Fluor Corp (FLR) 2015 Q2 法說會逐字稿

Good afternoon, and welcome to Fluor Corporation's second quarter 2015 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 call will be available at approximately 8.30 p.m. 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 7:30 p.m. Eastern time on August 5 at the following telephone number, (888) 203-1112. The passcode of 9523230 will be required.

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

Thank you, Matt, and welcome to Fluor's second quarter 2015 teleconference. With us today, David Seaton, Fluor's Chairman and Chief Executive Officer; and Biggs Porter, Fluor's Chief Financial Officer. Our earnings announcements were released this afternoon after market close, and we have posted a slide presentation on our website which we'll reference while making prepared remarks. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on slide 2.

During today's call and slide presentation, we'll be making forward-looking statements which reflect our current analysis of existing trends and information. There is inherent risk that actual results 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 filed earlier today.

During today's call we may also discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release, and posted in the Investor Relations section of our website at investor.fluor.com. Now I'll turn the call over to David Seaton, Fluor's Chairman and CEO. David?

Thanks, Geoff. Good afternoon everyone, and thank you for joining us here today. Before we get into specifics on our second-quarter performance, I'd like to share a bit about our perspective on the markets we serve and the actions we're taking -- continue to take -- to strengthen our performance and strengthen our competitiveness.

At the time of our April earnings call, commodity prices were recovering, and expectations of a gradually improving global economy gave us confidence that what we could achieve the financial goals for strong growth that we set out last October. Since then we've seen a shift in the supply and demand curves leading to lower pricing, especially on crude oil and some specific metals. This is a result of excess supply, compounded by slow economic growth and uncertainty in multiple markets.

Even with these challenges, we continue to record oil and gas backlog near all-time highs, and are well-positioned for a robust slate of opportunities. In fact, today we received an award letter for two packages for the new KNPC Al-Zour refinery. We expect to book our portion of this $5.8-billion project in the backlog during the third quarter.

While I'm particularly pleased with the performance and results in oil and gas, weakness in our non-oil and gas end markets persist. In mining and metals, ongoing weakness in iron ore and copper are now pushing opportunities that we considered 2015 prospects into 2016. With regard to infrastructure, competition continues to be aggressive, and a lack of long-term funding solutions is limiting the near-term opportunities. In power, we continue to win our fair share of US combined cycle build-out, even in a highly competitive environment, and we're optimistic about the improved regulatory certainty that it will drive a number of opportunities over the next several years.

Overall there's a slower pace of project awards. The end result is a relatively flat backlog in the aggregate, as opposed to the growth we had planned for in October. While it's not what anyone wants, we will manage through this. That's why the path we've been on for the last three years to improve Fluor's competitiveness and why an improved offering of truly integrated solutions is so important. This is an environment we have prepared for. The measures we have taken have been taken -- have been well planned and well executed. We've made fundamental shifts in our construction and fabrication offerings to drive profitable growth for our Company, and to improve control and delivery at the project level.

Of equal importance, we've aligned our businesses, leadership, and employees to offer a broader, more cost-effective array of Fluor assets and capabilities to our customers. We will continue to look for opportunities to enhance the offerings we provide to our customers, and provide profitable growth for Fluor. I'm pleased to say this approach has helped us change over time. As a result, we're not faced with the need to take extreme measures driven by economic uncertainty, which I believe can be disruptive.

This afternoon we announced the strategic joint venture with Sacyr in Spain. This new JV allows us to expand geographically into select regions with a proven construction partner. Historically we've been successful in expanding work through joint ventures, including our highly productive JV in Mexico, and expect to do more in the future. In many cases this requires investment on our part; however, with Sacyr, this was achieved by selling 50% of our interest in our Spanish-based business.

Now let's look at the second quarter results and begin on slide 3. Net earnings attributable to Fluor for continuing operations were $149 million, or $1 a diluted share. Consolidated segment profit for the quarter was $282 million. Segment profit represents a 21% increase in oil and gas results compared to a year ago, offset by the decline in our industrial infrastructure, power, and global services segments.

Segment profit margins were 5.9%, level with our 6% a year ago, with oil and gas margins at 7.4%, up from 5.9% in the second quarter 2014, and consistent with the results from last quarter. Margins in oil and gas reflect favorable performance on projects progressing towards completion, and an increase in higher-margin engineering and design activities. Revenues for the quarter were $4.8 billion. New awards for the quarter were $4.3 billion, including $2.7 billion in oil and gas, $726 million in government, and $607 million in industrial infrastructure.

Consolidated backlog at quarter end improved to $41.6 billion, compared to the $41.2 billion last year. We have had no cancellations on major projects this quarter, and only a minimal impact on backlog due to foreign exchange fluctuations. Our financial results are summarized on the table on slide 4, and I'll continue my remarks on slide 5.

