Fluor Corp (FLR) 2011 Q1 法說會逐字稿

Good afternoon, and welcome to Fluor Corporation's first-quarter 2011 conference call. Today's call is being recorded. At this time all participants are in a listen only mode. A question-and-answer session will follow management's presentation. A replay of today's conference will be available at approximately 2 PM Eastern time today, accessible on Fluor's website at www.fluor.com. The Web replay will be available for 30 days. A telephone replay will be also be available through 7.30 PM Eastern time on May 11 at the following telephone number, 888-203-1112. The pass code of 9118579 will be required.

At this time, for opening remarks I would like to turn the call over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, Operator. Welcome, everyone, to Fluor's first-quarter 2011 conference call. With us today are David Seaton, Fluor's Chief Executive Officer, and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed and we have posted a slide presentation on our website which we will reference while making prepared remarks.

Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on slide 2 of the presentation. During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information, and there is an inherent risk that actual results and experience could differ materially. You can find a discussion of those risk factors in our 10-K which was filed on February 23, 2011.

During this call we may discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are also posted on the investor relations section of our website at investor.fluor.com.

Now, with that, I'll turn the call over to David Seaton, Fluor's Chief Executive Officer. David?

Thanks, Ken, and good afternoon to everyone. I really appreciate you joining us. Today we will review our results for the first quarter and discuss our outlook and earnings guidance for 2011.

I want to start by highlighting a few of our accomplishments in the first quarter and ask that you please turn to slide 3 of the presentation deck. Net earnings attributed to Fluor in the first quarter were $140 million or $0.78 per diluted share. Our segment profit totaled $249 million and included substantial, positive contributions from all 5 of our business segments. The industrial infrastructure segment led the way, nearly tripling their profit from a year ago, which is significant growth in both mining and our infrastructure business lines. Consolidated revenue totaled $5.1 billion, which is an increase of about 3% over the first quarter of last year.

Fluor also had strong cash flow generation, ending the quarter with $2.7 billion in cash and marketable securities . After utilizing $246 million for the repurchase of shares. As a clear sign of the strength of Fluor's global market position, new awards came in at a very strong $6.2 billion. This is almost double the amount of new awards reported just a year ago. We had significant award activity across our diverse portfolio with the exception of Power. Strong mining and metals awards were the most significant contributor in the quarter, but we also had good conjugation from oil and gas, government and our Global Services business. As a result of our strong bookings, our backlog grew to $37.2 billion, which is a new Company record.

If you would turn to slide 4. The oil and gas segment had a number of awards across upstream, downstream, petrochemicals, as well as our Fluor ocean services business line which is our offshore business line. The quarter include additional scope in West Qurna in Iraq, additional scope for the Kearl oil sands project in Canada, and a polysilicon project in China. We are active on numerous front end programs and continue to track sizable projects in our target markets around the globe.

Industrial & Infrastructure segment booked another large iron ore expansion project in Western Australia and also booked a sizable manufacturing award for a carbon electrode project in the United States. We continue to track a very strong list of prospects, particularly for large mining and metals programs. During the first quarter, the government group booked $882 million in new awards including LOGCAP's task orders in Afghanistan. And the initial six-month portion of the Portsmouth gaseous diffusion for the DOE. Global Services added $422 million in new awards for the renewals and scope increases on long-term operations and maintenance contracts. As expected, the Power segment had a low new award volume, but the unit continues to work on new opportunities, primarily involving gas-fired power opportunities and renewable energy, as well as the plant betterment business.

I wanted to provide you with a brief status report on the Greater Gabbard project which is progressing in line with the expectations that we established last quarter. If you would turn to page 5 of the presentation deck. We installed 36 wind turbine generators during the quarter and now have installed 108 of the 140 total wind turbine generators. The installation of the remaining wind turbine generators is scheduled to resume in September when the specialized jackup vessel returns to the site. With regard to subsea cabling, as anticipated, we have contracted 2 vessels which have been actively engaged in equipment testing and sea trials. We expect cable installation to resume shortly. During the first quarter, we also made progress on the connectivity of the previously installed subsea cabling to the wind turbine generator towers. The overall project progress, during the quarter, was in line with our outlook, and the project is now approximately 80% complete. We obviously have a ways to go but I am pleased with the project that the team is making in line with what we communicated last quarter.

In summary, we continue to capture significant new awards which have contributed to 4 consecutive quarters of backlog growth. Front end activity in oil and gas is active and we expect sizable EPC awards as we go through 2011 and into next year. We've talked extensively about our success in mining, which we expect to continue. We have bids outstanding in government, which could add to their backlog still this year. At our Global Services business is seeing signs of recovery. With that as a backdrop, we feel very good about our market position and growth potential going forward.

