeing now is starting to shift more to the upstream side to both transportation projects as well as production on shore and off shore.

And are there any margin implications of that?

No, they're pretty similar.

Okay. And just one last question. Your appetite for acquisitions, given you almost have $2 billion and you're experiencing obviously strong secular growth, are there any markets that you want to get bigger in or certain skill sets that you don't have that you'd like to acquire?

We are out looking for opportunities for M&A which we do on a continual basis. We are not going to play market consolidation. Any acquisitions we make will be just as you suggest, strategic to fill out capabilities in certain markets that we want to grow in. Ones that we're looking at are in operations and maintenance, in infrastructure and in the nuclear fuel cycle.

Is that a pretty active part of the strategy right now?

It is.

Yes. Okay. Thank you.

And we go now to Alex Rygiel with FBR.

Thank you and congratulations on a nice quarter. First, how will Savannah River roll into your backlog?

Savannah River, being a Government-funded project, we will take that in one year increments in our third quarter every year.

Great. And on the -- in your gas commentary you mentioned several very large opportunities later in 2008. Can you be a little bit more specific on your definition of large?

Well, there's a number of them and they kind of go over a fairly broad range of size. Some of them are extremely large. Most of them are in the Middle East, a couple in Asia. But I wouldn't want to quote numbers for them, Alex, but they're in what would call our mega project category.

Great. We've been talking for years about a shortage in engineering staff. Are you starting to see some of your competitors maybe fall off the bidding table because they're maxed out with capacity and those that remain are fewer and fewer?

I would say that that has been an advantage for us. We have a fairly large and global staff. We've had the ability to recruit both experienced personnel as well as we have significant training and orientation programs that bring in entry level engineers. We've had our largest recruiting year ever in 2007 for college graduates. But there are a lot of companies that have I guess kind of hit the proverbial wall with respect to staffing. We're continuing to increase our staff. We've had dramatic increases over the last two years and expect this year to be no different.

And one last question. As it relates to the cash balance, has the board made any determination as to if you can or cannot deploy capital in a certain period of time for an M&A transaction. If you can't, then you will be considering returning that cash to shareholders?

I think returning cash to shareholders in terms of special dividend is not high on our priority list. We are looking at continually modifying our dividend as earnings go up. We review that on a regular basis with the board. We are looking and will be instituting a stock buyback to offset share creep. But our real goal is to go after acquisitions and to have enough capital and a strong balance sheet to take care of the working capital as our business grows.

Thank you very much.

We'll go now to John Rogers with D.A. Davidson.

Hi, good afternoon, congratulations as well.

Thanks, John.

Unbelievably great growth for you guys. Alan, I was just wanting to follow up. In terms of market concentration now with roughly two-thirds of your backlog in the Oil & Gas area, are you sensitive at all that you're overly dependent on a sector or is that a concern at all?

No, it's not a concern. We continually strive to be the contractor that our clients want to come to regardless of the sector. But we're not a market maker. It's like Wayne Gretzky, we like to get where the puck's going to be. The fact that we have a significant backlog in Oil & Gas, it's because that market is very strong and we are very strong in that market. So, no, we're going to go after business that's profitable and we add value to our clients whatever sector it may be in.

Okay. You talked a little bit about the additions of people and your own expansion. At this rate of growth, I'm just curious, I mean, do have you to bring in more partners on projects and how are you dealing with that or can you keep up with it?

As a program manager on a lot of these mega projects, that's what we dois , we manage other contractors to do scopes of that

Right.

So we don't hesitate to team as we did on Savannah River with good partners to win that work. It's a regular part of our strategy and it's one that we employ quite often.

Okay. And that list of potential partners, I mean, you're working then to expand it?

It depends on the market.

Okay.

Particularly markets that we're looking for rapid growth or to increase our capability, we typically will have a larger list of partners.

Okay. Great. Thank you.

You bet.

We'll go now to Barry Bannister with Stifel Nicolaus.

When I look back at 2007 there was sticker shock in Oil & Gas and the price increases in Oil & Gas in '08 helped overcome that and so when we look at '09 for Power, some of this resistance at Desert Rock and elsewhere should be overcome. I'm specifically thinking about South Texas project and the article in today's Wall Street Journal about nuclear sticker shock. Are you rethinking your strategy of being technology agnostic given that one of the best ways to reduce costs is to have a partnership such as Shaw with Toshiba?

