Geoff Telfer - Fluor Corp. David Thomas Seaton - Fluor Corp. Biggs C. Porter - Fluor Corp..

Steven Michael Fisher - UBS Securities LLC Andrew Kaplowitz - Citigroup Global Markets, Inc. Jamie L. Cook - Credit Suisse Securities (USA) LLC Tahira Afzal - KeyBanc Capital Markets, Inc. Michael S. Dudas - Vertical Research Partners Jerry Revich - Goldman Sachs & Co. Robert F. Norfleet - Alembic Global Advisors LLC Andrew John Wittmann - Robert W.

Baird & Co., Inc..

Good afternoon, ladies and gentlemen, and welcome to the Fluor Corporation's First Quarter 2017 Conference Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's presentation. A replay of today's conference will be available at approximately 8:30 P.M.

Eastern time today, accessible on Fluor's website at investor.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 7:30 Eastern time on May 10 at the following telephone number 888-203-1112 with the pass code of 6561965 will be required.

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

Thank you, Cade, and welcome to Fluor's first quarter 2017 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer; and Biggs Porter, Fluor's Chief Financial Officer.

Our earnings announcement was released this afternoon after market close, and we have posted a slide presentation on our website, which we'll referenced while making prepared remarks. But 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. However, there is an 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 filed earlier today and our Form 10-K filed on February 17. During today's call, we will 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 afternoon, everyone, and thank you for joining us. On today's call, we will review the first quarter results and discuss our outlook for 2017. Let me get started off by addressing the guidance. First quarter admittedly got us off to a slow start for the year on earnings.

That and the potential for slow burn on a couple of key projects put pressure on the lower end of our previous guidance range. The upper end of the range would have required new awards coming in at a faster pace than we've recently experienced. For these reasons, we have lowered our guidance for the year.

Having said that, I want to spend a few minutes on what we currently see in the markets and how that will drive our results for the remainder of 2017. While first quarter economic data has been relatively soft, we continue to believe a gradual recovery of our markets is underway, driven by improvements in the global economic activity.

Some of the leading indicators for future capital spending like industrial production, capacity utilization are improving in several regions and industries, which provides us confidence that our clients are beginning to increase their spending.

However, the lack of engineering and new awards is unprecedented and lower than we expected to see when we initially issued guidance for 2017 last November. Let me emphasize that we believe that we have good insight into what is coming and that the opportunities remain robust.

It's all about timing and how much acceleration we will see in 2017 versus 2018.

Within Energy& Chemicals & Mining segment, commodity prices are supportive of investments in downstream, petrochemicals and mining, and we continue to track multiple large projects, including derivative and LNG plants in North America and downstream projects in the Middle East.

Our commercial markets, including life sciences and infrastructure, should improve going forward and we anticipate multiple awards in these industries over the next several quarters. And finally, in our MMAI business, which we are now referring to as Diversified Services, continues to win new work in North America and Europe.

First quarter results were consistent with the normal seasonality we expect in the first quarter. Now let's look at the first quarter results beginning with slide 3. Net earnings attributable to Fluor were $61 million or $0.43 per diluted share.

And the results for the quarter included approximately $30 million in unanticipated cost increases on projects in the Industrial, Infrastructure & Power segment, most of which are related to a gas fired-power project and $15 million related to foreign exchange expense due to the strengthening of the Mexican peso.

These charges in the quarter were partially offset by favorable tax benefits. Consolidated segment profit for the first quarter was $133 million. Segment profit margin was 2.8% compared with 5.4% last year.

Excluding the negative impact of the projects and the foreign exchange charges taken in the quarter, segment profit would have been approximately 3.7%.

As we had discussed last year, we anticipated that margins would come down as we transitioned from higher margin engineering to lower margin construction activities, particularly as it related to Energy & Chemicals & Mining segment.

This migration is a result of the natural maturing of EPC projects, coupled with the low level of new awards over the last several quarters. This is the biggest reason for our year-over-year variance in results. Revenue for the quarter was $4.8 billion, up from $4.4 billion a year ago.

New awards for the quarter were $2.3 billion, and our ending backlog was $41.6 billion.

While I'm disappointed in our new award bookings this quarter, based on feedback and conversations we have had with customers, we believe that results this quarter represent a low point in this part of the cycle for new awards and we anticipate improvement going forward.

If you turn to slide 4, the Energy, Chemicals & Mining segment booked $817 million in new awards for the quarter, including a reconfiguration project for two refineries in Texas. Ending backlog for Energy & Chemicals segment was $20.3 billion. Of this amount, approximately $1.2 billion is in Mining.

Client optimism in this market has improved over the past two quarters and we are starting to see mining clients move forward with development plans. We are receiving awards for FEED and pre-FEED work for gold, bauxite and copper projects, and indications are – that two major EPC mining projects will be awarded in the next few quarters.