Now, I'd like to turn it over to Mike Steuert, and he will review some of the details of our operating performance and corporate financial metrics as well as our financial

Thank you, David, and good afternoon. Detailed results for each operating segment can be found in the earnings release and in the 10-Q. I will focus on a few highlights and corporate items in my comments today.

Please turn to slide 6 of our presentation. As David mentioned, Fluor's consolidated backlog increased to $37.2 billion at the end of the quarter. The percentage of fixed price backlog declined to 27%, with the geographical split at 23% in the US and 77% outside of the US. I think it's worth noting that 86% of the new awards in the quarter were for projects outside of the United States.

Moving on to corporate items that are shown on slide 7. G&A expense for the quarter was $34 million, increasing from $31 million a year ago, mainly due to higher stock-based compensation costs. Effective tax rate for the quarter was 33%, due to increased earnings attributable to noncontrolling interest for which taxes are not generally paid by the Company.

Shifting on to the balance sheet, our consolidated cash and marketable securities balance totaled $2.7 billion. Cash flow from operations during the quarter was a robust $371 million including earnings and improvements in our networking capital position. As Dave had mentioned, the Company has continued to buy back shares since we increased authorization last year. During the first quarter, we repurchased 3.5 million shares, for $246 million. Since the end of March, we've purchased another additional 1.6 million shares for $113 million. We have the authorization remaining to purchase about 4 million additional shares underneath this current program. During the quarter we also paid out $32 million in cash for the principal balance owed to convertible debt holders as well as 692,000 shares of common stock for the premium they received on their investment. An additional $26 million in cash and 537,000 shares was paid out in the month of April. Capital expenditures for the quarter were $56 million, which compares with $48 million last year. The majority of this CapEx was driven by continued investment in structure and equipment within our Global Services segment. Depreciation expense was in lime with capital spending at about $48 million. Overall, as we've said in the previous quarters, Fluor's financial condition remains very strong and continues to strengthen.

Finally, let me conclude my comments by talking about our guidance for 2011 that is shown on slide number 12. As we have discussed, the solid results for this quarter were consistent with our expectations. And, we are on track to deliver EPS within our guidance range of $3 to $3.40 per diluted share for 2011. Our guidance for the year assumes sizable new awards throughout 2011, with G&A expense in the range of $170 million to $190 million. Capital expenditures in the range of $260 million to $280 million. And an effective tax rate of 33% to 36% (sic - see Presentation Slides).

With that, Operator, we are ready to take questions.

(Operator Instructions). Jamie Cook with Credit Suisse.

Congratulations. Two quick questions. Just one, the Industrial & Infrastructure margins were quite impressive at 4.6%. I'm just wondering what drove that. Was there anything unusual in the quarter and how we should think about margins as the year progresses? And then on the flip side, if we look at you Oil & Gas revenue and margin, the revenue number is the lowest I've seen in years, margin. Should we think about that as trough levels? If you could just comment on those two factors. And I will get back in queue.

Sure, let me try that, Jamie. On the margins at Industrial & Infrastructure there was nothing, I would say, materially significant, they just had a very good quarter. Better than most quarters. It was just a lot of things going right that quarter. No unusual items. We continue to guide more in the 3% range for margins, long-term in terms of your modeling and thinking for that business. But they just had a strong quarter.

But was it mining? Which area within Industrial & Infrastructure drove that?

It was both mining and infrastructure, transportation, both contributed to the solid margins.

And Jamie, the second part of your question, I will try to hit. I do think we are at an inflection point. We're seeing a significant amount of the front end work continue to come in the door, but we are seeing some of the decisions on the EPC value push to the right. It doesn't mean they are going away, it is just the decision-making process is a little bit longer than we anticipated, or I think, in most cases, that our customer anticipated. So, I do believe we are at an inflection point with regard to energy and chemicals. It's going to bumble around as we go through this year, but I really look at E&C as a major contributor in '12 and beyond.

Right. Jamie, we've guided that margins may stay at trough levels for the first half of this year and then increase as we move through 2011. And I think you'll see the same revenue burn, that we're near the trough on revenue and that will start to increase as we go through the year.

In then, David, just last, can you just comment on what's happening, why customers are all of a sudden pushing decisions to the right? Is it unrest in the Middle East? Just what are the factors driving that?

