Fluor Corp (FLR) 2014 Q1 法說會逐字稿

Good afternoon, and welcome to the Fluor Corporation's first quarter earnings conference call. Today's conference is being recorded.

(Operator Instructions)

Replay of today's conference call will be available at approximately 8:30PM 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 also be available through 8:30 PM Eastern time on May 7 at the following telephone number, 888-203-1112. The passcode of 959-0125 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.

Thanks very much, operator, and welcome, everyone, to Fluor's first quarter 2014 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer; and Biggs Porter; 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 our prepared remarks.

Before getting started at like to refer you to our Safe Harbor note regarding forward-looking statements, which we've summarize on slide 2. During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results in experience could differ materially. You can find a discussion of our risk factors which could potentially contribute to such differences in the Company's Form 10-Q which was also filed earlier today.

During today's call we may discuss certain non-GAAP financial measures, and reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are also posted in the Investor Relations section of our website at Investor. Fluor.com. With that, I'd like to turn the call over to David Seaton, Fluor's Chairman and CEO. Please go ahead, David.

Thanks, Ken. Good afternoon, everyone, and thanks for joining us. On today's call we'll review our results for the first quarter and discuss our outlook for the remainder of 2014.

If you'll turn to slide 3, I want to start by covering some of the highlights from our first quarter. Net earnings attributable to Fluor for the quarter were $149 million or $0.92 per diluted share, which compares with $166 million or $1.02 per share--diluted share a year ago. This is consistent with our expectations and previous guidance for lower earnings in the early part of the year, followed by a ramp-up in the second half of 2014 and into 2015.

Consolidated segment profit for the quarter was $268 million, which compares to $294 million in the first quarter 2013. Segment profit results were driven by a 32% increase in oil and gas profit, offset by lower contributions from the Company's other segments, which as we have discussed, are experiencing varying degrees of market challenges. Consolidated revenue for the quarter was lower than expected at $5.4 billion, down from $7.2 billion a year ago, again, mainly due to significantly lower revenues in the mining and metals business line.

We are very pleased with our new awards for the quarter, which were a record $10.7 billion. New awards were primarily driven by oil and gas orders at $8.8 billion, while industrial infrastructure book $924 million, and our government group booked $748 million. Consolidated backlog at the quarter end rose to $40.2 billion, up 5.3% over last quarter and up from $37.5 billion a year ago.

Our financial results were summarized on the next slide in the table, and I'll continue my remarks on slide 5. In the first quarter the oil and gas segment booked as I said, the new award number of $8.8 billion which included a portion of the engineering procurement and construction on an LNG project in Canada, as well as a major clean fuels refinery program in Kuwait, a refinery expansion in Canada, a pipeline project in Mexico, and a chemicals project in Malaysia. Ending backlog for the oil and gas segment rose 38% from a year ago and now sits at $25.7 billion, the fifth sequential quarterly increase.

Turning to slide 6, the industrial infrastructure new awards were just under $1 billion, including additional scope on a copper project in Peru, and iron ore facility in Australia. Backlog at the end of the quarter was $9.9 billion, down from $16 billion a year ago. This decline was driven by the mining and metals business line, which was impacted by lower awards and a project cancellation in 2013. In infrastructure, opportunities continue to evolve, and we are tracking a number of road and rail projects that are expected to be awarded later this year.

Turning to slide 7, the government group posted new awards for the quarter of $748 million, including a five-year contract to maintain the United States' strategic petroleum reserve for the Department of Energy. This is a great win for the group as they focused on expanding their service businesses. Ending backlog was $2.6 billion, up from $2.4 billion last quarter. I'm also pleased to report that last month we were informed that the Nuclear Decommissioning Authority in the United Kingdom selected the Cavendish Fluor partnership as the preferred bidder on Magvox for the decommissioning of 12 nuclear sites. This project leveraged our considerable experience in nuclear remediation.

In the power segment, new awards were $166 million, and ending backlog was $1.9 billion, comparable with the $1.9 billion a year ago. Although the market is very competitive, we're bidding a number of gas-fired power generation facilities and expect awards over the next few quarters. Although book and burn from these projects would be light in the current year, the number of opportunities is important to our prospects for growth in power in 2015.

