Executive Summary / Key Takeaways

• Fluor Corporation is undergoing a strategic transformation, shifting from a "fix and build" phase focused on financial de-risking to a "grow and execute" strategy targeting high-growth sectors like advanced technologies, life sciences, mining, and national security.
• Despite a strong strategic pivot and significant operational achievements, Fluor revised its 2025 guidance downward due to short-term market hesitancy, project-specific cost overruns in infrastructure, and a slowdown in its Mexico joint venture.
• The company holds a significant competitive advantage through its ownership in NuScale Power, the only U.S. NRC-approved Small Modular Reactor (SMR) technology, positioning it for leadership in the burgeoning carbon-free power market.
• Fluor's commitment to shareholder returns is evident through its share repurchase program, though the pace has been adjusted in light of revised cash flow expectations and ongoing efforts to monetize its NuScale investment.
• The long-term investment thesis remains compelling, underpinned by robust demand in key end markets, the benefits of U.S. pro-growth policies, and a disciplined approach to project selection and execution, despite near-term macro and project-specific challenges.

Re-engineering the Future: Fluor's Strategic Evolution

Fluor Corporation, a global engineering, procurement, and construction (EPC) powerhouse founded in 1912, has long been a foundational player in shaping industrial and civil landscapes worldwide. Its rich history, including the construction of over 70 nuclear plants and 1,500 life sciences projects across 30 countries, underscores a deep-rooted expertise in complex, large-scale project delivery. This extensive experience has forged a robust operational backbone, enabling Fluor to tackle some of the world's most challenging engineering feats.

The company recently concluded its "fix and build" strategic phase, initiated in 2021 to address legacy fixed-price project challenges, such as the long-running Gladstone LNG dispute in Australia and a significant jury verdict related to the Prairie Link Constructors JV. This phase successfully de-risked Fluor's financial structure, notably shifting its new awards to 85% reimbursable contracts by the end of 2024, with the total backlog reaching approximately 80% reimbursable. This strategic pivot has significantly reduced the company's exposure to cost overruns and enhanced cash flow predictability.

As of May 1, 2025, Fluor embarked on its "grow and execute" strategy, emphasizing organic growth, strategic acquisitions, and a renewed focus on project delivery excellence across its diversified portfolio. This strategic evolution is supported by operational innovations, including a new model for managing its global execution centers in the Philippines, Poland, and India. These centers, which comprise approximately 35% of Fluor's home office execution capabilities, are now fully leveraged across all segments, fostering greater resource flexibility, skill diversity, and supporting increased stability and growth for the company's backlog.

Technological Edge and Market Leadership

Fluor's competitive positioning is significantly bolstered by its technological differentiators, particularly its strategic investment in NuScale Power Corporation (SMR). Fluor is NuScale's largest shareholder and the only firm with NuScale EPC expertise, providing a unique advantage in the burgeoning small modular reactor (SMR) market. NuScale's technology stands out as the only U.S. NRC-approved SMR, offering a carbon-free power solution with immense market potential for utilities and industries globally. This regulatory approval provides a substantial lead over competitors, whose technologies are years behind in the approval process. Fluor is actively engaged in the SMR build-out, including front-end design work for RoPower’s SMR project in Romania, demonstrating the tangible application of this differentiated technology. The company also supports U.S. national security needs through its involvement in the Department of Energy's (DOE) plans for domestic high-assay, low-enriched uranium (HALEU) enrichment and deconversion facilities, and a centrifuge pilot plant study for the National Nuclear Security Administration (NNSA).

Beyond nuclear, Fluor is leveraging its modularization expertise and developing innovative cooling process concepts for the rapidly expanding data center market. These capabilities enable expedited build-out and offer a competitive edge in a sector demanding rapid time-to-market solutions. The company's deep relationships with top data center developers, coupled with its ability to provide comprehensive large-scale project acumen, positions it favorably to capitalize on the "astronomical" power demand projected for data centers, which is expected to grow from 26,000 megawatts currently installed in the U.S. to 92,000 megawatts by the end of the decade. This integrated approach, combining EPC services with power generation solutions, differentiates Fluor from more specialized competitors.