Before leaving this segment, I also want to provide an update on the CPChem ethylene cracker project in Baytown. The project is now 86% complete. We are in systems turnover phase and entering pre-commissioning phase, and we remain on track to achieve mechanical completion in the third quarter, consistent with our prior performance expectations.

First quarter new awards for Industrial, Infrastructure & Power were $777 million, including the A10 Zuidasdok motorway project in the Netherlands. Ending backlog was $14.6 billion. I'm particularly pleased to see that our success in Texas continues with the award last Friday of the Southern Gateway project here in Dallas.

This $625 million award is adjacent to the Dallas Horseshoe Project, which we will complete with our partner, Balfour Beatty in the second quarter. Please turn to slide 5.

The Government group posted first quarter new awards of $173 million, including a multi-year services contract and additional funding for the Paducah Gaseous Diffusion Plant project. The ending backlog for that group was $3.7 billion.

During the quarter, the Nuclear Decommissioning Authority made the decision to shorten the term of the Magnox RSRL project in the United Kingdom. And as a result, the contract will now end in August of 2019 and we have adjusted our backlog to reflect this change.

I will say that we are also preparing with our partner a bid for the next phase of this project. The Diversified Services segment posted first quarter new awards of $546 million. Ending backlog for that segment is $2.9 billion. Before I turn the call over to Biggs, let me provide an update on where we stand on the two nuclear projects for Westinghouse.

As you know, at the end of March Westinghouse filed for bankruptcy as a result of cost escalations on the nuclear projects in South Carolina and Georgia.

In conjunction with this bankruptcy, Fluor entered into agreements with both of Westinghouse's end clients, SCANA and Santee Cooper, for the one in South Carolina and Southern Company for the one in Georgia, to continue to work and be paid on both projects while the clients go through an assessment period.

We will continue to support both clients in their assessment efforts. At the end of April, both owners have asked for and received an extension from the bankruptcy court to this assessment period.

Our outstanding accounts receivable and contract work in process from these projects at the end of the first quarter was $238 million, and since then we have received payments of approximately $103 million from the owners. Total backlog for these two projects at the end of the quarter was $6.4 billion in our backlog numbers.

We have secured liens on both projects as a matter of due course.

Based on the combination of our liens, agreements with the owners, and the relative probability of these projects proceeding in whole or in part, we believe we will recover all of our outstanding receivables and costs incurred on these projects prior to bankruptcy, as well as going forward. With that, now I'll turn the call over to Biggs.

Biggs?.

Thanks, David. Good afternoon, everyone. Please turn to slide 6 of the presentation. I'll start by providing some additional comments on our first quarter performance, then move to the balance sheet. Revenue for the quarter was $4.8 billion, up from $4.4 billion a year ago.

Revenue gains from Industrial, Infrastructure & Power, Diversified Services, and Government were partially offset by a decline in the Energy, Chemicals & Mining segment. Corporate G&A expense for the first quarter was $45 million compared to $55 million a year ago.

As a reminder, corporate G&A expenses last year included transaction costs related to the acquisition of Stork.

As previously mentioned, this quarter's earnings per diluted share of $0.43 includes a $0.15 charge on a couple of projects in the Industrial, Infrastructure & Power segment and a $0.07 expense related to foreign currency losses attributable to the strengthening Mexican peso against the U.S. dollar.

I know some of you will be comparing this quarter's segment margin rates to the fourth quarter of last year. In Q4 of last year, although at the bottom line they were overshadowed by tax issues, there were positive effects of contractual matters and a foreign exchange benefit, which improved IIP and ECM margins respectively.

These were offset by restructuring charges in G&A. Please keep these in mind as you compare quarters on a sequential basis. The effective tax rate for the quarter was 17.2% driven by a stock deduction, or reduction of $0.11 per diluted share on a foreign subsidiary.

Shifting to the balance sheet, Fluor's cash plus current and non-current marketable securities totaled $2.2 billion compared to $2.1 billion last quarter and $2 billion a year ago. Cash provided by operating activities was $270 million for the quarter, as we continue to see an improvement in working capital.

This is very positive for the first quarter, reflecting collections that otherwise might have come in last year.

We don't give cash flow guidance because of all the timing considerations of the large payments from customers and the inter-period ups and downs can be significant, but this first quarter result positions us well going in to the rest of the year. During the quarter, we paid $30 million in dividends.

Moving to slide 7, Fluor's consolidated backlog at quarter end was $41.6 billion. The percentage of fixed price contracts in our overall backlog was 29%. At quarter-end, the mix by geography was 52% U.S. and 48% non-U.S. I will conclude my remarks by commenting on our guidance for 2017, which is on slide 8.