In the second quarter, the oil and gas segment booked $2.7 billion in new awards, as I mentioned, including additional refining work in Europe, and a new production in chemical programs in Canada. Ending backlog for oil and gas segment rose 18% from a year ago to $28.7 billion.

New awards for the quarter in industrial infrastructure were $607 million, primarily related to new work for the industrial services customers. Ending backlog for industrial and infrastructure declined $6.7 billion, from $9.1 billion a year ago, as we continue to work off the existing mining projects. Commodity prices remain a challenge for this business line, and we are seeing some prospects that were slated, as I said, for 2015 award pushed into 2016.

On the infrastructure side, although a long-term federal funding solution continues to be debated, I'm pleased to report that a Fluor-led JV won the Bergstrom Expressway project in Austin, Texas. We expect to book this project in the third quarter, as well.

Turning to slide 6, revenue for the government group was $607 million, similar to the results a year ago. Second quarter new awards were $726 million, and included another task order award for services we provide under the LOGCAP IV contract in Afghanistan. Ending backlog was $4.3 billion, down from $5.2 billion a year ago.

In the power segment, second-quarter awards were $253 million, and included a new maintenance services contract for Luminant's Comanche Peak nuclear facility in Texas. Ending backlog was $1.9 billion, which was comparable to $1.7 billion a year ago. With that, I'll now turn the call over to Biggs to review some of the details of our operating performance and corporate financial metrics for the quarter. Biggs?

Thanks, David. Good afternoon, everyone. I want to start by providing some additional comments on our performance for the second quarter, then move to the balance sheet. Please turn to slide 7.

As David mentioned, EPS from continuing operations for the second quarter was $1, compared to $1.02 a year ago. Foreign-exchange rates were a slight negative on earnings for the quarter. Corporate G&A expense for the second quarter was $48 million, compared to $57 million a year ago. This year-over-year decline was primarily due to lower stock-based compensation expense.

Shifting to the balance sheet, Fluor's financial condition remains strong, with cash plus current and non-current marketable securities totaling $2.1 billion. This compares to $2.7 billion a year ago. Cash flow from operations was $165 million for the quarter. During the quarter, the Company returned over $134 million in cash to shareholders through share repurchases and dividends. Over the last three quarters, we have repurchased $700 million of shares. We remain on track to complete our $1-billion share repurchase program by the end of this year.

Moving to slide 8, Fluor's consolidated backlog at quarter end was $41.6 billion. The percentage of fixed-price contracts in our overall backlog was 16% at quarter end, and the mix by geography was 34% US and 66% non-US.

Before we take questions, I'll conclude my remarks by commenting on our guidance for the remainder of 2015, which is on slide 9. We continue to win a number of front-end engineering awards, particularly in oil and gas. However, relatively low new awards this year and the deferral of investment decisions due to volatile commodity prices is placing pressure on our expected results for 2015.

After taking into consideration these factors, the Company is reducing its 2015 guidance range of $4.50 to $5 per diluted share to $4.05 to $4.35 per diluted share. The range presumes completion of our announced $1-billion share repurchase program by end of the year, an effective tax rate of 33% to 35%, G&A for the full year of $180 million to $190 million, and the closing of our sale of 50% of Fluor Spain. The guidance excludes the effects of previously announced termination of settlement of Fluor's US Defined Benefit Pension Plan, which is expected in the latter part of 2015. With that, operator, we're ready to take questions.

Thank you.

(Operator Instructions)

At this time we'll take our first question from Jamie Cook with Credit Suisse.

Hi, good evening. A couple questions. One, the oil and gas revenues we've seen declines over the past couple of quarters. I think you were expecting more flattish. If you could just comment on what's going on there? Is it the projects that are in backlog, the burn rate is lower than what you would have thought? Is it push-outs and what's in backlog? If you could give more color there in how he think about that for the remaining half of the year?

The second question relates to profitability in oil and gas and industrial and infrastructure, which on the positive continues to surprise on the up side. David, I think last quarter you said high six for oil and gas. It's the third quarter where it's seven. I think you also said INI margins from 4% to 5%, where again you guys are consistently above that range. I'm wondering if we structurally should think about profits at higher levels than you've been guiding to?

Sorry my last question is for you, David, with regards to -- obviously you don't want to talk about 2016 right now, but I think the market's embedding -- or assumes that numbers are going to be -- EPS will be down next year, which I agree just given the push-outs we're seeing in backlog. But the question is we can make our own assumptions on the market. Is there anything you're considering that you can do internally to help the EPS growth, or actions that you can take, whether it's some restructuring on the G&A line, whether it's we should think about you guys continuing to be disciplined buying back your stock, or perhaps there's other markets you're more optimistic on that could help the top line? Thanks.

