Fluor Corp (FLR) 2016 Q4 法說會逐字稿

Good morning, and welcome to Fluor Corporation's fourth-quarter and year-end 2016 conference call. Today's call is being recorded.

(Operator Instructions)

A replay of today's conference will be available at approximately 1 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 11 a.m. Eastern Time on February 24 at the following telephone number: 888-203-1112. The passcode of 218-9098 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, Noah. Welcome to Fluor's fourth-quarter 2016 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 morning before market opened, and we have posted a slide presentation on our website which we will 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 will be making forward-looking statements which reflect our current analysis of existing trends and information. However, there is an inherent risk that the 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-K 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 let me turn the call over to David Seaton, Fluor's Chairman and CEO. David?

Thanks, Geoff. Good morning, everyone, and thank you for joining us here today. On today's call we will review our fourth-quarter and full-year 2016 results as well as discuss the outlook for 2017.

Before we move into the numbers, I want to recap some of the more notable events in 2016. I think we've had quite a year, notwithstanding our issue with CPChem.

But in January we saw the mobilization of more than 6,000 craft and staff employees to support the construction activities of the two Westinghouse nuclear projects. One in Georgia, one in South Carolina, both of which support our direct hire construction strategy.

In February we saw the first of a number of awards in our Infrastructure business line with the award of Loop 202 South Mountain Freeway project in Phoenix, Arizona. In March we continued to build on our integrated solutions platform, completing the acquisition of Stork and our investment in the fabrication facilities in Zhuhai, China with our partner COOEC.

Also in March we completed our first-ever euro-denominated bond offering of EUR500 million with an interest rate of 1.75%. This low rate was due in part to our A minus credit rating.

We received another Infrastructure award in April, this time the Port Access Road Project in Charleston, South Carolina, proving that we can be competitive in the smaller infrastructure, fixed price opportunities that will exist as we go forward. In May we saw the completion of the large Cerro Verde mine project in Peru with excellent performance.

We received another Infrastructure award in June. This time it was the Purple Line Light Rail Project in Maryland.

Final investment decision for the Tengizchevroil project in Kazakhstan was reached in July. The TCO project was our largest single contract award for 2016.

In August the Department of Energy extended our contract for site management and operations of facilities at Savannah River in South Carolina and in the following month we received major multiyear remediation contracts to operate depleted uranium hexafluoride conversion facilities in Paducah, Kentucky and Piketon, Ohio.

Infrastructure was again in the news in October with an award of the reconstruction of the A27 and A1 motorways in the Netherlands. In December we saw the completion of all eight 419 foot towers on the Tappan Zee Bridge in New York State. This was a significant milestone for the Infrastructure group and our project team.

We also saw an award for construction of a new production facility for Novo Nordisk in North Carolina. This facility is the largest in Novo Nordisk history and will produce life-saving medicines for use by patients around the world.

Finally, NuScale submitted their on-time application to the US Nuclear Regulatory Commission for approval of the Company's small module reactor design. This is the first-ever SMR design certification application to be submitted to the NRC and marks a significant milestone for NuScale in the power generation industry.

Now let me go to 2016 and I'd like to begin with slide 3. 2016 earnings attributable to Fluor from continuing operations were $281 million or $2 per diluted share. Excluding the previously announced non-cash adverse tax effects of $45 million or $0.32 per diluted share, we reported a net profit from continuing operations of $326 million or $2.32 per diluted share. This compares to $418 million and $2.85 per diluted share a year ago.

Consolidated segment profit for 2016 was $744 million compared to $1 billion a year ago.

Segment profit margins for 2016 were 3.9% compared to 5.7% last year. Excluding the negative impact of the charges taken in Q2 and Q3 on our fixed price contract for CPChem, segment profit margin for the year would have been approximately 5.2%.

Consolidated 2016 revenues was $19 billion, up from $18.1 billion a year ago. Full-year new awards were $21 billion including $8.4 billion in Energy, Chemicals & Mining; $6.2 billion in Industrial, Infrastructure & Power; $4.6 billion in Government; and $1.8 billion in our Maintenance, Modification & Asset Integrity segment. Consolidated backlog at year-end was $45 billion, flat from the $44.7 billion reported a year ago.

If you will turn to slide 4 the Energy, Chemicals & Mining segment booked $1 billion new award for the quarter including a bauxite development project in Guinea. Ending backlog for Energy, Chemicals & Mining segment was $21.8 billion compared to $29.4 billion in 2015.

Looking ahead, we have read the same things you have when it comes to major, what the oil majors and their capital spending plans will be. I believe that the relative stability in the oil prices that we've seen over the last 12 months has given our customers the confidence to move forward with higher return projects as evidenced by their indication that capital spending in certain areas could be higher in 2017.