I don't think it's necessarily anything that has occurred recently. There is some projects where, in the oil and gas space, where you have national oil companies and international oil companies in joint venture relationships, and those decisions sometimes take a little bit longer than are expected. I don't think there is anything of a political nature or any unrest uncertainty that is pushing those decisions to the right.

Andy Kaplowitz of Barclays Capital.

Nice quarter. So, just following up on one of Jamie's questions around the revenue in the quarter, is it right to say -- you have a big slug of backlog in oil gas at Kearl and you've just booked a big slug for Santos. With the winter up there, is it possible the burn rate on that project was lower in the quarter? And then on Santos, we really haven't ramped up yet and so those are 2 projects that can burn more later this year?

Andy, there are so many pluses and minuses. We have so many projects it's really hard to pinpoint and attribute that to 2 projects. We do have quite a lag between when you book a project and really start burning it to a significant degree. If you model our business, it could be anywhere from 6 month to 12 month lag, when we really start to see some substantial growth in revenue as it follows growth in backlog. We're right on track with our expectations in terms of how we are going to see our revenue growth. But we do think we are pretty much at an inflection point in oil and gas revenue cycle, as David mentioned.

Yes, to your point on Santos, though, we are only just beginning that project so there's very little burn in the first quarter numbers.

Okay, that's fair. And David, if I could follow up on the commentary around robust bookings, if we think about the overall backlog, it's obviously at a record. And so, given it is so large, it's hard to grow it, what do you think about growing it going forward? Could we grow this overall backlog from here? And even if we can, certainly you are confident you can grow oil and gas backlog?

I think absolutely. This goes back to what we've talked about previously. I think we have a very robust opportunity list. I think that we are very well-positioned, both from a customer standpoint, an execution delivery standpoint, and a geography standpoint. So, I have an expectation that we will continue to grow backlog . As we've said in the past, it's going to be lumpy, you've heard us say that for years . But, I believe there is headroom as we go through

In terms of total Company backlog, right, David?

You specifically ask about E&C. I think in total Company backlog. And I think there's headroom, obviously, in our Oil & Gas segment.

Okay. That's fair. And just one more quickie. You mentioned 86%, I think, of new awards outside the US. But we've seen a recovery in the US on petrochemical and refining, to some extent. Yet, you really haven't gotten any awards there. Do you expect more awards as we go forward?

I think so. I think you're starting to see that market come back. It's a matter of timing. We are looking at several opportunities that are going to be in the feasibility study in the feed stage. So, as far as that particular piece of the market moving our needle from the backlog standpoint, you're probably in the out years. But, we are certainly seeing much more activity on the front end design and the study perspective here in the States. Again, in Power, we just need some permits. We'll go out a little bit past what you asked, I think there is upside potential for us in Power, as I mentioned in the comments. Relative to gas-fired power, relative to renewables and relative to the plant betterment work. We're seeing a lot of opportunities but they are much smaller in nature that a coal plant like the Oak Grove project, just as an example.

Scott Levine with JPMorgan.

So, you said you are seeing some signs of life as well in the Global Services business. I was wondering if you could elaborate on that and what gives you encouragement, and whether you are any more encouraged about that market than you were maybe 3, 6 months ago?

I'm cautious, but I am optimistic. I think what we've seen is that group has done a very good job of changing their business model from the shut down turnaround business that they traditionally had to more of a facilities management offering. And they've done a really good job of growing that business domestically, but also, in looking at broadening their geographic reach to the Middle East, to Asia Pacific. So, we've got a much bigger aperture on our opportunity lens in that group and they have adapted to the changes in that market and are capturing what they are going after. So I think it's going to be a significant piece of our business as we go forward. But, you are not going to see a big spike in that business like we had once before. I think it's going to be a gradual rise from additional market exposure.

Thank you. That's helpful. Turning to cash flow deployment. A strong cash flow quarter for you guys, 4 million shares left in the buyback. Any thoughts in terms of behavior and maybe when the endpoint is on that? And maybe additional color on where your appetite levels are in M&A at this point.

Sure. We did deploy our free cash flow generation in the first quarter to buy back shares and we will continue to look at our share buybacks throughout this year, as we generate cash flow. It's going to be dependent on our quarter to quarter cash flow generation in terms of when we're in the market and not. We don't have a firm deadline for buying back the remaining 4 million shares. We will just see how our cash flow generation goes throughout the year.

And in M&A, any change in interest level there?

No, I think M&A remains a priority for us. It's just a tough market to find something that meets our very high standards. And we will continue to put that high on the list in terms of our cash deployment. But in the meantime we think it's a good use of our cash, we think Fluor stock is a very good investment at these prices, and we think it's just a good use of our free cash flow to buy it back.