Those are lots of questions.

I know, I know, sorry.

In terms of revenue, I think it's just the time of where we are in those projects. You've got a fair amount of projects that are just going to the field, where you're going to see the revenues tick up in terms of oil and gas in the second half of the year and as we go into 2016. It's basically a timing thing. As I said, we have had no cancellations. It's just where we are in the cycle of these projects. I wouldn't read anything into that. I think you'll see oil and gas revenues improve.

In terms of margin -- and I'm going to answer part of the last question first -- we've spent the last three years really looking at our competitiveness. As I've mentioned, we took over $100 million out of our overhead last year in terms of becoming more competitive. We did it in a very measured way. We didn't take a restructuring charge. We just did these things as a normal course of our business, which puts us I think in a much better position to weather this storm in terms of the other businesses, but also be more competitive in the market place. I think we're seeing that.

Embedded in that higher level of competitiveness is I think just a difference in our profit expectations. Yes, I gave you the high sixes, and we're obviously over the seven. I think that going forward you're going to see us continue to perform very well in that segment.

I think in terms of industrial infrastructure we've had some completions. Again, it's just operating off of a smaller base. You don't have the huge mining projects going through with the CFM burning as well. Obviously, that's one way that the margins in infrastructure stay at a much higher level than the traditional number when you've got mining blowing through there.

I think we're in a great position in terms of being able to deliver profitability. Unfortunately, it's on a much smaller base in the non-oil and gas pieces of our business. I'm really proud of what we've done in terms of right-sizing this Company and preparing for these types of situations. It's just as I said, the mining projects and some of the other things that have pushed out have created a little bit of head wind in terms of where we thought we would be.

I'm very pleased with what we've done in terms of structure. I'm very pleased with the way we're performing. The fact that we had no cancellations I think also speaks to the conservatism that we have in taking projects in, and the things we need to see before we put those things into backlog. I think all in all, we changed the Company to where we should deliver a higher level of profitability going forward. I'm not going to suggest a percent specific in terms of oil and gas or anything else, but I don't think you'll see us return to those low-margin days of five or so years ago. We really been disciplined in how we're going forward, and we'll continue to do so.

I know I'm pushing the limit here, but any -- broadly 2016? My question there in terms of repurchase or any actions that you can take to help the bottom line? It doesn't sound like there's much more you can continue to do on the restructuring side, because that's been done?

That's been done, Jamie. I wouldn't really want to get into 2016. I think it's clear that if our new awards in the other businesses are down in 2015, the earnings in 2016 will be challenged. I think from a margin perspective and being good stewards of that money, and making sure we're doing the right things and being balanced and not making silly decisions that we tend to see in this type of a market circumstance, you'll continue to see us perform.

All right. Thanks so much, I'll get back in queue.

This time we'll take a question from Jerry Revitch with Goldman Sachs.

Good afternoon, and good evening.

Hi, Jerry.

David, I wonder if you would just update us on your views on the ethylene cycle? How many more crackers do you think move forward this year, and next year feels like we're having one wave after another, at least coming from the forefront? How many more do you think move forward, and how many of them are you folks bidding on?

Well, we're focused on all of them. When you look at that next wave, I think there's a good three or four of them in that next wave, and then I think there's a wave after that. I think the interesting thing is we're in the middle of building three of them right now, and it's going to take some time for us to finish those so that the gas starts to get used.

I see our petrochemical customers being very bullish on CapEx. But again, they're in the same markets that the oil and gas guys are, and in some cases it's the same companies, and they're curtailing capital. I think there's a little bit of a timing element in when these things come to market that maybe we didn't see a year ago. I think there's that end, as well as the derivative chemical plants that we're focused on are also things that we're obviously keen to win. I think it's a good market for us, and I think we're well positioned to get hopefully more than our fair share.

David, in power you mentioned now that the uncertainty is gone. Projects are moving forward. Can you give us a sense of your views on the cadence? How many projects do you think move forward within the next 12 to 24 months? Flush out your visibility for us, if you could?

There's numerous gas-fired combined-cycle plants being planned, and we're focused on a lot of them. We've got three we're working on right now in varying stages -- two with Duke and one with Dominion that the final notice of receipt on that project's not even in backlog yet. I would argue that there's 10 to 20 on the books that will happen over the next probably five years, or at least they will go to a limited notice to proceed in the next five years. I think we've got a good, solid earnings stream ahead of us in terms of gas plants, and the replacement of some of the coal float that's been planned.