Fourth-quarter new awards in Industrial, Infrastructure & Power were $1.3 billion including the Novo Nordisk pharmaceutical manufacturing facility I previously mentioned. We closed the year with a backlog in IIP of $15.1 billion compared to $9.7 billion at the end of 2015, again reflecting the growth across all end markets we serve.

I'm particularly pleased with our Infrastructure business. They have been able to double Infrastructure backlog over the course of the year.

There has been quite a bit of focus and excitement around Infrastructure and related opportunity since the election. 2016 was a great year for us from an Infrastructure standpoint, and we will start to see more bid decisions in 2017 somewhat based on the FAST Act funding agreement passed over a year ago. Any spending initiatives from the Trump administration will be well received, and we will be given -- and we have given our input as to how best to speed up the approval and funding process for those new projects.

Turning to slide 5, the Government group posted fourth-quarter new awards of $101 million. Ending backlog in 2016 was $5.2 billion compared with $3.6 billion at the end of 2015.

The Maintenance, Modification & Asset Integrity segment posted fourth-quarter new awards of $357 million. Ending backlog in 2016 was $2.9 billion compared to $2.1 billion at the end of 2015.

Looking back, 2015 and 2016 represent one of the most difficult times in our industry. In fact, Energy and Chemical awards during this two-year period were the lowest they have been since 2009-2010. Even with that headwind we were able to grow our backlog and focus our resources on non-commodity markets and opportunities.

So what does that mean for 2017? I think it means that our Energy and Chemicals pipeline of opportunities will be coming off the bottom of the cycle. Client focus on higher return projects and capital efficiency match well with what our talents provide. We also see reason to be optimistic not only in mining, which is also coming off of the bottom of their cycle, but also Infrastructure where it appears that the interest and motivation to expand spending both domestically and abroad.

With that now I will turn it over to Biggs to review some of the details of our operating performance and the corporate financial metrics for the quarter. Biggs?

Thanks, David, and good morning everyone. Please turn to slide 6 of the presentation. I will start by providing some additional comments on our fourth-quarter performance then move to the balance sheet.

Revenue for the quarter was $5 billion, up from $4.4 billion a year ago. Revenue gains from Industrial, Infrastructure & Power, Maintenance, Modification & Asset Integrity and Government were offset by a decline in the Energy, Chemicals & Mining segment. Corporate G&A expense for the fourth quarter was $56 million compared to $54 million a year ago.

Restructuring expenses in the quarter were partially offset by foreign exchange gains. As we stated in our preannouncement last week, taxes in the fourth quarter include $45 million in non-cash tax effects related primarily to new IRS regulations that were issued in December. We don't expect this regulation to have a recurring effect.

The other significant tax effect had to do with foreign subsidiary losses driven by organizational realignment activities. A majority of this tax effect was related to Stork.

Both of these effects are non-cash in nature. Our tax estimate of 33% to 35% remains unchanged for 2017.

Shifting to the balance sheet, Fluor's cash plus current and noncurrent marketable securities totaled $2.1 billion compared to $2.1 billion last quarter and $2.4 billion a year ago. In 2016 the Company generated $706 million in cash flow from operating activities compared to $849 million in 2015. The Company also returned $118 million in cash to shareholders through dividends.

Moving to slide 7, Fluor's consolidated backlog at quarter-end was $45 billion. The percentage of fixed price contracts in our overall backlog declined to 27%.

At quarter-end the mix by geography was 52% US and 48% non-US. This was the first time US-based backlog has been above 50% since 2008.

I will conclude my remarks by commenting on our guidance for 2017 which is on slide 8. We are maintaining our guidance for 2017 at $2.75 to $3.25 per diluted share. Our range for 2017 assumes continued challenges in our commodity-focused segment offset by increasing opportunities in Infrastructure, Industrial and Government.

Our guidance for 2017 also assumes G&A expense in the range of $180 to $200 million and a tax rate of 33% to 35%. Other expectations for 2017 include a modest decline in NuScale expenses to approximately $80 million and capital expenditures of approximately $200 million to $275 million depending upon Ameco opportunities.

Our guidance reflects an expectation of gradual quarterly improvement for 2016. We anticipate average full-year margins in Energy, Chemicals & Mining group to be in the 4% to 5% range; Industrial, Infrastructure & Power excluding NuScale to be in the 4% to 4.5%; Maintenance, Modification & Asset Integrity to be around 4.5% to 5.5%; and Government to be approximately 3%.

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

(Operator Instructions) Jerry Revich, Goldman Sachs.

Hi, good morning, everyone. You had a nice backlog increase in II&P this quarter, looks like maybe a scope adjustment. Can you talk about the drivers?