In other power related news, I want to provide a brief update on NuScale. As you know, the DOE selected NuScale for the second round of FOA funding. We're in a process of working towards financial close with the DOE, which will be a key step in attracting potential investors, manufacturers, and other supply chain partners. With that, I'll now turn the call over to Biggs, to review some of the details of our operating performance and the corporate financial metrics for the quarter.

Thanks, David, and good afternoon, everyone. Please turn to slide 8 of the presentation. I want to start by providing some additional comments on our performance for the first quarter. As David mentioned, revenue for the first quarter was down fairly significantly year-over-year, mainly due to the continued fall off in mining activity. Revenue was also down from last quarter, mainly due to mining, but we also saw modest reduction in oil and gas.

This reduction is a reflection of a change in the mix of work there with the larger feed in engineering content as compared to construction. This mix change had a favorable impact on oil and gas margins in the quarter. We expect to start construction work on a number of large oil and gas projects to pick up later in the year, once engineering work has progressed.

Corporate G&A expenses first quarter were $38 million, up from $33 million a year ago. The majority of this increase can be attributed to higher compensation expenses. The effective tax rate in the first quarter was approximately 29%, including a positive effect from deferred tax benefits and certain foreign jurisdictions. We expect our tax rate for the remainder of the year to be between 32% and 33%.

Shifting to the balance sheet on slide 9, Fluor's financial condition remains very strong, with cash plus current and non-current marketable securities totaling $2.6 billion. This compares with the balance of $2.5 billion a year ago. During the quarter, the Company generated a $187 million in cash flow from operating activities and repurchased approximately $200 million worth of Fluor shares. Consistent with our announcement late last year, we retired about $400 million worth of shares over the past two quarters.

The cash balance did not otherwise decline seasonally, as much in the first quarter 2014, is in prior years, primarily due to the timing of cash flows between March and April. In the first quarter, we also paid $26 million in dividends. Moving to slide 10, as previously mentioned, Fluor's consolidated backlog at quarter end was $40.2 billion. The percentage of fixed-price contracts in our overall backlog remained at 20%, and the mix by geography was 32% US and 68% non-US.

I will conclude my remarks by providing an update on our 2014 guidance which is on slide 11. As evidenced by the strong bookings in the quarter, we're well-positioned for earnings growth, which we expect to start in the second half of the year and then continue into 2015. Reduction of revenue for the mining and government businesses will remain an offset to growth in oil and gas through the second quarter.

Outside of oil and gas, new awards for the first half are not expected to drive enough book and burn to support the high end of our initial guidance range for the year. For this reason, we have lower the top end of our guidance by $0.15 to a range of $4.10 to $4.45 per share. We now expect overall revenue will be lower in 2014 than 2013, but offset in part by higher margin. This adjustment to our guidance does not diminish our optimism for the mid- or longer-term. With that, operator, we're ready to take questions.

(Operator Instructions)

Michael Dudas, Sterne Agee.

Gentlemen, good evening. David, looking at the non-oil and gas businesses in your portfolio, how close are we for a turn in new business opportunities to allow 2015 performance to be a better contributor than, certainly, this bottoming phase in 2014. Of those businesses, which ones are more likely to drive it versus others?

Mike, great question, as we've talked, there's a lot of headwind in mining and in government, specifically around the LOGCAP project. It will certainly close as we get into 2015 and probably beyond because I think there will people there beyond in Afghanistan. I think that what we're seeing right now, as we're seeing a good, solid stream of study and front end work in mining, which gives me confidence that we will see that start to return as we get into 2015.

I think government's going to be more of a difficulty. They've got a lot of things on the books. I think winning the strategic petroleum reserve is a great example of the diversity within that group of being able to not only work in the DoD world, but also the DOE world, and the FEMA world. That diversity helps them, and it's going to be difficult to replace LOGCAP from its peak.

Infrastructure, I think as I said in the prepared remarks, we've got several projects that we're bidding right now we feel pretty good about. Then, I think power. One of the things that's in front of us, as we've said in previous calls and certainly in this call, there's a lot of combined cycle gas-fired power plants that we're bidding. I think there's seven of them that we're in bid right now.

The recent ruling by the Supreme Court on Casper really helps us because we've got a lot of expertise on the coal side of the power business, on the retrofit side, and I think that ruling by the Supreme Court really helps us a lot when we think about removing some of the headwinds of power has experienced over the last two years.