As David mentioned, we are revising our earnings this quarter, our guidance for the year to $2.25 to $2.75 from $2.75 to $3.25 per diluted share. If we weren't off to such a slow start, we might have left guidance alone, but it seems prudent at this point to temper expectations. Hopefully this action will prove to be conservative.

You can think of our guidance revision as $0.25 for the first quarter result versus consensus and $0.25 for conservatism on new awards and revenue burn in 2017. We do not believe this conservatism should be extrapolated into 2018 and beyond.

Our guidance for 2017 assumes G&A expense in the range of $180 million to $200 million and a tax rate for the remaining quarters of 32% to 34%. Our expectations for 2017 include NuScale expenses of approximately $80 million and capital expenditures of approximately $225 million to $275 million, depending upon AMECO opportunities.

As David discussed, our guidance reflects an expectation of quarterly improvement as we move through 2017.

Looking at margin expectations for the balance of the year, we anticipate the Energy, Chemicals & Mining group to be in the 4% to 5% range, Industrial, Infrastructure & Power, excluding NuScale, to be in the 3% to 4% range, Diversified Services to be around 5% to 6%, and the Government business to be approximately 3%.

With that, operator, we're ready to take questions..

Thank you. We'll take our first question from Steven Fisher with UBS..

Thanks. Good afternoon..

Good afternoon, Steven..

Afternoon, Steven..

David, could you just help us understand the dynamics with engineering here? I always thought that when customers felt a little skittish they kept the engineering going but they just didn't approve the big, new projects.

So what's going on with the pace of engineering awards, especially now that commodity prices have been up from the first quarter of last year for a while now? And then you mentioned it sounds like your customers are telling you that this is the bottom, so how should we feel – how confident should we feel that this is really the bottom and moving forward it's going to be better?.

Well, I think one of the things we continued working on, as you state on engineering, is mostly pre-FEED and FEED activities. And there's a fair amount of that work in there but it's just not sizable enough to push the earnings that we expect.

If I look back over the last probably two-and-a-half years on a relative basis, it's probably the lowest EPC new award total for energy and chemicals over that period that I've seen in my career. And the interesting thing is we haven't lost anything.

In fact, everything is pushed to the right where when you think about the guidance that we set last year in November, we were expecting some significant awards in the third and fourth quarter of last year that would have been really in the peak of burning their engineering scope now.

We still are scheduled to put those projects into backlog in the coming quarters but, as you can see, you missed basically three quarters of earnings on those projects, or at least the ramp up, it pushes everything to the right.

There's a couple of projects that we expect in the second quarter that will start to reverse that, which is why we say, as I said earlier, first half of this year was going to be weak and the second half would be strengthening going into 2018 and 2019 where I think we're going to see a pretty significant uptick in that work.

But, as I said, we haven't lost anything, it's just everything keeps moving to the right relative to those FIDs and our customers are still pretty confident about it, notwithstanding the recent drop in, say, oil price as an example. So those are some of the issues on what I would call the energy, chemicals and petrochemical.

Mining, we're starting to see a little bit better, not better – we see quicker decisions being made in the mining segment, and if you listen to some of their reports, they've started to be a little bit more optimistic in terms of their capital outlay.

And notwithstanding the bauxite projects that we were awarded earlier, I see a couple of big ones, as I said in the prepared remarks, hitting us over the next two quarters.

So again, when you think about the projects that are going to come in, in the second and third quarter in E&C, the same thing that's coming in to mining, you can see why we have at least some encouragement as we look towards the back half of 2017, but more importantly into 2018, 2019 and beyond. So to me it's just purely a timing issue.

We're solid on all these projects. It's just getting them to the finish line has been significantly harder than in past times..

So just putting those pieces together, should we assume then that this quarter is the low point in the backlog and that the second quarter bookings are enough to start taking us higher? Or is that still to be determined?.

Well, when I thought some of these projects were coming in, in the third and fourth quarter of last year, I think I said that, that was the low point. So I'm a little gun shy answering that part of the question.

All I can tell you is, is that we have great insight into a significant pipeline of projects that will drive the kinds of earnings that we, at least plan for in 2017, but will continue to come in as we go through this year and again, into 2018. So I just think that the low point has kept moving.

Indications are at least in Mining, that the times are changing, and I think in the E&C market the same thing applies..

Okay. And I guess my follow-up is related to the – it sounds like there's two projects in the IIP segment. One is clearly the South Carolina power project.

What's going on with that? How far along is it? What caused the issue? And what's the other project? And how big is the charges there?.

Well, the South Carolina project is nearing completion. And there's some issues there that I really don't want to talk about because we've got some opportunities, hopefully, to maybe reverse some of that. On the infrastructure, it's one of the road projects in the Netherlands, and it's due to the inability of one of our subcontractors to perform.

And I'm not sure where we are on that one but we're probably midway on that one..

Okay. I'll turn it over. Thanks..

Thank you..

We'll take our next question from Andrew Kaplowitz with Citi..