And separately, can you talk about any discussions you've had on the nuclear projects with customers Southern and SCANA? Considering the concerns about Westinghouse is there a contingency scenario planning that you folks are a part of where you get an opportunity to continue the work maybe with increased scope going forward?

Well, the adjustment is primarily Westinghouse, but let me talk about Westinghouse a little bit here. Obviously, they are in a challenged position. We were brought in a year ago, a little over a year ago to try to help them, help Westinghouse construct these facilities, and I think we've been able to help them see where they are and where the issues are and we are moving forward.

In both cases we have great long-standing relationships with both Southern and with SCANA and Santee Cooper. And I personally have relationships with the managements of both those companies and we are going to do what we can to finish these projects. Clearly Westinghouse or at least Toshiba has made the comment that they plan to finish these projects, and we expect to be there to help them do so.

And David, as part of the backlog adjustment, have you updated the time frame of when the projects are expected to be completed? I think the latest estimates were in 2020 but I think subject to revision. Did that change with the backlog increase this quarter?

That new schedule is part of our review and the estimate to complete based on that schedule.

Okay, thank you. Then separately, can you just say more about the bookings environment in EC&M over the course of 2017?

Do you think you can maintain or maybe possibly grow backlog over the course of the year? Can you just touch on what type of end markets do you expect to drive your bookings activity over the next 12 months?

Well, I'm actually pretty excited about what's in front of us. If we think about what we chase on a factored and a unfactored basis, in the EC&M segment we are chasing about 50% more this year than we did in 2016, and I would say 2015 is probably about the same number, which is somewhat back-end loaded.

Some of these projects aren't to be actually sanctioned an award until the second half of the year. I think as my prepared remarks suggest we think we are at the absolute bottom of the cycle, and what we see is an improving slate of things to chase. And we are not changing our selectivity set at all from a quality of project perspective, but we are seeing what I predicted two years ago and that is there will be pent-up demand on things because customers have delayed projects for their own financial reasons.

But now they are to the point where they've got to spend again. So I think we are in the beginning stages of what I would argue would be a sustained positive capital cycle that we've seen in the past, and I believe we are positioned as good as anybody to win better than our fair share of those projects. So I think that's both oil and gas and in mining.

You saw the two awards last year in bauxite. We are seeing the movement in copper. You've seen the copper prices increase.

We were highly successful in Cerro Verde, which leads to hopefully other projects that that customer as well as the others are going to do. So we are growing from such a low basis in mining I think we are in for some really good awards in that particular piece of EC&M. But then on the oil, gas and chemical side we see some chemicals work, we see some more refining work, we are bidding some significantly large projects in refining and we are also starting to see some of those upstream projects loosen up, TCO being the latest example of that.

Thank you very much.

Jamie Cook, Credit Suisse.

Hi, good morning. I guess my first question, well, one, congrats on beating ex- the tax noise. But just the one question I do have, I guess I appreciate the color that you guys are providing on guidance now, but I was a little surprised by the margins that you guys are guiding to for EC&M.

So can you talk about the drivers to get to the low end? I don't know if it's CPChem at zero margin or TCO ramping or mining. I guess that level just surprised me to some degree. I guess if you could start off with that.

And then, David, I guess my second question, you sound a lot more optimistic on the award potential, I would say, relative to how you sounded last quarter. So my question is do you think given, do you think your customers or do you think we will see any success with your new business model in that you could win your fair share of awards just given your vertically integrated approach and the cost that you can take out of the projects relative to the competition? And how are you going to balance the awards, potential awards with what you talked about last quarter in terms of just you talked about the competitive environment really seemed to take a turn for the worse? Thanks.

Well, the quick answer is you answered your question. It's lots of moving parts in terms of the margin equation. It's just a change in mix, it's everything associated with that grouping of businesses, and Biggs can give some color in a second.

I will answer your second question. It's always competitive. This is something that I'm not sure gets enough press.

It doesn't matter if times are good or times are bad. It's a dogfight in this industry. We have to be competitive.

We have to be able to present the best solution for our customers. So I would argue that I've never seen an easy competitive time in my career.

So with that as a backstop, though, when you look at the integrated solutions option that we have, it follows exactly what the customers have asked us for in terms of better certainty of cost and schedule and better capital efficiency. I think we are proving that time in and time out.

So the proof is that the customers are starting to say, well, nobody else has the ability to do the entire lifecycle cost slate of a capital program. And I know some of our competition would disagree with that, but our customers are proving that we are correct. So I think that I am a little more optimistic as I look at new awards in 2017 and 2018, but I'm cautiously optimistic in terms of how that translates into earnings in 2017.

But are you -- because you sounded like a lot of the awards could hit towards the latter part of year. And I guess my concern has always been given what you are seeing do you think 2017 is the trough for earnings or 2018? If the awards start to inflect it probably doesn't matter, but I'm just trying to think about (multiple speakers)

We've already given you the guidance, Jamie. We are not going to provide guidance for 2018.