When you look at the power margin there, the power production margin, it still hasn't gotten to the point where it's putting pressure on these companies to put more capacity on line. I think we've got to see some macro things happen in terms of the economy and people starting to build other things to use up the power margin to where they have to do that. It's replacing coal, and it's also capacity; and the capacity side isn't supporting a rapid advance of those projects.

Lastly, any opportunities on the wind and solar side as a result of that increased visibility, too? I know you folks have a pretty good market share when those projections move forward?

Yes, we're looking at potential solar. There's not a whole lot of wind under bid right now. I think the reality of the cost curves on wind is taking the wind out of their sails, so to speak. Sorry for that pun.

That was good.

I think the solar side is continuing to do quite well. We're finishing up on that first wave now.

Okay, thank you.

At this time we'll move to Steven Fisher with UBS.

Thanks, good afternoon.

Hello.

Clearly, you still have some chunky oil and gas projects coming in, like KNPC. What do you see as the trajectory of oil and gas backlog over the next several quarters? It sounds like probably we should be expecting it to come down if your revenue burn is going to be picking up. I guess start with that. Then what's the visibility do you have to when it could start to pick back up again?

I think it could tick back up by the end of the year -- I wouldn't say demonstratively so, but certainly there's things that we see right now that could provide an increase in backlog year over year. As I mentioned, you're going to see revenues increase, but I don't think it's going to increase as fast as maybe you think in terms of depleting backlog. KNPC's big project, there's several other things there. There's big programs that will go to FID this year. Obviously going to backlog either late this year or early next year that could actually grow backlog in oil and gas.

Is [Tengi Chevroy] one of the key prospects that you're still including in that list to move the needle for this year?

Yes, that's in there for that period of time. I wouldn't say when they are going to go to FID, because that's really up to our customer.

Okay. Then maybe broadening up Jerry's question, how would you characterize the activity and prospects in the Gulf Coast at this point, relative to other parts of the world? Is there still more confidence in this region, given the feed stock dynamics, or is it just broad customer caution everywhere?

I think it's broad caution everywhere. I think the programs and plans for the Gulf Coast that have been planned, some of them have been pushed to the right. But they've been pushed to the right because of the macroeconomic stuff, not because of a cooling on the region specifically.

That's a great place for us to work. We've got a great work force, access to some of the best and brightest on the craft side. With those projects under construction right now, we're actually growing our capability quite well, which bodes well for us longer term in other industries, when we've got that kind of labor force available to us. Texas and Louisiana specifically are two really great states for people to invest in economically. I don't see anything slowing the attitude around that region. It's just that broad fear factor that's out there in terms of capital deployment.

Okay, thanks very much.

Thank you.

At this time we'll move to Brian Konigsberg with Vertical Research Partners.

Yes, hi. Good afternoon.

Good afternoon.

Biggs, a question about the backlog. When I do the natural math, taking previous quarters' backlog, I add the orders that you recognize, take out the revenue -- it suggests that the Q2 balance should be about $900 million to $1 billion less than what you reported, and I think it's specifically in oil and gas. Was there any scope changes in the quarter that we should be aware of, or what might be the other drivers for that?

You need to -- we lay it out in the 10-Q when we do the roll-forwards on backlog. You can see what adjustments to backlog are. They'll fill in the difference between new awards and what's burned. But there's a number of adjustments. There almost always are.

It's probably just scope changes that don't show up in orders?

Typically, there are scope changes that roll in there.

Okay, got it. Secondly, clarification just on the projects you announced that you discussed will be booked in Q3 -- the Al-Zour project and Bergstrom. The $5.8 billion, is that the total scope for the consortium, or is that your take?

No, that's the total consortium.

And your take would be how much?

Between 35% and 40%.

Same thing with the Texas project?

Yes, but we're I think 50% of that.

Got you. If I could just ask one more question, there's been more discussion about oil staying lower for longer, rather than a more meaningful recovery that had been hoped for previously. Have you stressed your backlog? If that is in fact the case, do you see any vulnerability to projects that are currently in backlog, or projects that are in the pipeline?

None in backlog. Going forward, this goes back to some discussion that we've had in previous calls, and in our Investor Day stuff. We're pretty focused on the projects that have a high degree of go -- they'll actually be approved in an FID. Those things are going to be based on the economics of low oil prices or high oil prices. When I look at what's in front of us, I think if it shifts further to the right, it's more of a macro fear factor in terms of capital deployment, not because these projects that we're chasing don't -- they no longer meet the financial hurdles in their models. We feel pretty good about the pipeline that's in front of us, and certainly there's nothing in our backlog that we really have a fear in being cancelled.

Got it. Thank you very much.

Moving forward, we'll hear from Alex Rygiel with FBR.