Financial Performance and Operational Dynamics

Fluor's financial performance in the first half of 2025 reflects a mixed picture of strategic progress and near-term headwinds. For the six months ended June 30, 2025, consolidated revenue remained largely consistent year-over-year at $7.959 billion, compared to $7.961 billion in the prior year period. However, segment profit for the same period declined to $210 million from $312 million, indicating pressure on profitability. Net earnings for the six months ended June 30, 2025, surged to $2.206 billion, primarily driven by a substantial $2.70 billion pre-tax mark-to-market gain on its NuScale investment, a non-recurring item that significantly distorts underlying operational profitability. Adjusted EBITDA for Q2 2025 was $96 million, down from $165 million in Q2 2024, and adjusted EPS was $0.43, compared to $0.85 in the prior year quarter.

The Urban Solutions segment, Fluor's largest, saw revenue increase to $4.227 billion for the six months ended June 30, 2025, up from $3.309 billion in the prior year, driven by ramp-up in life sciences and mining projects. However, segment profit declined to $99 million (2.3% margin) from $155 million (4.7% margin), primarily due to $54 million in cost growth on three legacy infrastructure projects (Gordie Howe, 635/LBJ, I-35 Phase 2) stemming from subcontractor design errors, price escalation, and schedule impacts. Despite these challenges, projects like Gordie Howe are 97% complete, with substantial completion expected in Fall 2025. New awards in Urban Solutions for the six-month period were $6.186 billion, including the services-only Reko Diq copper and gold mining project in Pakistan.

Energy Solutions experienced a revenue decline to $2.349 billion for the six months ended June 30, 2025, from $3.028 billion, with segment profit falling to $63 million (2.7% margin) from $143 million (4.7% margin). This was largely due to projects nearing completion and a $31 million arbitration ruling on a Mexico joint venture fabrication project completed in 2021. The Mexico JV also faced payment arrears, leading Fluor to slow execution activities and invoke credit protection features. Positively, the LNG Canada project achieved "Ready For Startup" on Train 1, with the client shipping its first cargo, and a settlement was reached on COVID-related claims. An award to update the FEED package for a proposed Phase 2 expansion signals future opportunities.

Mission Solutions saw revenue increase to $1.358 billion for the six months ended June 30, 2025, from $1.305 billion, but segment profit decreased to $40 million (2.9% margin) from $63 million (4.8% margin). This decline was attributed to a temporary stop work order on a DOD project and increased legal costs, partially offset by increased earnings from DOE projects. The full release for the Savannah River Plutonium Pit Facility (SRPPF), a significant prospect, is now expected in the first half of 2026.

Liquidity and cash flow faced headwinds in the first half of 2025. Operating cash flow for Q2 2025 was an outflow of $21 million, contributing to a year-to-date outflow of $286 million. This was primarily due to increases in working capital on several large projects, funding of infrastructure cost growth, and timing of accounts receivable collections. Cash and marketable securities stood at $2.3 billion as of June 30, 2025, down from $3.0 billion at the end of 2024. Fluor funded $44 million on legacy projects in Q2 2025, with an expectation of approximately $200 million in total funding for legacy projects in 2025, though some claims recovery may extend into 2026.

Competitive Landscape and Strategic Positioning

Fluor operates in a highly competitive global EPC industry, vying with a diverse set of players ranging from broad-based engineering firms to specialized contractors. Key publicly traded direct competitors include MYR Group Inc. (MYRG), KBR Inc. (KBR), AECOM (ACM), and Jacobs Solutions Inc. (J).

Fluor's competitive strengths lie in its diversified service offerings, global reach, and integrated project management capabilities. While its TTM Gross Profit Margin (3.02%) and Operating Profit Margin (1.84%) are generally lower than those of MYR Group Inc. (9% Gross, 2% Operating), KBR Inc. (14% Gross, 9% Operating), AECOM (7% Gross, 5% Operating), and Jacobs Solutions Inc. (25% Gross, 6% Operating), this often reflects Fluor's larger scale and broader scope, which includes significant pass-through costs in its revenue. The exceptionally high TTM Net Profit Margin (25.35%) is an outlier due to the NuScale deconsolidation gain and not indicative of core operational profitability.

