Executive Summary / Key Takeaways

• Fluor is successfully transitioning from its "fix and build" phase to a "grow and execute" strategy (2025-2028), underpinned by a strengthened balance sheet and a focus on high-growth, lower-risk markets.
• The Urban Solutions segment, particularly Advanced Technologies & Life Sciences (ATLS) and Mining & Metals, is a primary growth engine, driven by significant project awards and favorable market dynamics like data center buildouts and key minerals demand.
• Technological differentiation in areas like nuclear power (NuScale SMRs, conventional), carbon capture, and modular construction provides Fluor with a competitive edge in securing high-margin, complex projects.
• Improved operational execution and financial discipline are yielding better cash flow generation, supporting capital allocation priorities like share repurchases and reducing legacy project funding requirements.
• While risks remain, including market cyclicality, project execution challenges, and geopolitical factors, management's focus on selectivity, risk management, and a flexible global execution model aims to mitigate potential impacts on the positive outlook.

Setting the Stage: A Strategic Pivot Towards Growth

Fluor Corporation, a global leader in engineering, procurement, and construction (EPC), stands at a pivotal juncture, having successfully navigated a multi-year period focused on strengthening its financial foundation and derisking its portfolio. This strategic phase, dubbed "Building a Better Future" or Chapter One ("fix and build"), has culminated in a significantly improved capital structure, enhanced operational discipline, and a backlog that is now approximately 80% reimbursable. With this foundation firmly in place, Fluor is now embarking on its next chapter, the "grow and execute" strategy for 2025 through 2028, aiming to leverage its capabilities and market position to drive profitable growth and generate consistent cash flow.

The EPC industry is characterized by intense competition and exposure to global economic cycles and geopolitical shifts. Key publicly traded rivals include Jacobs Solutions (J), KBR Inc. (KBR), AECOM (ACM), and Worley Limited (WOR). Fluor competes across diverse segments, from traditional energy and chemicals to cutting-edge advanced technologies, critical infrastructure, and specialized government services. While the industry faces challenges such as supply chain volatility and the need for digital transformation, it is also benefiting from powerful secular trends, including the global energy transition, increasing demand for critical minerals, the buildout of digital infrastructure (data centers), and government investments in national security and infrastructure resilience.

Fluor's competitive positioning is shaped by its deep technical expertise, extensive global footprint, and a strategic emphasis on differentiated offerings. The company's "Fluor Fellows" program highlights its cadre of world-class subject matter experts whose knowledge is often decisive in winning complex projects. While some competitors like Jacobs demonstrate stronger financial efficiency metrics such as higher ROIC and faster digital innovation, Fluor holds distinct technological advantages in specific niches. For instance, its carbon capture solutions are noted for achieving 20-30% greater efficiency in emissions reduction compared to some alternatives, potentially leading to 25% lower operating costs per unit for clients. In modular construction, a critical capability for time-to-market projects like data centers, Fluor's processes are cited as being 15% faster, potentially reducing project delivery times and costs by 10%.

A cornerstone of Fluor's differentiated offering, particularly relevant in the context of energy transition and digital infrastructure power demands, is its extensive experience and ongoing involvement in the nuclear sector. With a history of building over 70 conventional nuclear plants, Fluor is now actively engaged in opportunities for conventional reactor restarts, life extensions, and new builds, such as the reimbursable front-end work for two units in Romania. Furthermore, Fluor holds a significant investment in NuScale Power (SMR), the developer of the only U.S. NRC-approved Small Modular Reactor (SMR) technology. This technology is seen as industry-leading and years ahead of competitors, offering a carbon-free power solution with massive market potential, especially for energy-intensive data centers. Fluor has preferential rights for work related to NuScale SMR opportunities globally and is actively negotiating with a strategic investor to monetize its stake while supporting NuScale's commercialization. This blend of conventional and advanced nuclear capabilities, coupled with expertise in thermal power and green hydrogen (through alliances), positions Fluor uniquely to address the growing global demand for reliable, low-carbon energy.