Got it. One last one, Michael, on tax rate, a little bit lower than what you were guiding to for the full year. Anything going on in the first quarter?

Absolutely nothing unusual in tax rate. It was a very straightforward tax rate for the quarter.

Richard Paget with WJB Capital.

I wondered if you could comment on your government services business. Some of us are concerned about budget being down and spending being lower, but it looks like you had decent awards in the quarter. Do you have any concerns about DoD or a DOE budgets impacting your businesses there?

No, not at all.

Would you say they are growing or is it just stable?

I think it is stable. I think if you look at the DoD business, we continue to support the troops overseas during the quarter. We signed an agreement with a partner in the UK to pursue the Ministry of Defense in the UK on a similar basis as the LOGCAP. So we see some growth there. But, as you can tell, the way that burns, there's not a lot of backlog there, it's all book and burn business. So, it gets modeled a little bit differently. We feel like we are doing very well with the DOE. One unfortunate piece is we were notified that we were not successful on ETTP at Oak Ridge. We are looking at our options with regard to that decision. But, we are operating very effectively at the other sites. We are glad we are finally in the transition period at Portsmouth and there are several procurement ahead of us in the DOE world. Also on the services side, there is some base operating support contracts in the procurement stages that we also feel pretty bullish about. So I think there is growth opportunity there. It's going to be steady. And, as we can tell right now, the programs that we were down, by and large, are not being affected by the budget issues by the US federal government.

Joe Ritchie with Goldman Sachs.

Thank you, good afternoon. So, David, you talked a little bit about the potential, sizable EPC awards in Oil & Gas. I was wondering if you could talk a little bit about timing, do you see those hit this year? And then, maybe even a broader question, as you think about growing your backlog in Oil & GAs, it's still down 40% from the peak. Given what you see on your prospect list today, can you help us think through if and when Fluor can get back to peak backlog in the Oil & Gas segment

When you look at the opportunities that are in front of us, they are pretty diverse, both from the business line perspective. As we talked about, I think there are some opportunities in refining and petrochemical market. But the clear direction is more on the onshore and offshore oil and gas which we are capturing a significant amount of front end work that leads to EPC projects in the out years. I don't think I want to signal when and how we are going to get back to record backlog levels in E&C. I would just say that we have a very robust prospect list and I think we are going to see a consistent improvement as we go into the second half of this year and into 2012 and 2013.

Okay. Fair enough. And just specifically, in thinking about your backlog in total now, now that you're at record levels for the entire Company, is the expectation for backlog to grow for the remaining piece of 2011?

As I said, I think it's going to be lumpy, but I think as we go through the year, there's great opportunity to continue to add to that record number.

Okay. And just lastly, one specific question on the contracts you booked in the I&I segment. The iron ore expansion project, was that the next phase of BHP or is that a different project?

Next phase of BHP.

Tahira Afzal with KeyBanc.

Congratulations, first of all, on a great quarter. My question is around Greater Gabbard. It seems like some of the installations are going to resume with a bit of a gap. I would love to get some color on why the gap occurs. And as you look out, what potential risk factors you think would be in place for some charges or some risk of cost overruns at that point as you see it right now?

Okay, relative to the gap, that was planned. It's basically related to the availability of the two jackup rigs we were using to install the generator sets. And blades. It was planned for it the main vessel to leave last month. To go to a different project. And, that was anticipated as we put together the changes that we had, that we reported last quarter. So, it was well within what we expected. It was part of the plan and from that standpoint, I really don't see a risk of not being able to continue to set those and beginning in the September timeframe. Relative to risk, there is going to be puts and takes but certainly I am very pleased with the progress that we made during the quarter. I was very pleased with the fact that there was not an additional charge, but we didn't anticipate that. I think the team has done an outstanding job of understanding where we are, understanding the nature of the claim that we have and are performing, I think, excellently against the plan that we put in place to go forward.

That's good to know. One other question I had was concerns with your Oil & Gas segment. You talked about it in the past and said you have to hit a certain quarterly run rate to really see the utilization pickup and positively impact the margins over there. Obviously, first quarter was light, but as we look to the second half of the year, do you feel, even with just the front end activity that you're seeing which seems to be picking up, that that might be enough to start hitting maybe the $2 billion a clip per quarter?

I don't know that we will hit it from a revenue standpoint. There's two questions there. One is the revenue burn and one is the leverage. I will handle the last one first. I think, with a heavy workload coming in on the front end, we are beginning to see the positive impact of that leverage. And, I think you're going to see improvement as we go through this year and into next year from an earnings perspective. I'm less concerned at this point , for 2011, on what their revenue burn is. I'm more interested in what their earnings

Michael Dudas with Jefferies.