I appreciate that, David. My follow-up question, maybe for Biggs, as you look towards 2014 and capital allocation, any major changes to capital spending, working capital adjustments? Will share repurchases be opportunistic, or more measured throughout 2014, all things else considered?

No real change in perspectives or philosophies on CapEx. It may well run fairly consistent with last year. As noted, the global services group which contains the equipment business is not off to a fast start this year. Correspondingly, CapEx is staying modest through this particular point in time. We hope that there's opportunity. There are opportunities for that growth going forward, but would expect overall CapEx may be in line with last year.

From the standpoint working capital, normally you'd associate that significantly with revenues. With revenue expected to be somewhat down now, we actually don't expect much change in working capital over the course of the year. Cash generation from earning should be strong. Then in terms of share repurchases, as I said, no change. We've executed the $200 million in the first quarter as opposed to the $400 million cumulatively over the past couple of quarters.

Our philosophy going from here remains the same. It's a matter of consistently measuring what amount of cash we think is an excess of requirements, evaluating whether or not there's some higher return opportunity for that. In the absence, then as we go through time, of some greater investment opportunities, that we would look to repurchase shares which I think has been pretty consistent with our practices over the last few years.

Thank you, Biggs, David.

Jamie Cook, Credit Suisse.

I guess two questions. First, on the top line, David, the oil and gas revenues were weaker than I would've thought. They came down sequentially. Is there anything going on there? At what point do expect the oil and gas revenues to ramp more dramatically?

My second question is back on the guidance. I understand the headwinds that you face, but you booked a huge amount of bookings. Oil and gas margins in the quarter were 5.1%, which is where you targeted it at the year-end. I guess my question is, do we get to a point where these underperforming businesses are small enough, and oil and gas is big enough that you can finally grow the EPS double-digit? When do we get there? I guess the other concern, or [better] case, would be the 5.1% margin is the peak margin in your total backlog a bit steep, so how do you think about that? Thanks.

That was a lot of questions, Jamie.

You had me fired up tonight.

There you go. First thing, it is a mix issue. I think everybody thinks about oil and gas as the only thing we have, but we have a pretty robust diversity that we deal with. When you look at how big mining was two years ago, that's a significant drop-off. From a revenue perspective, I'm not too concerned about the drop this year, as long as the profitability is there, which we have.

I think what you're doing, not only are you changing from a predominantly mining revenue burn and associated margin, to oil and gas and its associated margin, we're also facing the shift in the project cycle from the full EPC, back to within that oil and gas segment, that beginning feeds and first pieces of engineering, where you are not burning the revenues associated with procurement cycle or the construction cycle. That is what we expected to happen. It's a little bit more of a drop than I think we had hoped for, but again, I think when you look at the profitability, I feel pretty good about where we are.

When is that inflection point?

Sorry?

When is that inflection point when you're earnings finally start to grow double-digit in order to reflect the oil and gas and margin. Have margins in oil and gas peaked, and has backlog peaked?

I'm not going to give you the specific date. I think what we've said in the past is the first two quarters are light on EPS, and it grows towards the end of the year. As Biggs said, we didn't see an avenue right now to get to the top end of the range, and that's why we dropped it.

I think that E&C being back above 5% is a good thing. We think that it may drop a little bit. It may rise a little bit. I think we're back into the sweet spot of E&C. As I answered the question to Michael, if you get towards the end of this year and into next year, we have some success in power and in mining on the back of some of these front ends we're doing, we should start to see revenue growth as well is profitability growth.

I also should note that we expect the other businesses, besides oil and gas, generally to have improving bottom line results as we go through the year this year. It's worth going back and referring to the power projects, there's a number of bids, more than we have had in the last couple of years outstanding on power projects. We knew those projects are going to be out there for bid.

What's happened is that the decision processes on those by the customer has moved out to the right. It's less likely to have as much benefit from those this year. There would be benefit from them, and it would create opportunity for growth, but not as much this year and more for next year. I don't think it's fair to look at all the other businesses besides oil and gas and portray those as shrinking businesses. The first quarter is certainly a low point for most of them.

Okay. I appreciate that. On the oil and gas revenues in the quarter, with that below your expectations? Or, was my model incorrect? I'm trying to figure out when that ramps, and I'll get back and queue.

It was a little bit below, but I would say it was in line with what we thought, Jamie.