Operational Performance and Financial Health Reflecting the Strategic Shift

The first quarter of 2025 provided a clear snapshot of Fluor's progress and the early dynamics of the "grow and execute" phase. Consolidated revenue for the quarter increased by 7% year-over-year to $3.98 billion, primarily driven by a significant ramp-up of execution activities within the Urban Solutions segment. This segment saw revenue surge by 46% to $2.16 billion, reflecting the increasing momentum from large life sciences and metals projects awarded over the past 18 months. Segment profit for Urban Solutions also grew by 40% to $70 million, although margin slightly decreased to 3.2% from 3.4% in the prior year, partly impacted by unfavorable foreign currency movements on an international bridge project. New awards in Urban Solutions were robust at $5.33 billion, including a multi-billion dollar EPC award for a second pharmaceutical facility in Indiana and a major highway construction contract in Texas, contributing to a substantial increase in segment backlog to $20.15 billion, representing 70% of the total company backlog. This performance underscores the success of the strategy to capitalize on time-to-market driven opportunities in ATLS and Mining & Metals.

In contrast, the Energy Solutions segment experienced a revenue decline of 16% year-over-year to $1.21 billion and a segment profit decrease of 31% to $47 million, with margins contracting to 3.9% from 4.7%. This performance reflects projects nearing completion, including the significant LNG Canada project which is in its final stages (96% mechanically complete on systems), and the impact of reserves taken ($22 million) for a legacy joint venture project in Mexico. New awards in this segment were lower at $315 million, leading to a decline in backlog to $6.16 billion. Management characterizes this period for Energy Solutions as a "reloading" phase, focusing on securing higher-margin front-end engineering and design (FEED) packages in areas like large chemicals facilities, carbon capture, decarbonization, and mid-scale LNG, which are expected to convert into larger EPCM awards later in the strategic cycle (post-2025).

The Mission Solutions segment saw relatively flat revenue at $597 million but a significant decline in segment profit to $5 million from $22 million in the prior year, resulting in a margin of 0.8% compared to 3.7%. This was primarily due to an additional reserve of $28 million related to a long-standing claim on a project completed in 2019, partially offset by volume growth on a DOE project. New awards were lower at $164 million, and backlog decreased to $2.40 billion. Despite the quarterly impact, the segment continues to manage a substantial amount of work ($5 billion+ annually) accounted for under the equity method, stemming from recent large government contract wins like Pantex and the Air Force test operations contract. Future growth is expected from opportunities in national security and nuclear fuel markets.

Consolidated operating profit for Q1 2025 improved significantly by 75% to $91 million, benefiting from the Urban Solutions ramp-up and a notable 39% reduction in General and Administrative (GA) expenses to $36 million, largely due to lower stock-based compensation tied to stock price movements. Earnings before taxes increased by 19% to $108 million. Net earnings attributable to Fluor saw a substantial increase to $241 million, or $1.42 per diluted share, primarily due to the impact of equity method earnings/losses, which included a $393 million loss in the quarter related to the mark-to-market valuation of the NuScale investment. Excluding this volatility and other adjustments, adjusted EBITDA for Q1 2025 was $155 million, and adjusted EPS was $0.73, demonstrating underlying operational improvement.

Fluor's liquidity position remains solid, with cash and marketable securities totaling $2.50 billion as of March 31, 2025. While this was a decrease from $3.00 billion at the end of 2024, the change was primarily attributable to the initiation of the share repurchase program ($142 million spent in Q1), increased working capital on large projects (a typical occurrence in the early phase of large projects), and seasonal cash outflows like prior year incentive payments. Operating cash flow for Q1 2025 was an outflow of $286 million, reflecting these factors. The company maintains access to a $2.20 billion credit facility (maturing Feb 2028) with $465 million in letters of credit outstanding and $856 million in borrowing capacity, well within its financial covenants. Management is confident that anticipated cash generation, combined with available liquidity, is sufficient to meet operating needs and debt obligations.

Outlook and the Path Forward

Management's guidance for 2025 reflects confidence in the "grow and execute" strategy, projecting adjusted EBITDA between $575 million and $675 million and adjusted EPS between $2.25 and $2.75. This outlook is supported by key assumptions, including a book-to-burn ratio well above one, indicating expected backlog growth, and revenue growth of approximately 15%. Segment margin expectations for the full year are 4-5% for Urban, 3.5-4.5% for Energy, and 5-6% for Mission, consistent with the company's target range and focus on profitable, lower-risk work. The effective tax rate is expected to climb closer to 30% for the full year based on the geographic mix of projects.