Good Afternoon, everybody. David, how any areas within the organization are you putting a bit more focus on relative to enhancing current business opportunities or looking for areas where they haven't been as great in the past, but you think there is opportunities for growth in the future? And are there any that you de-emphasized or stepped back from because either market or Company and position?

I wouldn't say we are focusing on anything differently than we have. I've used the old Gretzky adage of we are skating to where the puck's going to be. And I point to the mining growth that we've seen and the fact that we did anticipate that, and we were sure we could get to the point where we had the people and the talents and the capability to capture that, a significant piece of that market. I think, as I said, in Global Services, their business model is changing, but we knew that was coming and we made the changes in focus in order to be able to capture that business. So, I wouldn't say we are de-emphasizing anything. I think we are moving and changing our business model to adapt to the opportunities that are out there. I will say that if you think about our ability to grow in this unstable, financial environment that we live in, it is a testament to that diversity of market, as well as the diversity of geography that we have. So, if there is something that we are emphasizing, it's making sure that we have the capabilities globally to take advantage of whatever comes down the pike. And making sure that we have the ability to have the local content that we need in certain places around the world, to make sure we are leveraging the rest of the resources that we have in our portfolio.

Thank you. My follow up is, how about the opportunities that Brazil presents itself for the industry in general, and for Fluor in particular, and how are you going to best take advantage of those opportunities?

I think we're trying to figure out exactly how we make money there. There is a lot of local content requirements in Brazil. And we are looking at different models that allow us to service the client at the level of quality that we expect and combine that with the local capabilities that is there that are also high quality. But we've got to be able to deliver to our customers. At the same time, it's got to be a model that produces profitable results. We are not quite there yet. It's a huge market, but I think there are a lot of people struggling with how do you actually grow significantly in Brazil? And I think we will come up with a plan that works for us and we will capture our fair share of the business.

Alex Rygiel with RBC Capital Markets.

Thank you. David have you seen or noticed your customers change their views on either the outlook for oil prices or the outlook for the broader economic conditions in light of the geopolitical environment that we have been in for the last two months?

Not really. I think that all of them would like to see prices below 100. I think that based on what I've seen in the press and is out there from -- you name the source, OPEC, API, individual companies -- is that something sub 100 is good. Anything over it starts to change behaviors. I think that one of the dynamics that is changing is the availability of gas and how they are going to monetize gas. I think one thing that I feel is positive to our power group is we are seeing more opportunities on gas-fired power plants in the United States that's driven primarily by that disconnect now between oil prices and gas prices. But, I don't think the political unrest is having a long-term impact on the way the oil companies think about capital expenditures or the speed at which they do capital expenditures.

And, as it relates to your US power business, are your customers feeling any more confident today in making long-term decisions for capital investment? Or are they still cautious and waiting better clarity from Washington policymakers?

I think everybody is waiting on Washington for clear policy decisions.

Avi Fisher with BMO Capital Markets.

Thanks for taking my question. And, don't wait too long -- don't hold your breath for a clear policy decision.

I was afraid I made such a strong statement there that I'd be quoted. But, I hope you guys will give me a break there.

Sure. A lot of the competition in the E&C space has been talking about, or has actually been acquiring into the mining space. Are you seeing any of that competition in the bids? Either directly on the bids or in the pricing or margins?

It's a competitive marketplace. We haven't seen any challenges to the margins that we have been putting back -- any more challenge into the margins that we've been putting into backlog. It's a very competitive market and I think we compete pretty well against those. And it's a big market. So, I think we've got opportunity to grow in that market and our growth is going to be geographic and also in the minerals in which we are helping our customers extract. So, I am pretty bullish on our ability to continue to grow in that business in the short-term.

And following up the last question on oil prices, can you talk about the commodity prices and any pushbacks from clients on where you think project expansion starts to slow?

Relative to inflation are you talking about?

Commodity prices.

Like steel?

Steel, copper, iron ore?

Construction commodity, not necessarily extraction. It's moderated. I think we saw, obviously, a drop from the peak, which made some projects more profitable. I think the decision-making process for our customers has become more acute because they want to make sure that they get the absolute best price. And there is a very competitive marketplace, both from a commodity standpoint as well as from a cost of delivery. But I'm not seeing anything that is changing customers' opinions on whether they go forward with their capital investment to the negative side.

Andrew Wittmann with Robert W. Baird.