Okay. That should start to ramp?

Yes.

Okay. Great. I'll get back in queue.

Alex Rygiel, FBR Capital Markets.

David, could you expand a little bit upon in some of the bidding opportunities in oil and gas? If you don't want to be specific on project, maybe talk geographic, where they stand, and/or what type of facility they could be, such as pipeline and Mexico, that sort of thing?

Yes. The US still has some growth in front of us. There's several projects in the Gulf Coast that we're continuing to pursue, both through FID and also new bids. Obviously, there's two more LNG plants in the Gulf Coast that we're pursuing very diligently. Canada still holds out a lot of opportunity, in terms of pipelines and SAGD type of projects in the oil sands.

If you go to Europe, oddly enough there's some refinery work that we're pursuing that we feel really, really good about. In Africa, Mozambique, and South Africa continue, Mozambique's kind of an anomaly. There's some huge projects there. I think the Middle East still has a lot to hold, both in terms of offshore upstream and more refining work that's coming, in addition to some of the petrochemical stuff that we're pursuing.

In Southeast Asia, a lot of work in petrochemicals that we are pursuing, Malaysia, specifically in two different cases. Then in China, when you think about some of the partnerships that we've announced previously, one that comes to mind is BASF in China, Malaysia, as well as the United States. I think it's a pretty robust bid slate for us, or prospect slate for us. I'm really pleased to say that it's very geographically dispersed.

Were there any one-time items in the quarter that were somewhat material? That weren't necessarily called out in the press release, ie, one-time gains, anything like that?

No.

Perfect. Thank you.

Andrew Kaplowitz, Barclays.

David or Biggs, when you lowered the high end of your guidance, was it more because your I&I revenue continues to be lower than expectation, or was it because government was a little weaker, is a little weaker, and global services continues to be a bit of a drag? I'm just trying to figure out is it all of the above? Is that one more than the other? Maybe you could talk about global services, in particular because that segment continues to slow down a little bit?

I tell you, it's the last first and then I will come back. On global services, they have the biggest income driver there is equipment business which is correlated to a fair degree, to work in Afghanistan and to work on mining. Some of the movement there is consistent with what you see in the other business segments. They also though support construction and will support our own construction activities. As that ramps up, it creates more opportunity for them.

Somewhat consistent with the notion that we had of a lot of engineering content in the quarter, we corresponding had less construction, so there's less opportunity for the equipment business. They do have an opportunity. They will have some pressures from mining and Afghanistan as we go through the year, but then they have opportunity associated with the other activities.

Broadly speaking, in terms of the high end of the range it's really a matter of we expect improvement, as we always did, through the course of the year. As I said, we aren't getting enough activity on the new awards side. Things have slid to the right, new project proposals on the government side, the power proposals for the gas plants, a number of them, but they shifted to the right in terms of their timing of awards. That just means that our ability to have that much greater acceleration to our growth as we go through the year has become limited Assuming we win our fair share as targeted, we just can't get them in fast enough to create enough book and burn to add that additional acceleration through the second half of the year.

Should we see I&I revenue stabilize here? Or, does it still have a little more downside to it?

I think overall it could actually be growing from here. It's going to bounce around. You've got offsets between infrastructure projects, and as they mature like the Tappan Zee Bridge and what's happening in the mining business, which is approaching a point of some stabilization. It depends on future awards on mining, is it stable at this point are not? I think that it does have opportunity to grow. (inaudible)

David, you know someone's going to ask you about NuScale, so it might as well be me. You know what your competitor has been doing or the other guy who's got the technology and downsizing their or slowing down their spending. You've talked about slowing down your spending in NuScale in the second half of the year, at least having the DOE pick up the slack. Can you give us an update on that? You did I think $13 million in spend in the quarter. Can we see that drop in the second half of the year in what's in the guidance?

I think we're still negotiating that FOA, and I think our expectation is to spend prudently, based on what progress we need to make to move towards the certification. Whether it's [13] a little but more, a little bit less, I think the issue is we are actively looking for additional investors. This has always been our plan. The finalization of the deal with the DOE helps us get there. There's been lots of discussion with different potential investors that show interest, but I think they're all, again, still waiting on signing the deal.