Look, we are coming off what would have been a really good year had it not been for one project. If you take that out it would have been a really good year, in the face of what was probably the worst economic times our industry has seen in a while. So it shows the power of Fluor in the earnings that we have available to us.

We have worked off the majority of the engineering -- not the majority, a significant amount of the engineering piece of that particular market and we are starting to rebuild it. So you're going to see earnings in 2017 fairly flat with 2016 because of the timing of the cycle.

But, again, you got to think about us in terms of the diversity we provide. In the face of probably the worst two years of new award performance in E&C as I said in the prepared remarks in a half a decade, we were able to marginally grow backlog because of the diversity that we provide.

So when we look at the earnings curves on Infrastructure those are really back-end loaded kinds of programs and projects. So earnings in the near-term are going to be fairly flat as I said, but when we look start looking at 2018, 2019, 2020, 2021 I think we are on an increasing scale in terms of profitability.

Back to the margin question on the CPChem, yes, when you have a project that you've booked a loss on going forward you effectively book it at zero. So that does have a little bit of a pressing effect on margin rate. But you should think of that as being in the range of 20 basis points, so it's not a dramatic swinger in terms of what's happening in the margin rates.

The big driver is, as David said, is change in mix. We've been talking about it for a couple of quarters saying it was coming in terms of shifting from much more engineering content to much more intensive construction and procurement content, to segment the contracts between engineering and construction and procurement you get this mix shift because engineering is just a much higher margin rate than construction as it goes through the books.

So what you are looking at in 2017 is just the burn-off of the engineering on the projects that we got new awards in ECM over the last few years and transitioning more fully to construction on those projects, which haven't had enough inflow of new engineering work to sustain the mix for now. Obviously as David commented as we go forward we get new awards in we will see a shift back. So it's really mix.

If you look at the last few quarters, if you normalize them for a CPChem charge by example then you would see that over time we actually have seen a shift downward in the margins on ECM reflecting this gradual move. It's just going to continue into next year until we get some new engineering work in.

Okay, thank you. That's helpful. I will get back in queue.

Steven Fisher, UBS.

Great, thanks, good morning. On the Westinghouse nuclear work can you just tell us how often you are getting paid on that work and how that changed over the course of the past year that you've been doing the work? I thought at the beginning the expectation was you would get paid every 30 days, but just curious how if that is still the case and how that's changed.

We've got a little bit of a delay in terms of payment, but I wouldn't call it material. Right now if you think about you've read the same things I've read on Toshiba's announcement and the things that they are having to go through.

We have enough conversations with them to feel that they are in a place where the banks are going to help them fund these projects and we expect those ARs to be fully paid. But it's a timing element, but the accounts receivable issue is not material.

Okay. And then just a question on the sensitivity of customer project investment decision and cost, and just get to the question about what is really still holding projects back, and I'm wondering if it's cost or confidence or what have you?

But I guess if you could take costs out by another 10%, how many projects do you think that would move forward in this environment? Or is it not that simple, and if it were just a matter of taking 10% out how would you do that or is it 20% that needs to come out? It's sort of a big picture question about what still needs to happen to get projects moving forward.

Well, I think we've already proven that we can take a significant percent of the cost out, assuming that the customer is flexible enough to let that change happen. I would argue that in a lot of cases customers are still under the mode of that's not the way we do it here. And where the C-suite of the customers say yes, yes, yes, that's what we want, the integrated approach, what we are doing taking money out, changing the execution approach but when it gets into their organization sometimes the organization vetoes the CEO, which is a dangerous place to be if you are looking for capital efficiency.

In terms of going forward, as I said just in E&C alone we see a 50% rise in what we are looking at during 2017 over 2016. So those projects are moving forward, but as we've said in the past they move forward at their own pace. And even though the customers are a little more eager to get some of these things done, they are still going through what I would argue is a more detailed gating process than they've gone through maybe in that last boom.

I think prudently so, because I think there were some projects that our oil and gas friends would have probably avoided had they not believed that $100 oil was there forever. So I think it's a matter of good prudent gating processes, but as I said we are seeing an increase in activity, we're seeing an increase in the number of bids that we are focused on.

Just in E&C&M alone in 2017 there's around 775 prospects that we are chasing in that alone. So that's up again. That's up as well, not the same 50% because my 50% is on dollar value.

But we are winning our fair share, and I think that will continue. But just with one word of caution as I think it's probably second half of 2017 before we see some of those significant projects actually get to sanctioning.

Okay, so it's not just more cost needs to come out, it's broader (multiple speakers)

Costs continually need to come out. Make no mistake. What we are delivering is a lower cost solution, and I think that's evidenced by some of the awards we've had across the board, not just in EC&M but also in EC&M.