Hello, guys. Thanks for taking my questions. Most of mine have been answered. But I just thought, given the geographic scope and size of Fluor, you would be uniquely qualified to talk about the impact of the Japan earthquake and how that might impact the overall capacity absorption of engineering and construction talent, globally? And, what that could mean for Fluor and really for the industry over the next couple of years, if that is a net benefit for the industry in terms of profitability, or how you're seeing that today?

I think the Japanese situation is a tragedy and really our hearts go out to all of the people there, and especially the partners that we have there. We enjoy great relationships with many of our competitors where we partner across the globe. And, certainly, we're hoping that we can help in any way rebuild that country. I've seen, probably like you, varying statistics of what the cost of rebuilding or repairing is going to be. One number is saw was $300 billion, which is significant when you think about the global market. But, not overly so. I think we will see a tightening of the market from a commodity availability perspective, which will drive some pricing to the north. I also think we are going to see a tightening in the market from a labor perspective around the globe. The Japanese are, deservedly so, a very proud people, and they will rebuild their country. And that is going to take a lot of talent and a lot of commodities to accomplish that. So I think it's going to be a moderate impact to a slight impact, but I do think it will present some opportunities for Fluor, either in Japan or where our partners and competitors are no longer able to compete because they are busy fixing their country.

And do you feel like some of those spikes in commodities and/or in the labor market might be significant enough that projects that might otherwise today, before a lot of the reconstruction happens, that they would make sense today. But maybe in a couple of years when they are in the thick of rebuilding Japan that those projects no longer make sense just given the new cost that is associated with them?

No, I don't. It's a huge number but when you think about the global capital spend, even as big as that number is, it's not really material.

Okay. And then, just finally, another of big picture question. Lots of positives in the outlook today. Just curious what you are watching or if you're not sleeping particularly well at night, what are the risks that you are seeing in the business today that might derail some of the positive trends that you're seeing?

I think any longer term political unrest that changes the face of the globe. I think when you look at the Arab Spring, it could have been a very large event that could have made people, at the very least, take a deep breath before they made these decisions. I think, by and large, that hasn't happened. I think that from a competitive standpoint, predatory pricing, I don't think is good for anyone in our market. And I think anything that would be systemically different could be. I don't particularly see that continuing. But, I really don't see anything that is in front of us right now that really changes my positive outlook one way or the other. But, hopefully -- God forbid there is another tsunami that has the same impact to other places around the globe that we've seen in Japan. But I sleep pretty well at night. I feel good about where Fluor is geographically and market-wise. I have great confidence in our management team and project management teams and the folks around the globe . I think we've got robust markets ahead of us. And I think that over the next 2 to 5 years, which is about as far as we can look out, I feel pretty bullish about our ability to capture business, execute it and deliver that bottom-line profitability to

In just specifically on commodities, though, given that we have seen so much inflation, a lot of what we've seen in terms of your new awards has been expansions on existing projects. Do you feel like some of those expansions might get canceled if commodities were to roll over? Or, do you feel like there is enough price support there that you've got some cushion that those investments would continue to go forward?

I would hate to put myself in my customers' shoes and comment on that. They are going to make their decisions on their own. But I would say that if you think back to 2008 and 2009, we are nowhere near the values that were being paid in those years, and customers, particularly in oil and gas, were continuing to make positive decisions relative to capital programs. So, I think we are a long way, relative to inflation in commodity or even labor before we even get close to changing the business model of the decision-making of our customers.

Steven Fisher with UBS.

Hi, Good Afternoon. Just coming back to the Oil & GAs margins again, what would you say is most pressuring them at this point? Is it the utilization or pricing or timing of procurement? What is the biggest factor at this point?

I would say pricing and timing of decisions are the two main factors.

Okay. And then so when we are talking about improvement later this year, are we talking about getting back into the mid 4s, say, by the latter part of the year?

I'm not sure I want to give you a number on that. I have a feeling that Jamie probably put you up to asking me that question. We always have a little bantering back and forth on that subject. I just think we are going to see improvement from where we are today as we go through the year. I think that, as Mike said, we are at an inflection point, but that inflection is going to take us through a fair amount of this year, where I see the improvement really in the '12 timeframe.

Okay, that's fine. And then maybe just on the Gladstone project, how much of the procurement is locked up in terms of being contracted at this point?

From a total dollar standpoint you've got to break it down and take the construction piece out, and take the services piece out. But of what's left, I believe we are somewhere around the 50% range of commitment.

And, over what period of time would you expect that remaining 50% to be contracted? I'm just trying to get a sense of where there could be risk in pricing or inflation?

It's very soon. Before we are out of this year.