Thank you. Good evening, David.

Alex.

Could you give us a quick update on New Scale, and also talk a little bit about pipeline opportunities? I know you're working on one in Mexico, but anything else that's developing in the market of pipelining?

Yes, we're also working on one in Canada, as well. I think that's going to be a pretty good market going forward. There's some really big pipelines around the globe, and we've got a group that's specifically focused on that. We see that as part of that growth story in oil and gas. I'm sorry the first question?

New Scale. Just give us an operational and financial update?

Yes, we're on target for our submission of our design certification in mid to late 2016. We've got an Investor Day coming up in October -- August? In August, sorry -- that I hope you folks can go to. I know some people have visited there. We've had I would say very good interaction with our advisory group, which is made up of many of our customers. There's several customers that are looking at deploying our technology as it works through the system.

We've had conversations, at least early conversations with some people that have expressed interest in investing in New Scale. We're also looking at opportunities of deploying it outside the United States, so the interest is growing. We're on target for what we've done. The spend rate is about the same this year as last year, and will be again next year as we close in on submission of the design certification. We're on target, is the way I would categorize it.

That's great, thank you.

I'll just add, the spend rate is up this year, but it is covered significantly by the DOE. When you look at it on a net basis, it's not as much of an increase.

We'll take a question from Michael Dudas with Stern Agee.

Good evening, everybody.

Michael.

David, could you -- however you want to parse it this way -- but as you readjust your expectations for the second half of the year and into 2016, do you think it's more global macro or more oil price?

I think it's more global macro. Oil price -- you can argue that you would have seen a significant drop in our oil and gas backlog. You wouldn't have seen the new awards that we've been able to produce in oil and gas. We wouldn't have won KNPC if the oil and gas guys were just sitting on our hands doing nothing. They're still looking at the projects that make good economic sense at the pricing that they have. You would -- intuitively you would think that you would see a significant drop in oil and gas that we're frankly not seeing. As my previous comment early on the call, we anticipate to see backlog actually grow over the next three to four quarters in oil and gas.

It's more the commodity prices in mining. It's some of the timing of some of the other capital around. Global services is a large piece of that, as is Amico, which is very heavily -- our equipment Company is very heavily involved in the mining sector. It's more the global macro that we're dealing with than one specific market, and specifically the oil and gas market.

I appreciate that. To follow-up, are you -- it seems you've obviously been pleased with the cost restructuring and the selling efforts of your Company. But is there prospect for the non-energy side of your business to position itself to better participate when the global macro gets to feel better, maybe in 2016 and beyond, and any strategies on to do that?

Oh, absolutely. We have right-sized, I think, the organization. We've made some changes in personnel. We've streamlined decision-making, such that I think we're in a much better position to more rapidly address those opportunities when they come along. We don't pull in when we get to a bad market like this. This is when our clients need us. This is when we step up our efforts with our customers that are in challenging situations. I feel good about where we are and where we will be when those things change.

I'm -- it's interesting, Michael. I've been through these cycles before, and I actually see this cycle like I've seen the others. This is actually an opportunity that we're going to seize. It's in terms of how we deal with our customers and bettering those relationships and sharpening our approach and delivery. It's adding to our repertoire of skill set. I'm always been a glass is half full guy. That leads some of my thinking, but I look at this as a buying opportunity, as opposed to some dark cloud.

I appreciate it. Thanks, David.

Next question will be from Tahira Afzal with KeyBanc.

Hi, thank you. Hi, folks.

How are you?

Fine, thank you. I've got a bit of interference going on, sorry. The first question is if you look at your infrastructure project pipeline -- and you've seen quite a few large nice awards over there as well -- to the extent there's an infrastructure build that does get approved, David, does that really serve as a swing factor within your industrial and infrastructure business? Could it really help into the next year?

Well, I don't know about into the next year, but it absolutely helps our infrastructure business. It all depends on the timing. I think a highway bill is way overdue. The question I think that's in front of everybody is who's going to pay for it? I think that debate's going to take some time to shake out. But clearly that would really help us in terms of the number of projects that are out there, and the timing of those would be helpful.

Again, just like part of my answer to Michael, we're prepared and are actually actively in discussion with several of the entities that will be first movers, if in fact there's some funding available for those programs. We feel good about where we are from a position standpoint, but that's one of those markets where its been highly competitive. I think people have had to do some things in terms of pricing that simply we're not willing to do. I feel good about our position.

Got it, David. Second question is BP had a pretty interesting call the other day, and it seemed to concur with what you're saying in terms of the economics of projects at $60. Seems that they're pretty close to really pulling the trigger even to some extent. But within that, it seems there's a lot of deflation on average for each project. It seems a lot of that is not really tied to what you all do on the services side.