Okay, thanks a lot.

Andrew Kaplowitz, Citi.

Good morning, guys. David or Biggs, revenue in EC&M actually beat our estimate by quite a bit. It had a night sequential uptick.

Was it just older projects moving from engineering to construction as you've been talking about? Or did you see any uptick in revenue burn in your project portfolio as customers have started to feel comfortable with the commodity environment? If that's the case, could revenue burn continue to pick up in 2017?

So I think the answer to your questions are yes in general. It is largely a shift from engineering to construction and procurement which is higher revenue, lower margin but higher revenue, that has caused the uptick and that may continue into at least for a while into 2017. So that's what I think is going on from a revenue standpoint.

In terms of I think the question was where is the offset --

Did you see any older projects that have been slow burn because costs were down with the uncertainty --

Just by going into construction the burn rate is going to go up because you are in a later part of the project. The revenues go up with construction activities going up. And so that's going to increase the burn rate.

So overall our burn rate as a Company has gone up. If you look at what's in the 10-K it says that the burn rate on existing backlog is going to be at 42% for 2017, which is up from last year.

It's up in ECM, but it's down some in Industrial, Infrastructure & Power because of projects like the Purple Line which is large, very long-lived and Westinghouse, also large and long-lived. So you've got ECM burn rate going up based upon the maturity of those projects, but then in other parts of the business partially offset by large long-lived projects being added in.

Okay, that's helpful Biggs. And, David, maybe just your perspective, you've been talking about mining on this call. If you remember I think in 2012 it was about 40% of your total backlog, it was very large.

Obviously we've seen a snapback in bookings, you talked about the overall funnel improving. But do you think it's possible over the next year, I mean I think you bombed out at something like $1 billion of mining backlog, do you think it's possible to do several billion dollars of mining awards over the next year? Is that how we should be thinking, is that a possibility?

Well, we bottomed out at $0.5 billion. That's how low it got.

I rounded up for you.

Well, thank you. I think it's one of these things that we maybe not get enough credit for is when you think about it it was 40% of our backlog three years ago, four years ago and it was $0.5 billion last the beginning of last year and we are still one of the biggest dogs on the block I think shows that we can skate to where the puck is going to be to steal from the great Gretzky. But I do believe that there is some projects out there in mining that will be awarded that will continue to build the backlog of mining in 2017, but I also believe that we are on the beginning of a longer, a little longer new award train.

The issue is going to be, I don't think it's going to be as big as it was in that last cycle, primarily driven by just global growth. And we will see what happens, but you are starting to see copper pricing improve, you're starting to see some of the other commodity pricing improved on a more sustained basis. So you've got some of these companies that have downsized and looked at what their base business is going to be going forward from a commodity perspective.

And I think they are starting to get ready to start spending again. And, again, there is very few players in that particular segment that can do these very large projects. And we are, obviously, one of the key companies that these mining groups come to.

Thanks, David.

Tahira Afzal, KeyBanc Capital Markets.

Good morning, folks. So first of all, congratulations on the NRC submission. It's a pretty big milestone for the industry.

David, I guess a couple of questions around that. Number one, do you have to wait until the receipt of the submission to have people really take notice and maybe for some talks around partnership to materialize further?

And, secondly, how should we look at people just approaching the nuclear industry including SMRs given all the cost increases on these new projects sales?

Well, first off, congratulations to your husband for the national championship. I'm sure he was probably pleased with that as was my wife.

Thank you.

I'm sorry?

Thank you. He's very happy as you can imagine.

Go Tigers. It just kills me to say that. So to your question, we submitted on time.

The official acceptance of that was about a week later in January. The NRC basically has 60 days to do what basically the review enough to docket that particular submission. We expect based on all the conversations and reviews and questions and the answers to those questions that we went through over the last year and a half we expect to be docketed with around the 60-day period which will be sometime it next month.

And that begins the formal review. I think that's a significant milestone, and one that shows that this is a real technology, one that will be taken seriously by the NRC and in their review hopefully give us that good housekeeping seal of approval.

On the competitiveness perspective, I think that there's fewer companies around the globe that can afford the major nukes. There may be countries that can that are willing to sign up for some of these programs, and I would argue that even the Westinghouse AP1000 has a place in the future and the costs associated with it will not be as dire as they have been on basically the first generation.

The first ones are being completed in China and then you, obviously, have the two here in the United States. But I think the larger market is with the SMR. Particularly because it's a smaller program and project you are not looking at the same megawatts as you are with some of those bigger units.

So I think the applicability of a small module reactor is much more broad and has different applications. It's not just a power-generating source for the power generators. It's a captive power source for large industrial uses.