Okay. And then just one last one. I know you said the outlook is still positive in mining with the next phase of BHP in the backlog now. What is your visibility on big bookings in mining for the rest of 2011?

I think they've got quite a number of opportunities out there around the globe that they are pursuing . So, I think they will continue to book sizable awards as we go through

Not just Australia but South America and Africa, as well.

Robert Connors with Stifel Nicolaus.

Dave, you've been around the oil and gas industry for some time. And basically, is this client deferral mentality that you speak of, and that you're seeing right now similar more to the 2000 timeframe, the 2005 timeframe before awards started to ramp? Or, is it a little bit of a pushback on costs that you're seeing right now?

I think it feels more like the early 2000. And at that time, the pushback was relative to cost. So, I think it feels like that. If you think about the boom in 2006, 2007, there was a rush to the market to secure both resources from folks like us, as well as space in the fabrication shops around the globe when everything was really super overheated. So it feels like the early 2000s.

Just to hammer on the Oil & Gas margin, it's about 110, 120 basis points below the average since 2011. And basically how much would you attribute this to just upfront investment that you're doing in the segment before the revenue starts to ramp from the awards that we've seen in the past year or so?

I would say a significant amount of that.

Okay. Care to quantify?

No.

And then, one more question, just for Mike. With 77% of the backlog outside the US, when do you think we can see the tax rate come down from the 34% to 36% range?

I think you're going to see it in that range at least for this year. Our current accounting practice is to accrue taxes as they follow the earnings that are repatriated to the US. But I think as we move through this year, you'll probably see it more toward the bottom end of that range.

(Operator Instructions). John Rogers with D.A. Davidson.

Hi, good afternoon. Just a couple of follow-ups. First of all, in terms of the outlook, the G&A expenses that you referred to, Mike, to hit this level is a pretty big ramp-up over the next couple of quarters. Was there anything unusual in the first quarter? I know that number moves around a lot for you guys.

No, John, it was pretty much as we expected. It was slightly higher than last year. And as you may remember, last year we did ramp-up in the second half, especially in the fourth quarter. Our G&A expense is pretty loaded in the fourth quarter of the year. So, I think we are right on target for the $170 million to $180 million that we are guiding to for the full year.

Okay. And your comment just as it relates to the earnings outlook, assuming sizable new awards, the receipt of those awards, will they have a significant impact on earnings this year?

I would say every year there is a material amount that we need to book and burn as we move through the year that varies quite a bit by business line. As David mentioned, it's very significant in our government business with the LOGCAP award. But we certainly don't think there's any risk there at all. We did have a very healthy booking in the first quarter on LOGCAP and expect that to continue through the year. And we expect to see some solid new awards in O&M business as well, which is more book and burn. It's less important in our Oil & Gas and other businesses where we have larger, long-term awards. The same is true for Industrial & Infrastructure in both mining and our transportation jobs.

Okay, but there's no significant up-front bidding costs that ar being deferred or anything?

No, no. We actually expense all of our bidding costs. We don't defer any of our bidding costs. It's just a reflection, we have a very healthy prospect list and we think we're going to be successful on a lot of it.

Okay. And then, lastly, Dave, You've obviously got a great backlog in terms of size, but are there any other market segments that you're looking at that you need to get into, or really want to get into especially to position you over that 3 to 5 year timeframe you were talking about?

I'm not sure I want to talk specifically about that. But we continue to look at markets that are tangential to what we already do and how do we continue to grow our ability to service our customers. I think there is a couple of areas that could be very positive to us in the future. One of which, I would suggest, is in the biofuels arena. We have great experience in those types of programs and projects. And that's just one example of where our teams are continually looking to how to monetize the capabilities that we have. When you look at that market specifically, there is capabilities that fall within our energy and chemicals group and there is capabilities that fall within our life sciences group. And making sure that we approach it from a one Fluor standpoint is what's going to make the difference because we do have that capability. So, that's just an example of where we're going to continue to grow. As you said, we are pretty diverse, as it is, from a market and geography perspective. But where I see us taking advantage of markets and growth is in growing our capability in existing markets and locations with allowing some of these things to germinate, if you will through the various groups that have the skill set.

Will Gabrielski with Gleacher.

Thanks, good evening. Did you give a mix in terms of prospects for the next 12 or 24 months how you think it will shake out between upstream and downstream?

No, we didn't, but I would say the majority of the opportunities are in that upstream segment.

Okay. And then within chemicals, does anything stand out as potentially a bright spot internationally, maybe specifically in Asia? And then also within polysilicon it seems like there's some investment talk again in that market, and you've been successful in the past.