No, we remain committed to that strategy. We have -- I think we will have the opportunity to participate in a significant number of those plants. And I read the article this morning as well. We're doing a number of things with our clients to look at how we can take advantage of a number of techniques, some are on the engineering side, some of the labor side to reduce those costs.

And there was about three quarters ago a polysilicon plant that ran over budget and Fluor was just one of several contractors and it was cost plus. But are the same issues likely to be a problem at LDK or have you addressed those?

Well, LDK was in this quarter's new awards. We put an estimate together for our client that has escalation in it. And hopefully based on where we're at now, we've seen continued escalation but it's not increasing in rate. So we're pretty confident we've got a budget that will be able to withstand the market pressures.

Just lastly, I don't see Fluor that active on civil mega projects in the non-G-7 world. I don't want to call them developing countries because some of them have better balance sheets than we do. Is that something that you've just not pursued on the civil engineering side in the developing world or is it something you might need to make an acquisition to become larger?

To date right now we're playing mostly on heavy civil projects in Western Europe and in the United States where we get comfortable with the risk profile. The difference in most of the big mega civil projects is they're all done in a lump (inaudible) turn key fashion. Right now, from a risk profile, we think it's safer to play that game in Europe and the United States and at some point if we get comfortable with the risk profile in certain countries we may give that a try.

Okay. That's fine with me. Thanks.

(OPERATOR INSTRUCTIONS). We'll go now to Graham Mattison with Lazard Capital Markets.

Hi, good afternoon guys. Also somewhat speechless on the quarter. Just wanted to follow up on Jamie's question about the guidance outlook for 2008. What's really mainly driving this in terms of sectors for the higher guidance? Is it mostly Oil & Gas projects that are driving it or is it improving outlook in some of the other sectors that have pushed up the guidance outlook?

It is truly across the board but clearly Oil & Gas has been the major driver with the continually strong new awards and the performance. It's just been exemplary.

All right. Great. Just turning to the Power segment, for the second quarter in a row gross margins were over 5%. Is this a sustainable level here going forward?

It is.

All right. Great. Thanks very much.

You bet.

We'll go now to Brian Chin with Citi.

Hi. Alan, you had mentioned briefly about infrastructure acquisitions and that term infrastructure is really, really broad. Can you give a little more color on what you're thinking there?

Yes, we probably mean it in its broad sense, too. Primarily it deals with transportation and transportation forms which, right now for us, is road transportation but would also include rail and potentially aviation and maybe extended some into things that would fall within a couple of our other sectors which might be transmission and distribution which would fall within the Power sector. Right now we're looking at the entire broad definition of infrastructure in terms of being able to capture part of the market that deals with continued urbanization where the cities keep getting bigger and bigger and the fact that at least within Western Europe and the United States the neglect that's gone on over the last number of years in terms of building that infrastructure up, going to need to repair it.

Is that the general sense of this is more of, to partially quote Barry, the developed world crumbling infrastructure theme as opposed to developing world?

We can see it playing in both, the developing and under developed world. It's part of the continued process of urbanization. This is a trend that's been going on for a couple of thousand years. It's a pretty safe bet [on their terms] whether it's in the developing part of the world or in the developed world, the cities are going to keep getting bigger and the need to support that population mass is going to need to grow in the same fashion.

Can you comment also on the fixed price or cost reimbursable mix. You said 24% fixed price in the backlog right now. Some of your competitors have commented that the trends are moving -- seem to be moving a little more towards cost reimbursable. Can you comment on that? Does that seem right to you? Is that what you're seeing out there?

Yes. That's true in maybe in the sense of the markets they're in, and it is for us in Oil & Gas. It's been primarily now reimbursable cost. But the work we do in infrastructure and in Power is largely lump sum and that's really what represents the bulk of that 24%.

Right. Right. Okay. And then lastly, actually back on that Power, where are the gas fired Power opportunities that you're seeing the strongest in the U.S.? Can you give some general sense of regions? Are we talking like PJM? Are we talking Texas? Where are you seeing?

We're looking at them on a fairly broad cross-section. We've got some on the Atlantic seaboard, in Texas, on the West Coast, so it's pretty much across the country. The situation is that with increasing demand and shrinking reserve margins and the inability to get air permits, the utilities are having to turn to gas as the only viable option they have today to get the plant started.

Right. Is it primarily CCGTs or single cycles?

It's combined cycle.

Thanks a lot.

We'll go now to Steven Fisher with UBS.

Good afternoon.

Good afternoon, Steve.

The Global Services margins were down from the run rate of the last couple of quarters. Just wondering, what's driving that? Is that just lumpiness and then might that come back to the 8-plus% range?