That was pretty close but not quite. How are you guys doing? David, so look, I want to follow up a little bit on Steve's question about EC&M margin. We know you – when I look at the margin in the quarter, it was pretty low..

You didn't ask me a margin question..

All right. So good. It's a good follow-up then. So Biggs did not change the margin guidance for the year. It's still 4 to 5%, but it came in lower than that in the quarter. We know that you talked about a lower quarter here coming in. And answering Steve's question you talked about lower engineering.

Is that the big issue really in the quarter? And can you talk about your confidence on the engineering work, helping you get back in the range? Is there anything else that needs to happen? Do you need these projects that you talked about to ramp up in 2Q and 3Q and the visibility of those to get there?.

Yes, as I said, I think basically that is the issue, it's the timing, and we feel pretty confident in terms of some of the new awards from some of these projects happening in Q2. So that's why we have at least an opinion that the second half of the year will improve, particularly in E&C, as well as mining..

Okay. And then....

The margin rate for the quarter is really lower than normal because of that ForEx charges in the ECM business..

Got it. Okay. And then how do you want us to think about these new nuclear projects in the sense that we read a lot, I'm sure you read a lot, you talk with the customers, in the next few weeks and the next couple months, as you said, are going to be very important for these projects and for Fluor.

I guess the question is would you ever take fixed price work on these projects? And as you move forward here, it seems like you're getting paid faster? Is that truly the case? And, again, should we be worried about these projects for Fluor or how do you feel about them as we sit here today?.

That's a great question. We are being paid faster. I think that our team and some of the relationships that we have with those customers clearly put us in a really good position and we're going to support them going through this.

You've read the same things I have and I've actually spoken with both customers today as a matter fact, and they're going through their evaluation process, trying to figure out exactly where they are, look at what options are available to them in terms of their claims against Westinghouse/Toshiba, and we're going to support them and are continuing to work just like nothing's happened at both job sites.

My guess is, is that both projects will go forward but it depends on how quickly and whether they do both units at the same time, or all four units at the same time, two at each site. But that decision is theirs to make. That's just David Seaton's opinion there.

Relative to your first question, the answer is there are pieces of those projects that may be considered for a fixed price, but it's a very small component. And absolutely zero of the construction labor would I accept on a fixed price basis..

Okay.

And so when we look at the overall projects, David, assuming that they did go forward, would you say there is a chance for more work if you did some of the fixed price work, or should we just kind of wait and see what happens?.

Well, I don't you to talk about – any fixed price might be around some of the equipment we provide or something like that, but it is miniscule in the grand scheme of things..

Got it. Okay. Helpful. Thanks..

We'll take our next question from Jamie Cook, Credit Suisse..

Hi. Good evening. I guess a couple questions. One, you guys sounded fairly confident in your new outlook, and even implied it's probably fairly conservative, but I guess I'm having a hard time getting there.

Because if we take the first quarter and we adjust for the power project and the FX, and we normalize for your tax rate, that implies the first quarter ended up at $0.50 with a closeout in the Government Services business, which I don't know how big it is, but that probably helped.

So $0.50 times four is $2.00, so like what am I missing? And I know you're talking about some projects ramping. If you could provide more color, because we've been talking about EC&M revenues growing for some period of time, and they continue to decline.

And then my second question, I think you lowered your margin targets on the Industrial, Infrastructure & Power business. I'm just trying to understand the drivers behind that.

Was that just the power project? A lower margin on that, or zero margin in the Netherlands project, or is related to the new projects? I'm just trying to understand those dynamics. Thanks..

Yes. So on the second question, it really is just a carry-over effect of the two projects that we talked about in Industrial, Infrastructure & Power that we made the adjustments on in the first quarter. That has the effect of lowering the margin rate expectations for the year, just from a run rate standpoint.

It's not presuming anything otherwise happens with respect to those projects, but just a lower booking rate coming out of this quarter.

With respect to your first question, the way I do the math, and maybe the same as you, the first quarter actuals $0.43 if we normalize it, round it to $0.55, so that would take the remaining three quarters on a normalized basis to give us a total of $1.65. You add the $0.43 first quarter to that, then you're $2.08.

You're really not too far away from the bottom end of the range obviously in doing that. And in fact, just some adjusting for seasonality in Diversified Services segment can close you that gap to the bottom.

You mentioned Government explicitly, and I'll say, yes, there were some pick-ups, but we think that there is equal likelihood of some pick-ups going forward in Government. So I would not back those out and think that those are something that's not going to happen again. And then there's ramp-up.

We expect to ramp-up before, but what basically our guidance, if you think of the guidance as applying 25%, or $0.25 conservatism on that ramp-up, we've really taken what we had applied before with our guidance and have taken it down by about $0.25. So now that ramp-up is still there, but it's a little bit more conservative.