But would love to get an idea from you, to the extent you can, as you're helping all these companies out with their supply chain, clearly the scope of these projects might be coming down. How should we think about the up-ticks of backlog? Does that, could you see backlog slide down, but the dollar profitability within that hold out for yourselves?

I think there is, I think projects -- any time you're in this kind of cycle, projects get cheaper due to supply chain. I think we'll see some of that in the near term, but I don't see that impacting how that flows in our books. Other than the revenue side, it doesn't impact really the profitability, per se. I think the maturity of our supply chain and what we've done over the last few years, I believe puts us in a better position to be more competitive, as well as deliver lower-cost projects to our customers.

Again, I go back to what we've been focused on the last three years is actually fortuitous in terms of how we will be able to face the market place. I think that many of these projects, when the shocks of the $60 oil or $50 oil is over, they start to look at well, I think we can get these things done cheaper. That's what we're focused on trying to be able to provide to our customers.

Got it. Thank you, David.

Operator, are there any more questions?

At this time, we'll take a question from Andrew Wittmann with Robert W. Baird.

Hi, I was wondering if the $40-million gain that was mentioned in the Q for the sale of the Spanish joint venture is included in the guidance range, in the updated guidance range, or if that's excluded?

I had it in my comments that the sale of Fluor Spain is considered in the guidance range. It's maybe a little more complex than just taking the $40-million number as an EBIT number and has to be tax affected, of course. As we disclosed in the Q, the final gain is subject to a determination of the fair value of the business. Really, that's the fair value of the joint venture going forward. There's some work to be done there, and then the appraisal has to take place before we finally determine what that gain is.

Got you. Is that tax rate closer to like a 20% number, or is that more done at the corporate average tax rate?

Well, that a good question. That's one of the things that has to be nailed down between now and when we finally record it. The easy thing to do is tax-affect it at the US statutory rate, but that's not necessarily going to be the final answer.

Okay, that makes sense. Given the moving pieces inside of INI backlog, Biggs, I was hoping you could give us just an update about that. How much of the INI backlog is still mining versus transportation versus the other work that you do in there, to give us some sense about with the mining market being what it is, how long that could be an overhang?

Sure, the mining number is around $1.4 billion. That is way down from what it was a couple years ago, reflective of how much that has fallen off. Back to David's point earlier that is one of the reasons why margin rate in the business is in that 5% to 6% range for the year.

David, you started your comments at the beginning of the call talking about that you're seeing over-supply that's affecting price. Could you maybe talk a little bit more about those price and maybe even the risk terms that are in the market place today, maybe on jobs that you've decided to not be as fully aggressive as others have been, and what the potential down side would be if you'd chase those? I think given the market conditions, this is something long-term shareholders should be focused on. I'd like to hear your perspectives on that?

My earlier comments were more around the commodity supply and demand price issues that we're dealing with, and the eagerness or lack thereof of our customers to actually take some of these projects to FID in the short term. I think that just like in other times, we see some people that are not as diverse as us make decisions to take risks or to take projects at pricing that is lower than we're interested in doing. That's a norm in this industry.

I wouldn't say that I've seen it be as predatory as I have seen it in past cycles, so hopefully there's a little bit more discipline in the industry in terms of getting the kind of return you should expect for the services that we provide our customers. Going any deeper than that I don't think is something I'd like to do.

All right, I'll leave it there. Thank you very much.

Thank you.

At this time we'll take a question from Vishal Shah with Deutsche Bank.

Hi, this is Chad Dillon on for Vishal. I just wanted to dig more into the power margins that are a bit negative for this quarter, and just want to see what you have in your backlog, and whether you can drive it back positive? If not, do you have any latitude to take some cost out of the business to right-size that?

Well, you really need to look at the power margins with and without New Scale. The new scale expenses are what creates the fluctuation there. Without those, the power margins are positive, and we would expect them to stay positive. Of course they are a little bit lower than historical for power. We think over time they'll come back up as projects mature, as new projects come on line. But for right now, they are going to run a little bit lower than the traditional.

Got it, okay. Moving to the government side of the business. Can you talk about what you're seeing in your pipeline, and how many opportunities that you expect to have on bid, and what the timing is for that?

Yes, they've been very active on the construction side in terms of the DOE and DOD. As we said in previous calls, coming off of LOGCAP highs is a big whole to fill. But I think that organization's done a really good job of changing the model and adding more of the DOE-type projects in. I think the strategic petroleum reserve is probably the best example of that, as well as Paducah that we've taken in over the last two quarters. I think we're in a steady state position right now.