Yes, I think, to go from the back to the front there, I think that market is starting to have a little bit of resurgence. We do see opportunities in the polysilicon market. I think that when you look at the chemicals market, there's still significant opportunities in the Middle East. And I think we're pretty well placed to work in most of those. And, that will continue to be a big opportunity for us. I do believe, because of the gas pricing and the differential that I mentioned earlier, there are some opportunities in the states that are being contemplated. So, I'm not sure that I would put that on the timeline. But I do believe you are going to see some spending in that sector and I think we are pretty well-positioned to assist our customers there.

Okay. Within Infrastructure in Q3, that was a big topic last year. What does the pipeline look like? And, have you started to really feel the margin benefit for the few you have booked over the past 12 months?

I think we are seeing -- there is a long gestation period on those and there are several in the pipeline that we are pursuing and developing. That will help us as we go towards the back end of this year, early next year. And, we are really in the early stages of the ones that were awarded late last year and early this year. So, not a lot of impact yet to earnings.

Okay. Within government, we are starting to get to that point where stimulus money anniversaries. How is that going to look for Fluor when that money starts rolling off some of the DOE sites?

That's planned in. We expected for the recovery money to go away and normal stead state to take over. I think the good thing is that the business and the increase in both the DOE and DOE business that we've had over the last year more than cover the lack of the earnings that we have enjoyed from ARRA money.

So will you be a net adder in government jobs as that money rolls off or is that something that you're going to hold in place?

Net adder to jobs? You mean in locations?

No, just your general, federal business. Do you think you'll have more people working there because of the growth?

Absolutely.

Apportionment is going to add to that nicely.

Right.

Okay. And then within general infrastructure I think that's a market you guys have talked about wanting more exposure to. And I specifically think of work that Bechtel is doing on the [Del Higher] Port and things like that. Is that something that is high on your priority list right now, project of that type in the Middle East and elsewhere?

Sure. We are working for the UAE government on their rapid transit program. We are bidding for several projects out there that are very equal to what Bechtel is doing in Qatar. And I think we've created a pretty good name for ourselves in that region on the infrastructure play, and there is a lot of opportunity out there. But decision making there sometimes takes a little longer than normal, too. So, timing of those kind of decisions, I think, are going to be a challenge. When you look at places like Qatar and UAE and a lot of other places in that region, there's tremendous need for infrastructure, and I think we've got a great capability and the heritage there, frankly, to help our customers.

And out of those markets, do you look to self perform work or is that more of a contract, construction management, PMC role?

It's going to be all across the board. The value proposition I think we have is being able to manage the big mega programs around the globe. And you don't do any of those -- no one does all of those by themselves. So there will be partners and local partners that we are going to take into our teams as we execute these programs.

Uri Lynk, Canaccord Genuity.

Good afternoon, guys, thanks for squeezing me in here. David, can you share with us the thinking of your oil sands clients in Alberta? Because, the amount of design work that is going on right now is quite substantial, but the package awards have been slow. Is this the same thinking you are seeing globally in the oil and gas that you spoke about earlier?

Yes, I think so. I think they are being a lot more measured in their decision making. Clearly, if you look at the programs that took place in the last buildout, there was increased costs. And I think what they are doing is they are being a lot more prudent in the way they are looking at their decision process. And, I think we will be able to perform a little bit closer to their expectations from a cost perspective. Because the time they are taking, before putting the packages on the street.

Then lastly, the shale gas opportunity in North America does that offer any work for Fluor?

Some. A lot of the work in that particular area is in the downhole technologies which fits more with what some of the other people in our space, people like Halliburton and Schlumberger and the like. A lot of the money is in the fracking fluids and the makeup of that. Where I think there could be an opportunity is in water . There is a lot of water used in that, and being able to process that water and recycle that water is going to be key to the ongoing operation of those facilities. So, I think that that presents an opportunity for us. And then I think the distribution systems is certainly in our capability, when you look at moving products from point A to point B. Pipelines, compressor stations, those kinds of things, fit in

Gentlemen, at this time, there are no further questions. Mr. Seaton, I will turn the conference back over to you for any closing comments.

Thank you, Operator. And I'd like to thank everyone for participating in our call this afternoon. Just in closing, I think you have heard from us that we believe that our strong first quarter results puts us in a good position to start 2011. We are bullish about the future and we greatly appreciate your interest in Fluor and your confidence in our Company. So, I wish everyone a happy Cinco de Mayo and have a good day.

Ladies and gentlemen, this will conclude today's conference call. We do thank you for your participation.