There's a variety of projects really that are already in backlog in addition to the seasonality in Diversified Services that we think can provide that ramp-up without relying upon an awful lot of growth from new wins.

So we feel once again like we've been reasonably conservative with this because if you just look at it from the standpoint of annualizing the first quarter – normalize and annualize the first quarter, looking at seasonality and looking at some projects we presently have maturing and what we think they're going to provide that we're now comfortable with the conservative range we set..

Okay. I guess just a follow-up question for David. And Biggs, that was helpful, so I appreciate that. A follow-up project for David on the new projects. Obviously, the cash flow was positive in the quarter, and then you got additional cash. So that's good. I guess I want to understand the potential for additional scope with these new projects.

It sounds like there could be, but I guess the other side of it, given the size and the complexity of these projects, there is also talk of either Southern in particular bringing on another contractor just to help get through this complex contract, these complex contracts.

So can you sort of handicap the risk there? And do you think if that happened there was enough scope on the other projects to offset potentially another contractor coming in?.

Oh. I think so, Jamie. If you're talking specifically about those two contracts, I feel pretty confident when they go forward, we'll go forward with at least what we had if not more regardless of them bringing in someone else. So assuming those projects go forward, I feel pretty good about that actually growing over both sites.

Were you talking about some of the other new awards in that question, as well, or?.

Well, no. I was just talking about – just on Southern in particular there's been speculation that another contractor could come in. So if they take part of that contract, I just want to make sure – you know what I mean? There's enough....

Well, Bechtel already had a staff augmentation contract for the last six months on both sites. So that's not something new, and I don't expect that to change going forward..

Okay. Thanks. That's helpful. I'll get back in queue..

Thanks, Jamie..

Jamie, I presume you're still listening, I'll say....

Yes. I'm still listening..

I said that the guys, just to presume, really rely upon a ramp-up from new business. We of course do assume we're going to get some amount of new business. We're just not relying upon that to provide a growth to that run rate..

Yes, Jamie. I kicked him under the table on that one..

Okay. I appreciate that. Thanks..

We'll go next to Tahira Afzal with KeyBanc Capital Markets..

Hi, folks..

Tahira..

David, for a long time, Fluor's been the sort of blue chip name at trade shows and within your peers on the execution side. And as I look at over the last several quarters, you've had a string of different projects having some hiccups.

How are you addressing that on the execution side? I think for investors – I get the cycle is something you can't control, but any color on how we get comfortable inside internally – to really get comfortable around what's happening and that it's contained going forward?.

Yes, sure. I think I'd come at it from two different angles. One angle is we have over 2,500 projects at any given time underway. And unfortunately, it's only the couple of them that stand out like they do. So I think from an overall health check, if you will, of our execution model, I think it's pretty solid.

And I do believe that with some of the things, the changes we've made, the things we've added, we've actually strengthened that capability and gives us more confidence in terms of our ability to execute.

In the case of these, both of them were actually bid before we'd made a lot of the improvements that we had made, and in fact, I've made some organizational changes, at least personnel changes in some of those groups that are experiencing the problem.

So I think management has taken the actions necessary to put the right people in the right positions. I think the overall basis of our execution approach and that integrated solution is resonating with our customers.

And I think our ability to connect the dots between the traditional engineering scope, the supply chain scope and the construction scope is producing the type of predictability that we hoped for going to the future. As I've said before, this business is cyclical but this business also has issues and problem projects.

There's not one of our competitors that can say they are flawless. But hopefully as we continue to perfect our new approach, those mistakes get fewer and fewer in between. And as you'll note, both of them together really aren't significant in the grand scheme of things.

They're bad and we hate having the drag but in the grand scheme of things I think we've got great capability going forward and control of our own destiny, so to speak..

Got it, David. That's actually helpful. And just as a follow-up to that you've probably seen some headline buzz on some Middle East projects that some of your Asian peers are seeing issues with.

I know you have exposure there and from what I know you're bidding on a couple of multi-billion dollar opportunities, which you are hoping could even come through by the end of the year there.

So how do we get comfortable around Fluor's risk ownership and sort of profitability around what's happening in the Middle East?.

I'm not sure how I get you comfortable but I'm comfortable. I've had specific reviews on both the CFP project and the Al-Zour project in Kuwait. I feel good about where we are and the reason I feel good about where we are is because that is one of the first projects, at least CFP, where we've applied all of our new learnings to.

Al-Zour as well but we're further down the road on our scope on CFP. And what I see is very encouraging in terms of our ability to deliver that project within our expectations in terms of costs and schedule. I know there's problems on that job site. I've been on that job site many times.

I would argue that in a lot of ways, the scopes are apples and oranges. And we feel good about where we are on the scope that we have..

Got it, David. That's pretty helpful. Thanks a lot..

Thanks, Tahira..

We'll go next to Michael Dudas with Vertical Research..