There's a little bit of difference in this quarter, Steven, from the standpoint that a number of the clients that normally have outages and conventional operations and maintenance tasks in the first quarter didn't come on in the year as early as they normally do. So you're seeing while the rest of the business picked up including the equipment rental company, I think it's just a shift within the mix of the different portions that make up Fluor Global Services and I fully expect for the rest of the quarter that go back up to what you're used to seeing.

Okay. Great. And then just on the fixed price mix in the areas that you mentioned, infrastructure and Power, I mean, how many projects are we talking is that spread over? Can you just give us some general sense? Is it 10 projects? Is it 100 projects?

It's a large number of projects of various sizes. There are a few larger projects that Steve mentioned in his comments such as San Francisco Oakland Bay Bridge and there are a number of smaller projects as well across the segments.

The ones that would represent significant risk, you could probably count on two hands. I mean, the big ones.

Okay. Great. Thanks a lot.

We'll go to Mark Thomas with Simmons & Company International.

Good morning, guys. Or good evening, guys.

Good evening to you.

Real quick, looking at the Government segment, margins came in at 2.8% versus 1.9% in Q4. With the Bagram and Haiti projects coming to a close, can you comment on if we'll see margins continue to improve throughout 2008 and if -- and how Savannah and really LOGCAP IV will affect the margins going forward?

Yes, I think you'll see a gradual increase through the rest of this year but you've already identified what the real change is going to be, what the effect that you're seeing there is the fact there's just not enough business volume to take care of the group overhead. And as Savannah comes online and later as we pick up things from LOGCAP, you'll see a big improvement in the margin simply because we have the volume to overcome the overhead in the group.

Okay. When do you expect LOGCAP IV to actually start rolling through?

I think we would probably expect to see some task orders to bid on here within about 90 days.

Okay. Great. Thanks, guys, good quarter. That's all I have.

Thank you.

And we'll go to Barry Bannister with Stifel Nicolaus.

Just on the LOGCAP IV task orders in which Fluor would tend to be interested, some of them are very manpower intensive where you need to have assets on the ground such as fuel and food and laundry. If you profiled the kind of task orders that interest Fluor, what are they or what can you say at this point?

The nature of that entire contract is manpower support, so I can't envision too many of them not being manpower intensive. The ones that we would tend to target would be the ones where we think we had some value added which would be maintenance and operations associated with equipment or facilities.

Okay. That's it. Thanks.

We'll take a follow-up with Andrew Kaplowitz with Lehman Brothers.

One quick followup. I think in the past you've been good at setting conservative guidance and then beating that guidance and when I see the guidance raise today, 20% guidance raise, I guess I have that same question. Do you still think it's conservative? I don't know if you can answer it. But I guess that's what I'm trying to figure out here is that I can get to these numbers and maybe even higher but sort of where are you with the progression?

Well, Mike Steuert and I haven't changed. We're going to give you guidance that we know we're going to make and we have strong confidence we'll be in that range.

Okay. That's fair. Thank you.

And we'll take a follow-up from Andrew Obin with Merrill Lynch.

Just maybe I missed it but on your comment on infrastructure acquisitions, when you say infrastructure, do you mean companies that build infrastructure or do you include owning and operating infrastructure assets?

The acquisitions we're looking at right now, they're primarily concentrated on builders of infrastructure.

Would owning an operating asset something that you would consider down the road or -- ?

Part of the public private partnership model as you're probably aware tends to bring in a concession concept or requirement. We continue to play in that market, we would fully expect to have to be a partner in the concessions to some extent like we are today on the 495 Capital Beltway project around Washington, D.C. However, right now, it's not part of our strategy for Fluor to be an owner of a lot of assets. It's something that we see doing through the construction period and then post the system that we're building going into revenue operations we'd look to eventually divest ourself in that asset. We don't see ourselves as being a long-term owner of those type of assets.

Thank you very much for clarification.

With no further questions, I'd like to turn the call back to Mr. Boeckmann for any additional or closing remarks.

Thank you, operator, and my thanks to all of you for participating on our call this evening. As you can tell from our conversation, we are very pleased with our performance to date. Very proud of the continuing strength of our corporation as it serves the markets and as the momentum that has allowed us to boost our guidance. 2008 is clearly shaping up to be another record setting year for the company and beyond that our future potential looks very positive. We truly appreciate your interest in Fluor and your confidence in our company. Have a good day.

And, ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.