We are one of the -- we continue to be one of the key suppliers to the US military in several places around the globe. Obviously Afghanistan and the troop head count that has been discussed by the US is staying higher than was at least initially discussed, and that bodes well for us. They're also moving things around, which is also additional work for us. I feel pretty good about where they are in terms of being able to provide a pretty steady-state business going forward. Unfortunately, when we have very positive spikes, it's because of some strife in the world. I don't think the strife in the world is going to be reduced over the next little while, and I think that we're there to is support the US and other countries' militaries when they deploy.

Great, thank you very much.

Thank you.

Yuri Lynk with Canaccord Genuity has the next question.

Good evening, guys. David, you booked some Canadian work in the quarter in oil and gas, which I thought was interesting given it's ground zero for the oil price impact. How would you characterize activity in Canada right now, in terms of prospects and pricing? Specifically, could you give us an update on Kitimat and your activity there?

First on Kitimat, we're continuing to help Chevron with the scoping and early design. Some of the early works is continuing. But clearly, that project's full FID is some time out. But we continue to work and support that customer. When you listen to the Chevron calls, they're still bullish on the project, and I guess their new partner is in and participating with us, as well. It's a slow go, but it's still moving along as we anticipated.

Canada, you're right. It's ground zero, but what we're seeing is some of the heavy crude upgrading still going forward, and actually using the existing capacities that have been built. I think in terms of new developments on oil sands, it's probably not going to happen in the near term. But it's still -- there's still a big robust refining and petrochemical market there that will continue to serve us. I think Canada in general, as you said, it's ground zero from an oil price standpoint. We don't see a whole lot of head room in terms of new capacity oil sands capacity there in the near term.

Okay, that's great color. Maybe if I could sneak another one in on the government section segment, obviously great job rebuilding the backlog there. The margins have been a little bit weaker than I was expecting, but we did see last year a nice tick-up in the back half of the year. Number one, is there some seasonality to those margins such that we might see some sequential improvement? Secondly, is the overall margin profile of backlog that much lower than we would have had in the past? Thanks.

Okay, on the -- this is Biggs. On the first question of government margins, the Afghanistan work was higher-margin business. That got converted to a fixed-rate basis several quarters back. That reduced some of the fluctuation that had occurred over time in that business. The other thing is it creates some fluctuation in that business, as there's always a set of issues to be resolved with respect to regulatory matters on the government side. We've been very successful with respect to those, but those create blips in time that we have to talk about from quarter to quarter periodically.

From a going-forward basis then, yes the margin rates right now I think over the near term are going to be lower than what they had been on average historically, because the Afghanistan work has come out. Then it varies a lot based upon the mix and whether or not we have joint ventures, whether we're sharing the profit, whether it's all flowing through for us or not. It ends up being a little bit complex to dive into. I'd just say generally we expect them to be at the kind of level you're seeing in that 2% to 3% range here over the near term, and then we'll see after that as so many new projects come in and others mature. The construction work as we expand that effort could produce higher margins going forward.

Thanks.

Was there a second part of that I need to answer?

Mr. Lynk, did you have anything further?

No, thank you.

We'll take a question from Jeff Volshteyn with JPMorgan.

Good evening. Thank you for taking my question. My first question is really on the petrochemical side of the business that's within oil and gas. Can you help us size within the segment and really discuss how the mix has changed in the recent quarters as far as revenues and backlog?

Well, obviously the three biggest things we've got are the big ethylene complexes. Two of them are well under way on the construction side, and one of them is really just starting. Those are big long projects. When you think about the revenue flow, really the big revenue hasn't started to flow. We're finishing PDH at Dow. We're starting with the crackered layer. CP Chem is well under way. Sacyr is just starting. We've got -- those are three very large projects that are really in the early stages of the revenue burn, and obviously the profitability that goes with that. CP Chem has been converted to lump sum, so it has a little bit of a back-end loading in terms of profitability, just because it's a lump-sum project.

I think that when you look at those projects, and you say that next wave I mentioned before that will probably start to occur in terms of feed work next year, you can see we've got a long journey ahead of us relative to those projects, and the earnings power of those over the longer term. Embedded in those projects are also some derivative programs that are there. PDH -- there's several of those kind of projects that we're pursuing. But it's a pretty robust list of petrochemicals that we're pursuing. Again, we're either doing the feed on some of them, or in a pretty good position to take those projects.

Collectively, approximately what portion of the overall oil and gas segment do they represent?

I'd say -- I don't know that exactly, but I think the petrochemical side is about 20% -- right around 20%.

Okay, that's helpful. One more question on the power side. The revenues grew impressively. Last quarter there was a decline in revenues in power. For the year in 2015, could we see growth in the power segment, and what needs to happen for that?