Good evening, gentlemen..

Hey, Michael..

Hey, Michael.

How are you?.

Well, thank you. David, after witnessing in the past 30 months, as you indicated in your comments, the most amount of new business and activity in your career, I could understand why you're hesitant on timing and deferrals and when customers make the decisions.

But can you remain confident or even give any more confidence on the magnitude and the pace and the opportunity in say 2018, 2019 and beyond, given all this pent-up demand and pressure that could be leading towards your business flows once you get through this new term headwind?.

Michael, I think, I see lots of the same prices we've talked about in the past, and I'm confident in our position on those projects. And as I said, it's just kind of pushed towards the right.

I do believe there's several very large projects that will be awarded in the energy and chemicals space to us in the next few quarters which obviously starts to fill the bucket for 2017 and 2018. But in the conversations I've had with customers, they all agree that they waited too long.

And now they're scrambling to try to get some of these programs back off of the drawing board, so to speak. And we're in those discussions.

We feel really good about the fact that we have not only the traditional customers that we dealt with in oil and gas and some of those traditional approaches, but we're also seeing significant growth in our non-traditional markets outside of the United States taking all the kind of EPC work that you would expect that Fluor to be able to execute on.

So I'm cautiously optimistic, and hence, why we lowered the guidance for the year that we could see some quarter-over-quarter slippage still to come. But most of these customers are telling me we can't wait any longer, in mining that both customers I'm speaking of basically said, we've got to get moving.

All the indications are positive in terms of their decisions. And then there's a fair amount of big projects that are in the bidding cycle right now in oil and gas and petrochemicals that give me confidence that as we get into 2018, 2019 I think we're going to see a significant ramp-up.

We've got to be careful in that because what I don't want to do is take on too much and maybe fail one of these customers in terms of our ability to deliver on cost and schedule. So the projects are out there, we see them.

This isn't a situation where we're scratching our head trying to figure out where the second half of that number comes from, and those are good, solid projects with good, solid customers that we have longstanding relationships with. But it's just frustrating for us.

As I said, the guidance we gave was based on the information that came from September and October of last year, over six months ago, and all indications were that some of these projects were going to go to FID and come to us.

We still think they're coming to us but I'm just a little nervous based on that history that says okay it may go to the third quarter and therefore we don't have the earnings that we expect if the project was awarded in the second quarter. So as Biggs said, there's some conservatism in that new range but the markets are there.

Customers are ready to spend again, and I would argue that we're as prepared as we've ever been to take advantage of that and take advantage of the entire supply chain of those projects, not pieces and parts like in previous cycles..

I appreciate your thoughts. Maybe just quickly to follow up. It seems like you've gotten some very good news on infrastructure.

Can we see more of that visibility over the next 6 to 12 months, especially as some of these bonded issues and some of the California stuff that was just signed into a law a couple of weeks ago starts to show up into the flow?.

Yes, those were good things. It was bad for – some people to say it's good things to get new taxes but it does free up some of these projects to go forward. The projects that were – they're winning right now is very encouraging.

As I've said in the past, I believe, at least in the United States, a lot of the projects in infrastructure that are going to go forward are going to be in the $200 million to $300 million to $500 million kind of range.

And what we've proven is we can be competitive on those projects and we're far enough along on some of those smaller projects to know that we've got a good execution model that delivers the expectations that we have for them. So I think over the next little while you're going to see more and more of those kinds of things.

I'm encouraged by what I'm being told and the conversations that I'm having in Washington in terms of what they're trying to do, but a lot of these bigger programs have just got a long gestation period.

And I hope that the administration and certainly the Secretary of Commerce, Secretary of Transportation, set in place the platform that make these programs and projects more accessible, removes the undue regulations that are there, and I hope they get that done over the next little bit of time so that as we get towards the back half of Trump's four years here, first four years here, we're starting to see some of these bigger programs come to light.

But I think it's going to take some time. But as I said, the encouraging piece is the things that are there are of that level that are really good because I'd like to have eight $250 million projects than one $2 billion project.

And I think that, that's encouraging in terms of our ability to continue to grow our capabilities in that market but also broaden the geographic reach that we have in that market..

David, I think investors want all those projects for you, but I appreciate your thoughts. Thanks..

Hey, I want them all too, but I'm not – just to continue on that, the good thing about the smaller projects that I've always held dear is that's where we train our next wave of people. That's why Fluor I think is seen as an employer of choice. It's because we have the projects that give this next wave of people opportunity to show what they can do.

And that's why I think we've got the depth of bench that we enjoy and why we're able to broadcast that bench across market and across geography. So I'm pretty bullish on some of the unintended consequences of the market that's available to us..

Thanks, David..

We'll take our next question from Jerry Revich with Goldman Sachs..

Hi. Good afternoon..

Good afternoon..