I'm not going to cover anything about the other technologies. I still have great confidence in the technology and its application. I think the size of the reactors and its application is more widespread than maybe some of the other technologies. I think it's got safety features that are much better than the other technologies. I think we're steady as she goes relative to our investment. I feel really good about the position where we sit and the conversations that are going on with strategic partners that would also begin to take part of that spend curve.

This is Biggs. Just to elaborate a little bit, consistent with what we said before, what happens under the FOA arrangement is actually that our gross spend goes up. There will be an increase in the gross spend, but that increase will be offset by the funding from the government, such that at the end of the day, roughly speaking, this year's net P&L expense would be roughly equal to last year's. A higher spend offset by government funding is producing the same bottom-line effect, all other things, eg ownership, staying equal. If we succeed in selling some of the interest, then there's opportunity for it to go down, that P&L expense.

Thank you, guys.

Jerry Revich, Goldman Sachs.

Good evening. David, can you talk about the timing of the final investment decisions on the next round of US ethylene and LNG projects? If you could touch on Sasol and Lake Charles, specifically? In the past you mentioned that you folks were full when it comes to ethylene, and you weren't planning on bidding on anymore projects. I'm wondering has that thought process changed at all? Your updated thoughts there would be helpful. Thank you.

I never said we weren't going to bid on more ethylene plants if they come. I think we're moving towards FID decision on Sasol in the second half of the year, probably towards the end of the third quarter. We probably won't know until the beginning of the fourth. On the LNG, as we stated, there's a portion of Kitimat in the new awards. FID is later in the year, so there's probably another part of an award towards next year. The two LNG plants that I mentioned in the Gulf Coast, it's early stages. My guess is we're probably talking about an award sometime mid next year.

With regard to Mozambique, they're still looking to down select, if not award to one contractor sometime towards the end of this year, but I think that's a 2015 award. I think the beauty of what we've seen is the awards for this quarter were significant in sheer numbers of awards, in the couple of hundred, 240, 250 awards in the quarter, which is pretty robust. A lot of that is front end. When I think about the conversation on the non-oil and gas business, there's a fair amount of capital spending decisions that will take place towards the beginning of next year, which helps us grow the business in 2015, 2016, and beyond.

As I've said in the past, we're in the early stages of a sustainable, robust growth period. I think Biggs said it right; I think mining, if not stable, is close. Hence, I&I should grow from there. It's a pretty good story across the board with still a couple of headwinds in government, the headwind of timing around when the growth in mining takes place and then, obviously, we're in the early innings of a pretty long baseball game in oil and gas.

David, in US infrastructure can you talk about the enquiry or the bid pipeline, how is that developed over the past quarter? The bid opportunities that you highlighted for I&I, was that in the US or elsewhere? Thank you.

It was mostly in the US, a couple of things in Europe, primarily in the US. I think one of the things that the US government is doing, at least moving down the road in a very positive way, is some of the legislation around US infrastructure, which only helps that.

Thank you.

Are there any questions?

Mr. Wittmann, your line is open.

Biggs, it looks like in the Q that there was some close-outs that were not quantified in I&I. Do you have that number handy by any chance?

I don't think it's a number that individually is material or make sense to call out. There were two things in I&I. There was close-outs and some incentives on the mining side. Then we also had pay for performance on a infrastructure project, which had an increase in its booking rate. That's what drove the margin rate up to 6% in the quarter, as opposed to what's more normally between 4% or 5%. That gives you an idea of the magnitude of the favorable effects there.

Recently it's been running closer to the 4% than the 5%. Do expect that to be the case for the balance of the year?

I think it's early to call it. I don't want to get too specific. It think you have to take the 4% to 5% range. It always is going to vary some quarter to quarter, based upon milestones on projects and mix. If you look at it on a broad basis on longer term, with mining revenues down year-over-year, that's lower margin business. Infrastructure is higher margin business. That creates a bit of a shift, all other things equal.

The only caution we would make to that for people trying to compare it to last year was there were a number of projects on infrastructure on last year, which did even better than the normal margin rate, because we had so many milestones successfully. We don't see quite as much opportunity for that this year. It's hard to get more specific than that. It's not hard, but I doesn't make sense to. That should give you a reasonable range to deal with.

That's helpful. David, on the government business, margins were light. Is that due to the shrinking business and having some under-absorption of any labor costs there? Can you rectify that by getting ahead with the right staffing levels? Or should we think of that business being structurally here with this level of work in that segment?