It's a technology that does not have the same containment vessel requirements because of its design. It does not have some of the safety concerns that maybe some of the older technologies have in terms of the cooling system. So I think there's a different application for the SMR that will continue to grow, and I believe once it's docketed it, obviously, proves to the industry that it's real. And I think that will attract additional investors in NuScale.

I would just also add that because it's manufactured there's much greater cost certainty associated with it.

Right.

Got it. Okay. And I guess second question, David, we might be headed back in a more inflationary environment. How should I think about that, what do you worry about on the cost side for your Company?

Well, I would've thought that some of the pressures would have already started to creep up in terms of cost of commodities, cost of engineered equipment items and the like. But we are in the middle of a couple of significant bid cycles, and we haven't seen any dramatic increase or expectation of increase in terms of the validity, bid validity from some of these vendors.

In a lot of cases when you start to see inflationary pressures you will start to see the bid validity on some of these things short and we've not seen that phenomenon yet in the marketplace. And even with a little bit of inflation I don't think it really dramatically changes my view on the things that we are chasing. It may have a bit of additional cost, but again we are taking cost out and the net-net is it still going to be a cheaper cost per unit of production than they've seen in the past cycles.

But you also have to remember we are a very international Company. It's not about inflation in the United States, it's about what is going on globally and we have reduced our total costs globally and we will continue to do so. So I think that from an economic standpoint the effects of inflation on one part of the global economy versus another will be muted on us.

Thank you, folks.

Anna Kaminskaya, Bank of America.

Good morning, guys. So I just wanted to clarify your guidance outlook, and maybe my math is off but I'm just looking at margins similar year over year, so I think you mentioned about a step-up in burn rate but then also in oil and gas business but also full burn rate in Industrial and Power business.

How do I get to those -- to the $3 EPS next year? That's what I'm a little bit struggling with, what kind of burn rate do we need to see next year to get to that $3 EPS given flat margins?

Well, as I say the burn rate against backlog is about 42%. So that tells you what's flowing into next year out of what we already have. And then one of the key variabilities for any year is the pace of new awards and what the mix of those is as it comes in, and, obviously, that's a more subjective estimate as to both win rates and the timing of those new awards.

But you get a good feel for at least what is coming out of backlog. But what is coming out of backlog, as I said, is on the Energy, Chemicals & Mining side is a lower burn rate but with that is some growth in revenue that's occurred. Does that sustain itself all the way through to through 2017 at a higher overall revenue (technical difficulty) for ECM? Well, quite possibly.

But we don't go so far as to literally guide on revenue. But it's just the natural flow of things.

So is it fair to say that it assumes assumption of additional new awards next year, so inflection may be in some of the backlog and that's what's helping to get to that $3 EPS target?

Well, if you normalize this year, I mean you think about it in terms of actually I would suspect somebody to go the opposite direction with the question because if you take our 2016 results and you normalize those for CPChem and for tax then that we talked about just in the last couple of quarters you'd be up around $3.42 for this year.

So really what we are saying is that the net mix effects are going to take us back down. ECM is going to have a lower margin, so that's a downward force. But there's growth in the other businesses which are going to take it back up and partially offset that, and as a result of all that puts us at around that $3 per share range.

Okay, I will just take it off-line. And just maybe you can talk in general about key government policies that you think will impact your business besides the obvious Infrastructure investment.

I don't know if you could in particular touch on any impact from the cross-border adjustment. I know you have a fabrication facility in Mexico, how meaningful is it to your cost savings for some of the US facilities? Any impact from any deregulation to EP, just generally speaking what should we be thinking about and watching?

Well, I think that we are a global Company and we will be able to deal with any of the issues that are there. I was on a panel, and I think this speaks to part of what you are getting at, I was on a panel back in November -- sorry, in October, it was before the election, and the question from the audience was under which presidential candidate would business be more successful under? And my answer was simply it doesn't matter.

Business will do what business needs to do to perform given any of the regulatory issues, changes that are there. Border tax may have some impact on our customers, very little on us. We have the ability to fabricate in a lot of different places.

With our work right now being 52%, I think it is, US-based business, it would have very little impact in terms of the short term. And just the global reach that we have and how we execute work we are able to put the project together in the most effective and efficient manner.

You look at the KNPC projects right now we are not doing any engineering in the United States for those projects and we are procuring very little out of the United States. And in the case of some of the US-based project or stuff, obviously, being brought in commodity items and the like, but very few of them are actually manufactured in the states. So that would in the case of the border tax would obtain a waiver.

So I don't think there's really any policy issues that are in front of us really have an impact on our business in the short term. I will say I'm encouraged. The President is basically doing what the President said he was going to do in terms of addressing some of the competitive issues and constraints that have been placed on the United States whether that's tax policy, whether that's tax policy, being America first, I mean I think they are all positive steps and certainly they all fit within our ability to perform.