Well we're in the normal -- like I mentioned, on two of the gas-fired power plants, we're really only going to the field now. You're in the early stages of those projects, but you'll start to see them grow over the next few quarters. Clearly, they're lump-sum projects, as well. You'll see a little back-end loading in terms of drop in profit to the bottom line on those.

All right, thank you very much.

Thank you.

At this time we'll move to Anna Kaminskaya with Bank of America.

Hi guys, thanks for taking my question. Just a fall-off question on outlook. In terms of buy-back, what was in the previous guidance versus current guidance? Has anything changed?

No, we're still on -- if I understand your question right -- we're still on the path to complete the $1-billion share repurchase program that we announced the fourth quarter of last year. There's about $300 million left on that to be executed over the third and fourth quarter.

Okay, so it's the same as in the old outlook, correct?

That's correct.

Okay. Then I'm not sure if you'll provide more details on how much of those big upstream projects in Australia and Canada contributed to your oil and gas P&L, but when do they roll over completely? When are they completely out of your oil and gas business? I'm not sure if you'll be able to provide any more color?

Well, the big oil and gas stuff in Australia is out of backlog. The stuff we're working on in Canada is all refining and upgrading stuff. It's not a real significant piece of backlog, but it's not at risk.

I was talking more from the profitability. I think you highlighted they contributed from just more profitability standpoint that they are coming to completion and you had some of the risk reversal, and that contributed to your profitability in oil and gas segment, unless I read it incorrectly?

I think you read that incorrectly. Specifically, there's nothing in there relative to Canada or Australia that would impact that. I'm afraid you misread that.

Okay. Then I guess lastly my question on buy-back versus acquisition. Have you changed any view on how to allocate cash? Do you have any more appetite, particularly with some of the LNG projects not going through into your backlog about buying LNG backlog versus organically growing the business in the future?

Well I think buying backlog is a bad business. I think that what we're going to focus on is the same sort of capital deployment strategy that we've communicated before. I think that with the markets the way they are, there probably are some opportunities we're going to look at in terms of adding to the capabilities we've already mentioned in terms of construction, fabrication, and supply chain. We'll be looking at some things as we go forward, but without a really good eye towards that, we're going to continue to provide a robust dividend to our shareholders, and we're going to continue to buy back shares as cash is available to us -- excess cash is available to us.

Bottom line is no change.

Okay. Thank you very much.

Our last question today will be from Robert Connors with Stifel Nicolaus.

Hi guys, can you hear me?

Yes.

Okay, great. I wanted to touch base on -- has there been any sort of update on possibly the Exxon Mobil refinery coming back to the market, given that refinery profits are still strong here? If you've heard anything there? Then also, two projects that seem to continue to move forward, but stayed below the radar a little bit are the Alaska LNG project, as well as Shell's Pennsylvania cracker. Just wondering what you're hearing from those?

Well, I'd prefer not to talk about those. I will say that we stay pretty close to Exxon Mobil and their capital, and they've got I think some robust plans ahead of them that we'll participate in. As I said in a previous answer, I think there's the next wave of petrochemical facilities. I think we'll participate in most of those, as well, in some form or fashion.

Okay. Then I'm trying to think on the potential buy-back, if it does carry forward into 2016. One of the things that could keep you guys from buying back more stock is possibly the working capital build, particularly on the oil and gas side as you guys move more to the field on some of this North America work. Just wondering, Biggs, do you still expect to stay fairly working-capital neutral, or could we see a little bit of a build in 2016?

We're not giving guidance on earnings on 2016. It's even harder to talk about timing of cash flows on work that might be won in the future. But generally speaking, we don't see any big shifts occurring in relationship of working capital for revenue, which is what I've been saying for a few quarters, and I think is still true.

Okay, thanks.

That does conclude the question-and-answer portion. At this time I'll turn things back over to our speakers for any additional or closing remarks.

Thank you, operator. Also, thank you to all the participants for being with us today. As I said, while I'm pleased with what our oil and gas group has done from a performance standpoint, I'm disappointed in the current end market realities of the non-oil and gas markets that we serve. The challenges these groups are experiencing, especially mining and metals as an example, is a reflection of the commodity pricing, and the related capital spending in those markets.

In prior calls, we mentioned the actions that we took last year to strengthen our competitiveness. I'm really pleased with that, because this includes reducing our overhead, refining the business model we provide to our customers, providing a much more capital-efficient solution for our customers, and strengthening our cash discipline throughout the Company. We've made those changes proactively last year, and I think they positioned us extremely well for future growth. With that, I greatly appreciate your interest in our Company, and your confidence that you show in Fluor. Thank you very much, and good day.

Again, this concludes today's conference call. Thank you all for participation.