This is Biggs. I'll answer the question a little bit, and David can add on. A couple of things, the government business, and it's also evident in some of the other businesses the last few quarters where there's been a lot of proposal activity, there is a little higher overhead associated with proposal activity. We don't have all the new awards in that, as I said earlier, that we would have targeted by this point in time. Certainly, the Magnox award is pretty big. That's had an effect on G&A in government and in power, for that matter, the level of bidding activity has been taking place the last couple of quarters.

There also was underperformance on one project in there which created a little bit of negative noise for them. It wasn't material in the broader scheme of things. If you're looking at it just from the standpoint of government, it held them back a little bit work, and that's one of the reasons why I'd say they've got opportunity to grow from here.

I'd just add a little bit of color on that. I think I'm really proud of what they've been able to do, when you think of winning Magnox and the petroleum reserves. They're in the process of trying to figure out how they stem the tide of decline from what was a huge program in LOGCAP, with new work in other parts of the government infrastructure. The win in the UK was huge for u, because it takes us out of just relying on the US from a market perspective.

That make sense. Is there any risk that Magnox, you're the preferred bidder, I know it's been protested. Is that yours? How should investors think about that? Can you talk about the economics of that joint venture? I think you're a minority partner. Is that proportionally consolidated? What do think the scope could be for that Magnox project? Any color would be helpful.

It is proportionally consolidated.

We haven't put anything in the backlog the first quarter because it's a second quarter award. If we do, it'll be on a proportion consolidated. When I say if we do, we're still examining whether it should be properly accounted for on a (inaudible) method or proportion consolidated method. It would be one of those two, and it fall in, in the second quarter.

The protest rules are different in the UK than they are in the US. We wouldn't have announced it had we not signed the document with the government.

Thank you very much.

Tahira Afzal, KeyBanc.

Congratulations on the performance in oil and gas. It's as you promised. My first question is really in regards to oil and gas. I think Jamie ask some of these questions. If you're looking at growth in 2015, how much as of right now do think is really dependent on a lot of what you've booked really moving forward? Was it really incrementally booking more stuff that contributes to 2015 even by the end of the year, when you are looking at some of the larger bookings you've had?

We never book enough, Tahira. I think obviously with the success we've had, we have better vision into the last half of this year and into 2015 than we normally would have at this juncture. We've got to have things like Sasol go past FID. We've got to continue to win the work that's in front of us, and the bids that are in front of us to continue that growth curve. By and large, we feel pretty good about where we are in oil and gas in the cycle. The prospects for continuing to grow that business as we go through this year and into 2015.

The obvious question is going back to some of the previous comments, where are we in mining? What do we do in power? How well does government stem the tide of decline associated with LOGCAP? Relative to E&C, we feel very good. I think the team has done a very good job of securing those awards that move our needle. As I said in another response, there's still a pretty robust prospect slate in front of us through the next six quarters that will help us continue to pile on that growth curve.

Okay. As a second question, if you look at the power segment, clearly it's been having a bit of a challenging time. If you do start to see some of these retrofit projects and also the power projects on the gas side goes true, could potentially the volumes be sufficient to have something profitable, if your utilization is so that you don't need price, you just need volume at this point for next year?

We don't need volume. We need profitable projects. That's really what we're focused on. On the retrofit side, we did a lot of study work going back two years ago, and helping many of our customers look at what their options are, assuming that the Casper rules went into place. We know what's in front of us, and we're really happy with the ruling. Let's put it that way. I think the challenge is going to be, I think, the power companies were thinking we'll get a different response from the Supreme Court.

I think we've got to do a little rationalization right now with our customers, help them figure out exactly what that mix is going to be. I think you're going to see a significant amount of work come out of that. The coal fleet needs help. Everybody knows that. The power companies are ready to spend money prudently to deal with that generating capacity. I think again, as I said, as we get into next year, I see an opportunity for growth in the power segment.

Got it. Thank you, David.

John Rogers, DA Davidson.

David, when you mentioned prospects for bookings over the next six quarters, I assume that's how far out your visibility is.

That's correct.

Two years, we've seen backlog peak early in the year and then run off through the year. I know it's hard to say when projects are going to come in, but are we looking at the same pattern this year? Any way to tell?