Great, thank you so much.

Andrew Wittmann, Robert W. Baird & Company.

Thanks, I appreciate the opportunity here. David, in the past you've talked about the lineup for US crackers, the second wave. Seen a little bit of movement in some of the headlines on a couple of these projects.

I just like to get your view on if you think that some of these are going to hit in a more material fashion into the backlog this year and if you believe that you are positioned to capture some of them?

I think there is significant petrochemical and chemical opportunities that could hit the backlog this year. I'm not sure one of them will be a cracker.

We are still tracking those and looking at how we compete for those. There may be one that gets close this year. But, again, I think it's all back-end loaded.

You saw where one of the major programs on methanol was the decision was delayed which we are competing for. But, again, it's not that it's canceled, it's just delayed in the decision process where, again, I go back to something I said earlier that customers are being a little more thoughtful in terms of the gating process and whether they have all the Ts crossed and the Is dotted before they sanction these projects. So I think it's a market that we are focused on, but again I think it's a back-end award in 2017.

Okay. And then just checking in on CPChem, obviously no charge this quarter and I think everyone is, obviously, happy to see that.

I guess now that you've got your feet back under you it appears, do you feel like the cost estimate that you have in place and the way the project is going has you set up for no further charges as you said here today?

Well, I can't say no other charges. But I will say that steady as she goes, Peter Oosterveer is actually on-site today and we are performing in line with what our expectation was.

Okay, that's fair enough. And then maybe just my final question would be in the Government segment.

This has been in the last couple of quarters very steady. Can you just talk about what contracts you have coming up for rebid and what the potential opportunities to add new contracts to your Government business are shaping up to be for 2017?

Well, there's a fair amount of opportunity on the DoD side that will -- it will be additive to what we already have. Afghanistan is staying basically flat year over year.

On the DOE site we are beginning the recompete process at Savannah River. We feel pretty good about that because the performance that we are providing the DOE there. Same thing the performance as I said at Piketon and Paducah is proving us to be one of the DOE's go-to contractors.

So that's going to provide a lot of opportunity going forward. But, again, you've heard me say this before, I love the Government business because it's a good, steady, long-term contract base that pays the light bill so that we can go and build stuff other places around the globe.

But I will say that if you look at our Government business today versus maybe a decade ago, it's much more sustainable, it's much more solid in terms of long-term contracts, it's much more solid in terms of its impact on our Company. I'm really pleased with what those guys have been able to accomplish.

Okay, great. Thank you very much.

Yuri Lynk, Canaccord Genuity.

Good morning, guys. David, just to drill in on the Infrastructure side, a little more color on you're pretty positive on that market. Is that more due to the changes you've made internally repositioning that business, or has the macro just continued to get a little bit better, more accommodative? And any color on the regions where you are seeing the activity?

That's a great question. I'd say some of it is what we have done internally in terms of the structure of that group, but also in terms of that integrated solution and some of the power of Fluor's buying ability. If you think about it, we buy more commodity items and equipment on an annual basis than ExxonMobil or Chevron on any given year.

So with that comes significant buying power. But also we've improved our capability in that market and brought some new people in to where we are seeing great success. I am really pleased with the development of that group and the leadership there and what they are providing to the overall corporation.

And then I think the other piece of that, and you are right, it's the market. There is a pent-up demand for infrastructure, and we see significant growth in that market. But I think the growth that we see is pinned on the fact that we've improved our offering and improved our ability to perform on those projects.

I can't overemphasize the importance of things like the Charleston port project which proved to us we could be competitive on that $200 million to $500 million project. Because I think in the United States that's where the market is going to be. Many of these large programs will take a decade to develop.

That's why I made the comment in the press and have been vocal with the government. But there is no such thing as a shovel-ready project on those big, big programs. They take a long time on the gestation period and then they take a fair amount of time to build.

I think the Denver light rail is a great example where it took 10 years from basically the first funding to cutting the ribbon. So I think that's part of it.

But it's not just roads and bridges. It's ports, it's airports, it's the inland waterways, the locks and dams, it's pipelines, it's power generation, power distribution from the generation that all needs to be upgraded. And that's just in the United States.

Then you look outside the United States we are looking at growing in Western Europe, we've been particularly successful in the Netherlands and in Germany. We are looking in places like Australia and other places where Fluor has a huge footprint to make sure that we've got the people and the capabilities to actually execute these projects.

So even with the growth and opportunity we are not getting out over our skis in terms of what we can actually perform. So, again, I'm pretty bullish on Infrastructure continuing to be a significant piece of our offering.

That's great, thanks, David. And I will just squeeze in a last one maybe for Biggs. Just a housekeeping issue.