The anticipated trajectory for 2025 includes an acceleration in EBITDA during the second half of the year, driven by the continued ramp-up of execution activities, particularly within the Urban Solutions segment. This aligns with the strategic focus on converting the growing Urban backlog into revenue and earnings. While the Energy segment reloads with front-end work, Urban and Mission (supported by equity method earnings from large government contracts and opportunities in national security) are expected to drive near-term growth.

Capital allocation priorities for 2025 include significant share repurchases, with plans to buy back approximately $150 million in Q2 and $300 million in the latter half of the year, totaling up to $600 million for the full year. This aggressive repurchase plan is a direct reflection of management's confidence in the company's sustained cash flow generation capabilities, with operating cash flow for 2025 expected to be between $450 million and $500 million. This cash flow guidance incorporates expected funding requirements for the few remaining legacy projects (up to $200 million) and the funding related to the North Texas Tollway Authority settlement (~$30 million). The successful management and reduction of legacy project funding requirements over the past year provide a strong basis for this cash flow outlook and the ability to return capital to shareholders.

The long-term vision, extending through 2028, anticipates strong compound annual growth rates (CAGR) for both revenue and EBITDA. This growth will be fueled by continued momentum in Urban Solutions, the eventual conversion of Energy Solutions FEED work into large EPCM projects, and expanding opportunities in Mission Solutions. The company is also implementing a new global execution model to enhance workforce flexibility and efficiency, leveraging its distributed centers in the Philippines, Poland, and India to better match resources with project demands across all segments.

Risks and Considerations

Despite the positive outlook and strategic progress, investors should remain mindful of potential risks. The cyclical nature of many end markets, particularly in Energy and certain parts of Mining, exposes Fluor to fluctuations in client capital spending driven by commodity prices, economic conditions (inflation, slow growth), and geopolitical events. Intense competition in the global EPC market can pressure margins, although Fluor's focus on differentiated services and risk-adjusted returns aims to mitigate this. Project execution risk, inherent in large, complex contracts, remains a factor, including potential cost overruns, schedule delays, and performance issues by joint venture partners or subcontractors, as evidenced by recent reserves taken on legacy and ongoing projects.

Geopolitical risks, including tariffs and trade policies, civil unrest, and security issues in countries where Fluor operates, can impact project timelines and costs. Foreign currency fluctuations also pose a risk, as seen in the Q1 2025 Urban segment results. The fair value measurement of the NuScale investment introduces earnings volatility, as demonstrated by the significant loss recognized in Q1 2025 due to stock price movements. Furthermore, the successful conversion of Energy Solutions FEED work into larger awards depends on client final investment decisions (FIDs), which can be sensitive to market clarity and cost certainty. The loss of key personnel or the inability to hire and retain qualified talent in high-demand areas like ATLS and nuclear could constrain growth.

Management is actively addressing these risks through stringent pursuit and risk principles, close collaboration with clients on mitigation strategies (e.g., tariffs, supply chain), early procurement strategies, and the development of a more flexible and globally optimized workforce. The strategic shift towards a majority reimbursable backlog also significantly reduces the company's exposure to fixed-price execution risks.

Conclusion

Fluor Corporation has successfully navigated a challenging period, emerging with a revitalized financial structure and a clear strategic roadmap for growth. The transition to the "grow and execute" phase is already showing tangible results, particularly in the Urban Solutions segment, which is benefiting from robust demand in high-growth markets like ATLS and Mining & Metals. While the Energy segment is currently in a reloading phase, the significant pipeline of front-end work positions it for future growth later in the strategic cycle.

The company's competitive position is bolstered by its deep technical expertise and differentiated technologies in critical areas such as nuclear power, carbon capture, and modular construction, providing a foundation for securing profitable, complex projects. Improved operational execution and financial discipline are translating into stronger cash flow generation, enabling the company to return capital to shareholders through significant share repurchases. Despite inherent industry risks and specific project challenges, Fluor's strategic focus on selectivity, risk management, and leveraging its flexible global execution platform provides a compelling investment thesis centered on profitable growth and increasing shareholder value in the coming years.