I'm going to invoke the lumpy word again. Obviously, we had a great quarter. That does take us back above the [$40 billion], and that's been one of the statements and questions that you guys have asked us, can you get it back over [$40 billion]? Well, the answer is yes. Given what we see, it could decline some during this year. I would expect our ending backlog for the year to start with a four.

Okay. I'd love to hear by sector, but in general, is the embedded margins in the backlog, or the embedded profits, as you look at it now, is it growing in line with the overall backlog rose?

The margin in backlog is improving and growing, I think, in line with the backlog. Again, as Biggs has said, and he can comment on this, there's a lot of moving parts in that backlog. I think generally, we're headed in a northerly direction over the longer-term.

Certainly, margin dollars are growing with backlog. I think it's important to keep perspective here to what we've said over several quarters was even though backlog was declining, margin rate was going up due to mix. In fact, in many quarters, even though revenue and backlog was declining, margin dollars in total were going up. Now, with backlog going up, we've got a combination of both. You've got both higher margin rate and margin dollars going up.

Okay. As you move from the design and upfront phase into actual construction services, there's not going to be a dramatic shift, especially in the oil and gas sector?

There will be movement in our actual booking rates, in our project margin rates in the P&L as there always are with various mix changes or stages on projects and customer furnished or higher engineering content type work, or construction work. All those things create some amount of variability. In the first quarter, it drove the P&L margin rate on oil and gas up to above 5%.

When we talked about backlog, we don't publish the numbers. You don't see it. Generally speaking, don't expect big shifts to be occurring on any kind of a short-term basis. That's probably about as much as I can say. It's so many moving parts. It's hard to generalize and hard to give guidance which is really going to be meaningful because you'll always have a certain amount of volatility.

I appreciate the color. Thank you.

Tate Sullivan, CLSA.

Great order quarter with a $10.7 billion. It sound very confident for the order outlook in general. Can you give some context to, do think you could exceed this quarterly number?

It is a record. I think the answer is yes. I don't see it again this year, but we've done a couple of $9 billion quarters in the past. The projects are getting larger and I think the markets are such that our offering is something our customers are looking for. I think it'll difficult in the near term, but yes, I think we could hit another $10 billion quarter.

Thanks. Last one for me, you've talked a lot about it, but can you quantify the scale of the opportunity, the order opportunity with the seven bids for gas-fired plants? To put some context around the?

I would say in totality somewhere in the neighborhood of $1.7 billion to $2 billion in revenue.

Thank you very much.

Vishal Shah, Deutsche Bank.

Can you just add some more color on mining? You said that you could potentially see some improvement in that business. How many projects are you tracking? Also, would you be seeing any changes in the margin structure of any future mining work?

It's probably no difference in how we approach that business. We have Cerro Verde and [kera vecco] going on right now in the field. It's not like it's completely dried up. There's a fair amount of feed work going on that supports the South American market. Also, I know there's a fair amount of work that's being discussed around Australia again. I think that if you look at the mining sector in general, the new management's had enough time to rationalize what they're spending is going to be. I think they've done a good job of returning capital to the shareholders.

I think what we're looking for the change in the commodity pricing. We are not too far off of the commodity prices in things like gold and copper, to where the investment decisions are made. Right now, I think we're helping them rationalize some of those asset and look at where they want to monetize their natural resources. We've got great relationships in that market. When the spending starts to return on an EPC basis, I think we'll be there in a pretty strong position.

That's helpful. Just on the service business, you mentioned one of the drivers for lower service margins with the production and equipment business. Is this the new run rate for service business, given the pullback in mining in the near term?

I think it's probably close. We did have some growth opportunities. When you look at the equipment business, the two biggest pieces, as Biggs said, as mining and Afghanistan, not only the Fluor piece of Afghanistan but also the [dine core] piece of Afghanistan. They've just like the government group where they've had a pretty huge revenue base that's eroded significantly and rebuilding that is going to be on the back of growth, but it's also going to rebuild itself on the back of some of the direct hire construction that we're doing in oil and gas. I think that there is growth opportunities there, but I think it's a timing element more than anything else.

I appreciate it. Thank you.

Steven Fisher, UBS.

I'm just trying to gauge your confidence in the new guidance range for this year. Specifically, how concerned are you that the oil and gas projects could get stuck in the feed phase?

You are looking for guidance within the guidance?