Noncontrolling interest dropped quite a bit in the fourth quarter from the mid-teens run rate. Any color on how that's going to shake out for the full-year 2017?

Well, I think I mean it's another flavor of mix through the businesses. Noncontrolling interest just relates to those projects that we do through JV that we consolidate to JV.

We have lots of JVs we don't consolidate more than we actually consolidate. So it ends up being a relatively small part of the business. There just wasn't that much income on those consolidated JVs in the fourth quarter, but I would expect 2017 for the noncontrolling interest number to be back more what it has been for this last year in the aggregate, if not up some.

Helpful, thanks, guys.

Chad Dillard, Deutsche Bank.

Hi, good morning. So last quarter you mentioned that you are seeing some pricing pressure in oil and gas, and it caused a spillover effect in a few other segments. And as a result you are dialing back your bidding activity.

But it seems like from some of your comments today that you are looking to increase activity. So I just wanted to understand would it be fair to say that you are actually seeing an improvement in pricing and that's causing you to actually go back into the market? Just trying to understand what the competitive environment looks like now?

Well, we've never dialed back our bidding. So if that's what you heard then we've miscommunicated. We have not changed our bidding cycle because of pricing at all.

What we are seeing is more opportunity out there than was there maybe this time last year. So we are still looking at the same slate of projects with the same characteristics, the same risk profile that we have in the past. I just think that the market has changed.

Just a final comment on inflation or pricing pressures that are there, everybody has the same pricing pressures. Customers are dealing with them, they are pressuring us as an industry and we just have to be more competitive. And a lot of the things that we've done internally is, you've heard me say this before, sticking to our knitting and dealing with the things that we can control: better engineering tools and the way we design things to improve the overall efficiency and cost of the facility.

Once we get into EPC we focus dramatically on supply chain. And I think we've proven over time that we can take -- we are much better at negotiating better prices from our vendors and we are much better at delivering that savings on to the project and ultimately the customer, which in turn makes us more competitive. The focus on direct hire construction has helped us mitigate risk but also improve the profit streams that come into our Company.

So the strategy that we set out 4.5, five years ago is beginning to pay dividends. And I think that from a competitive perspective we are in a better position than anybody else I know of to deliver what the customers are asking for, which is that cost and schedule certainty and efficiency in terms of their capital spend.

So I think we are in a good position. I wouldn't say that I am more bullish, much more bullish than I was in previous times. I just think there is more opportunities for us to chase right now.

That's helpful. And then just another question on your MMA business, we are seeing a pretty steady drawdown in backlog there. And I'm just trying to understand the drivers.

So to what extent is this weakness being driven by more of the legacy Fluor business versus Stork? And then also what sort of visibility do you have in that business since the stability and energy prices, have you seen any uptick in bidding there?

Well, I think the impact you've seen is the same impact you've seen on capital projects. We are heavily in the oil and gas business in terms of the MMAI business. And what you are seeing is customers stopped spending and delayed some of these turnarounds, delayed some of the maintenance changes that they wanted to make.

So that's really what led to the decrease as opposed to legacy businesses because it was across the board. But, again, I see the same phenomenon there to where they have delayed some of these turnarounds in major maintenance programs to the point where they can't delay it anymore without having some sort of issue in terms of production or, God forbid, some catastrophic event. So we are starting to see those types of things get back on schedule, and we should see I think some increased improvement in 2017 in that segment.

Great, thank you very much.

That will conclude today's question-and-answer session. I would now like to turn a call back over to management for any additional or closing remarks.

Thank you, Noel, and thanks to all of you for participating on the call today. As I mentioned earlier, there's no question that the last few years have been a challenge from a growth perspective. With minimum economic growth and low commodity prices our customers reduced capital spending and maintenance spending as expected in our commodity-based businesses.

While our diverse portfolio serves us well we were able to grow non-ECM backlog. It's not just enough, unfortunately, to overcome the downturn in EC&M.

Fluor has not been idle during this downturn. We've made significant investments to improve our integrated solutions offering. And, in fact, were it not, as I said, for the charge related to CPChem it would have been one of our better years.

We've made the internal investments to improve our project delivery that leads to the capital efficiencies that our customers expect. We have been relentless in controlling our overhead cost. And my hat is off to the organization for what is a very difficult process to go through, as many of you know.

But as we come out of this market trough and enter the new cycle, growth cycle, I think Fluor emerges as a stronger and more competitive Company and are ready to capture more than our fair share of the market that's available to us. While we expect most of our growth to come organically, we will continue to seek strategic opportunities that add to that integrated solutions portfolio.

With that we, again, greatly appreciate your support of Fluor and we wish you a good day. Thank you.

That does conclude today's conference. Thank you for your participation. And you may now disconnect.