Hey, Jerry..

David, in your prepared remarks you mentioned that you expected to get paid on your work for Westinghouse if the project move forward.

What's your view of the risk of the projects not moving forward? How feasible is that option in your view? And in that scenario, what would your recovery look like?.

Well, we'll be paid for everything, including the costs prior to the customers taking direct contracts with us. So I don't see the receivable being at risk at all. In terms of handicapping those projects going forward, it's really too early to tell.

And the reason I'm on a hedge on that question is I don't know what a bankruptcy court is going to rule on. I have a feeling where both customers are in terms of the range of costs that they can take and the schedule associated with it. Congress was extremely unhelpful across the board in terms of the production tax credit extension.

I hope some of my political friends are listening in because they failed us in that regard. But I think that it's feasible that both projects can go forward but I think the schedules are a little bit in question.

But as I said we're still working like there's no change on both of those sites and are continuing to make I think good progress on those two projects. But Southern Company's got a bigger balance sheet than the combination of SCANA and Santee Cooper.

So you've got a little bit of a different gradient there but the conversations that I've had in both cases have been encouraging relative to being able to move forward..

And, David, you folks have made a lot of progress since moving on the site. The last published assessment of timing with 2019, 2020 on the nuclear projects.

I'm wondering if you can weigh in on, based on the work that you folks have done, what do you think is reasonable as the projects move forward?.

I'd prefer not to weigh in on that because again both customers have got some decisions to make and I don't want to get out ahead of them in terms of what those scheduled dates are..

Okay. And in mining, you mentioned two major project opportunities.

Can you talk about the size of the projects that you're pursuing? And has it widened that outside of the bauxite area where you've had a couple of awards?.

Can't really talk too much about them but they're significantly large projects and neither one of them are in bauxite..

All right. Thank you..

Thank you..

We'll take our next question from Rob Norfleet with Alembic Global Advisors..

Great. Close enough. Good evening, guys. And, David, congrats on the Gamecocks making it to the final four..

How about my national championship girls?.

Absolutely. That's why I was waiting to see Frank Martin on the board..

Go Gamecocks. That was a great year. I tell you. I happened to be in New York for the Sweet 16 and got to see them beat Baylor in the Garden, which is just like the Mecca of basketball. It was so exciting. So thank you for that lead-in..

Absolutely. Just a couple quick questions. I guess, first of all, starting this year I think everybody was somewhat skeptical about additional ethylene work or ethylene crackers getting built. Clearly, we've seen, in North America, a couple of awards already as well as some downstream derivative work.

So I guess I wanted to get your thoughts around North American petchem activity for the remainder of this year. It looks like pricing on the side of ethylene and some of these other spot commodities certainly supports investments. And then you made a few comments on LNG.

And again, I clearly realize it's really about offtake agreements at this point, but it sounds like you're seeing some green shoots there.

Maybe you could just discuss some of the opportunities?.

Well, on LNG, it's onesies and twosies. It's not a market movement yet, because the supply demand equation hasn't been balanced and therefore there aren't the contracts that you're speaking of.

So we're participating in a couple of things, and I think there's some stuff, but I don't think it's going to impact backlog or earnings before 2018 or even into 2019. So I think there's going to be a little bit of study work, maybe a couple of projects go into a limited notice to proceed.

But clearly there's some political issues that have to be dealt with in some of these places before those projects go forward. I think on the North American refining petchem market, I think there's a good growth story there.

We are seeing – all you've got to do is look at Dow's and DuPont's releases and what they're doing from a profitability standpoint. There almost at all-time highs, which shows you that they feel confidence in continuing to invest. And it's not just those two, it's across the board.

So I think we're going to see crackers coming on at least into the new award range in the near term. I think the downstream derivatives follow that, but I also see refining being part of that equation. And I think it's going to be interesting, because I think there's going to be some non-U.S. investors that are putting money into the U.S.

Gulf Coast and other parts of North America, which bodes well for us because most of those customers we've always had longstanding relationships with. And I feel good about those kinds of things.

But I think you're going to see some direct foreign investment in the United States that'll drive some of those projects forward at maybe a more rapid pace than maybe we anticipated when I said that there would be a lull in crackers for a couple of years before picking up again. I think that might move forward a little more rapidly..

Okay, great. And just quickly can you give us a little bit of an update on NuScale? I know, obviously, we've submitted the design certification to the NRC.

So maybe walk through what the next steps are? And then secondly, where are we relative to finding a partner or kind of a JV to kind of help shoulder some of the expense of the program as it moves towards commercialization in the next few years?.

Well, one of the things is we did submit on time. One of the other good things is the NRC actually docketed it within the 60-days period that they have, which tells us that all the work that's been done to date with the NRC and the DOE shows that they believe this is a viable technology and something that has promise for the future.