You said the most important thing is to get these projects going. I feel like we hear a lot about your customers go back and forth and keep rehashing over the feeds, and I'm wondering from your perspective what that risk is, or you can give guidance within the guidance.

I think you've got to go back to when we established the range, which was at the end of the third quarter. Obviously, some things have slowed down, and some decisions have been delayed. I think Kitimat's a great example of that where we thought it would be awarded in the third quarter, and it was awarded in the first quarter, at least the portion that we took in. I think that explains a lot of why we reduced the top end. I would suggest we're pretty confident in the range that we stand at today.

Okay. Since you mentioned Kitimat, I'll use that as my follow-up. For the amount that you put in backlog for that project, are you fully authorized to proceed on that work?

Go back to Chevron rules, we don't talk about numbers in terms of total or in terms of what pieces we've done. We're confident in the work scope that's associated with what we took in the backlog.

Okay. Thanks a lot.

Brian Konigsberg, Vertical Research.

Dave, actually, I thought your comments about the power retrofit market actually were really interesting. Are you getting the sense that a lot of these utilities are holding back on spending not just only on cash but also the naturals, until they're getting clarity, and there had been a building opportunity that might just be beyond what's required for cash for itself? I don't know if you potentially quantify how big you think the market is, and maybe how many years you could see orders emerge through that, from the utilities?

You bring up a good point. I think your comment is correct. I think there's a pent-up demand due to waiting on regulation. If you think about it, the US generating capacity, over 60% is based on coal. One of the things I like to talk about is everybody on this call walks and flips the light switch on, the lights come on. They plug in their phone. They don't even think about what their power bill is. It's about affordable energy.

Right now clean coal is available, clean coal technologies. Even at the cost of cleaning up some of the backend, it's still cheaper than some of the other sources. I think there's an element of the market saying, let's wait for sure, and let's see what we can put into our business models, and what those business models produce, as far as what affordable energy would be. I think it's a long answer, or a long period of time for this.

I go back to something. I was on a panel with Jim Rogers back, I don't know, this was probably four years ago when they were talking about the rules. At that time, he said that Duke was ready to spend $20 billion on cleaning up their coal fleet if they had surety of regulation. I'd stick with what he said as part of the answer for how big it could be and how long term that market would be. I think it's a pretty interesting market. We're very well-positioned to capture a large share of that, and I think that helps that confidence and the growth story over the longer term but I've been talking about.

Got it. Thank you for that. Secondly on LOGCAP, is that contract for you winding down faster than you anticipated? I think you are looking for about a billion-dollar run rate as you exited the year. Do you think that is the likely maintenance level for the next couple of years? Or is there a big step down coming, maybe in 2015 and 2016?

We're in line with what we thought. I think it will be a step down as a get into 2015, 2016. Again, it depends on the elections that are taking place right now in Afghanistan, and what agreements are made with the US government. We know it will be less than right now, but we don't know how much less.

If I could just, one more on oil and gas, Biggs, you were just mentioning there's quite a bit of feed work has been booked just recently. You expect construction to start winding up again in the second half of the year. Just given the increased portion of the revenue being recognized in that feed stage, should we be thinking that margin are hovering around that 5% level for the remainder of the year?

Obviously, it depends upon mix and a variety of things. We don't want to get too specific. I wouldn't be surprised to see them drop down a little bit and then come back up. We originally had forecasted being at 5% by the end of the year in our prior commentary. We got the early on mix, but the mix moves, a little bit the other direction here. The next couple quarters it could come back down, then come back up later. Either way, it's well-positioned for additional growth over the longer term, as volumes go up, and as the mix continues to shift, and the leverage of overheads continues to improve.

Fair enough. Thank you very much.

That concludes today's question-and-answer session. At this time, I'll turn the conference back to you for any additional or closing remarks.

Thank you, operator, and thanks to all of you for participating on the call today. We appreciate your interest in our Company. As we discussed over the course of today's call, we continue to be very positive in our view of our oil and gas business, both in terms of the strength of the recent performance, but also because of the strong ongoing prospects that we're pursuing.

While we continue to experience some headwinds in mining and government as we've discussed today, we view those as temporary conditions that will remedy themselves over time. With that, our enthusiasm for growth into 2015 and beyond is not diminished. With that, we greatly appreciate your interest in our Company and your confidence, and we wish you a good day.

This concludes today's conference. Thank you for your participation.