Fluor's balance sheet, with a TTM Debt/Equity ratio of 0.18, appears stronger than KBR Inc. (1.96) and AECOM (1.39), suggesting a more conservative financial structure. This financial discipline, a hallmark of its "fix and build" phase, provides a solid foundation for the "grow and execute" strategy.

In specific markets, Fluor leverages its unique advantages:

• Nuclear Power: NuScale's NRC-approved SMR technology provides a significant competitive moat, positioning Fluor ahead of rivals in the emerging carbon-free power generation market.
• Data Centers: Fluor's large-scale project acumen and modularization expertise are critical differentiators, allowing it to deepen relationships with major technology providers seeking rapid, efficient build-outs.
• Mining & Metals: The Reko Diq award cements Fluor's reputation as a world leader in large-scale copper concentrators, a sector with strong long-term fundamentals.
• Government Services: Fluor maintains a strong position with the DOE and DOD, benefiting from mission-critical projects that offer more stable demand compared to some commercial sectors.

However, Fluor faces vulnerabilities. Its exposure to legacy project issues, as seen in the infrastructure segment, and customer concentration in government contracts, could impact financial performance. While Fluor's global execution model aims to enhance resource flexibility, it must continuously innovate to address potential technological gaps in rapidly evolving digital and specialized engineering areas where competitors like Jacobs Solutions Inc. excel. The intense competition in the global EPC industry also places downward pressure on contract prices and profit margins, necessitating Fluor's continued adherence to fair and balanced contract terms.

Outlook, Guidance, and Risks

Fluor has revised its 2025 guidance to reflect current market conditions. Adjusted EBITDA is now projected to be between $475 million and $525 million, down from the previous range of $575 million to $675 million. Adjusted EPS guidance has been lowered to $1.95 to $2.15, from $2.25 to $2.75. The company anticipates full-year operating cash flow between $200 million and $250 million, with a stronger second half expected to generate $500 million to $550 million. New awards are now expected to be in the range of $13 billion to $15 billion, with revenue growth of approximately 5% to 10% over 2024. Urban Solutions segment margins are revised to 2.5% to 3.5%, while Energy Solutions and Mission Solutions margins remain unchanged at 3.5%-4.5% and 5%-6% respectively.

The primary drivers for this revised outlook are the prevailing market hesitancy, which impacts new award bookings and project timelines, and the specific cost growth experienced on infrastructure projects and the slowdown in the Mexico joint venture. Management believes this hesitation is a "short-term" phenomenon, expecting acceleration in domestic investments once clarity emerges on trade agreements and supply chain rebalancing, particularly benefiting from the recently enacted "One Big Beautiful Bill" (OBBB Act) in the U.S., which is expected to create tailwinds for manufacturing, semiconductors, data centers, power, mining, metals, and national security.

Key risks to monitor include the ongoing trade policy discussions and their impact on project costs and supply chain stability. The company's ability to recover costs from subcontractors on troubled infrastructure projects and resolve the ongoing Mario M. Cuomo Bridge litigation (a $1 billion breach of contract lawsuit) will be critical. The Santos Ltd. (STO) legal dispute in Australia, with a potential court decision in Q3 2025, also presents a significant contingency. Furthermore, the timing and execution of the NuScale monetization plan, while aimed at covering initial investment and providing upside, remains a factor influencing capital allocation.

Conclusion

Fluor Corporation stands at a pivotal juncture, having successfully de-risked its financial foundation and pivoted to a "grow and execute" strategy. While the second quarter of 2025 brought a recalibration of near-term expectations due to market uncertainties and project-specific challenges, the underlying investment thesis remains robust. The company's strategic focus on high-growth sectors like advanced technologies, life sciences, and national security, coupled with its differentiated technological leadership in SMRs and modularization, positions it for long-term value creation.

Despite the current "short-term hesitation" in certain markets and the ongoing management of legacy project issues, Fluor's disciplined approach to risk, its strong backlog of reimbursable work, and its commitment to returning capital to shareholders underscore its resilience. The successful commercialization of NuScale and the realization of its value, alongside the anticipated tailwinds from U.S. pro-growth policies, are critical catalysts for Fluor to re-accelerate its growth trajectory and deliver on its long-term objectives, solidifying its position as a de-risked EPC leader in a dynamic global landscape.