I think one of the next things that we're looking at is what does the U.K. do in their selection of going forward with small modular versus the big nukes? And that'll be an interesting thing to see.

Clearly that's going to have an impact on whether we have new investors or not, but we're clearly going to focus on getting the design certification and preparing for that first project that we hope is in Idaho. But we'll see where that goes. But we're going to continue to push and see that we get that design certification..

Great. Thanks so much, David..

As additional comment on the U.K., they're supposed to make -their play is to make a selection on what SMR technology they would adopt. And we're the only ones supported by U.S. Department of Energy and the only one actually in development at this particular point in time. And they're looking at committing $350 million to SMR development.

It doesn't mean it all goes to the technology developer but they've got funds out there. We'd like to get additional funds also from U.S. government over time. In terms of new investors, all these things, hitting these milestones makes it much easier to go and get other people interested and move along those lines.

But I don't want to commit to a timeline there, but the success we've had, in terms of getting this technology to this point and docketed in 60 days, which is unprecedented. Usually it takes nine months, a year.

It's just an indicator of the strength of our position and that's, obviously, going to bode well in terms of getting other people interested..

All you got to do is go back and look at how long it took the NRC to actually give the design certification on the AP1000 and how long it took to docket that. I think this shows that we've got a good mouse trap and the people that are in that industry are happy to see it developing at the pace it's developing..

Great. Thanks so much..

We'll take our next question from Andrew Wittmann with Baird..

Oh, great. Good afternoon..

Good afternoon..

Hey. So, Biggs, I just had a couple of numbers questions, actually, and this is in response to Jamie's questions earlier. So the clean number is $0.55. So I want to understand how you get there. I got $0.43 reported. You've got about a $0.10 tax benefit. That's $0.33, plus about $0.07 from the charge and another $0.07 from FX. That gives me $0.47.

Where's the other $0.08?.

Okay. What I've got, there's the foreign exchange is $15 million pre-tax, charge $30 million pre-tax and the tax is $15 million, which is after tax number and I get that to about $0.11 net..

On the charge?.

No. Net-net, all things..

Okay. I'll have to do the math again. Can you quantify the government closeout and/or the Magnox contribution that we should be looking at in 2019? I do recognize you're rebidding that and that makes all the sense in the world but just to have an idea of what the impact for those things would be helpful..

I'm sorry. Give me that one again..

The question was first on the government closeout, what was the magnitude of that closeout in the quarter? And then follow-up question in government was what's the EPS contribution, or revenue contribution from Magnox on an annual basis?.

We wouldn't grind down to an individual project but that project is going to go on through 2017, 2018 and into 2019. So I wouldn't be modeling it distinctly anyway, plus they're still very happy with us.

It's not about whether or not we're performing satisfactorily so we're in a good position to continue work even after that contract ends in its current form. It's kind of a technicality as to why they have truncated it in 2019. It's really not about anything related to our performance or the structure of the work.

In terms of the magnitude of the closeout, there were a number of things in government which contributed to their margin performance in the quarter. It was good performance on some projects and really at some lesser degree a settlement of a contingency.

I wouldn't pick at any of them and say, okay, I'm going to normalize for that because as I said to Jamie earlier, I can identify equal amount of upside on other matters for government for the remainder of the year.

It gets really finite to go into it, on a more detailed level than that, I'm just trying to give you some comfort that if it were me I wouldn't be trying to pick it apart and trying to figure out what to normalize out..

That's a fair point on the closeout and thank you for the very fair point on Magnox and your role there. Undoubtedly from everything that's been reported you guys have been doing a good job and this is much more on their end than on yours. Okay. I'll leave it there. Thank you very much..

Thank you, Andy..

Thank you..

And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference over to Mr. David Seaton for any additional or closing remarks..

Thank you, and thank you to everyone for participating on our call today. As I said, although we're disappointed on where we are at this point in 2017, all indications are that this is unprecedented contraction in the capital spending of our customers and that it is coming to a close and optimism is there.

Our industry has always been a late cycle industry and this cycle is no different. One of the questions I'm sure you're asking is if 2017 is the trough, what does that mean for 2018? And my answer is we've seen enough of these projects that have been delayed in FEED, delayed in the FID.

Those decisions are being made or beginning to be made as we go through 2017, which is driving our growth expectations for 2018. Unlike many industries, engineering and construction can't create a market around a new product.

Instead, there's an expectation that we innovate, refine and develop our abilities in a down market so that we're ready when our markets and clients return and make those spending decisions.

I'm absolutely confident that the changes we have made and we've gone through in this down cycle we've made our company more capable, more resilient and more innovative, and we are ready for this late cycle phase to end. And all indications are that, as we move towards 2018, we'll be in a much better position.

We greatly appreciate your support of Fluor and I wish you a good evening. Thank you..

Ladies and gentlemen, this concludes today's discussion. We appreciate your participation..