Cleaning Up At Fluor

The usually staid engineers at Fluor Corp. threw quite a party the other night. Aboard a yacht off Newport Beach, Calif., President Vincent L. Kontny gave so many toasts he can't even remember what he had for dinner. But nobody can blame Kontny and company for whooping it up. They were celebrating their biggest contract in a decade: an Energy Dept. award to clean up nuclear waste, a deal that could grow to $ 4 billion by 1997.

Winning the giant contract was no fluke. Ever since 1985, when the Irvine (Calif.) contractor nearly sank under the weight of a misguided diversification into gold and silver mining, Fluor has been drastically remaking itself. First, it shed $ 750 million worth of assets and cut employment by almost 70%. Then, it moved quickly into factory construction for the auto, pharmaceutical, and food industries. Now, the company is making a major push into environmental-cleanup and pollution-control work, which already represents more than half of its $ 8 billion in new business so far this year. And to help drum up business, it is increasingly using its own capital to help finance other companies' projects.

All this means the recession, while brutal on many of its rivals, hasn't hit Fluor too hard. Last year, profits surged 9%, to a record $ 161 million, on revenues of $ 6.7 billion. Even without the new Energy Dept. contract, its backlog of work now tops $ 12 billion (table).

Still, Fluor executives can't rest. With the global economy expected to grow a mere 1% this year, and only 3% in 1993, once-bright prospects for vast new refinery and construction projects in such places as the former Soviet Union and Indonesia seem increasingly remote. "In 1991, Fluor was talking about a global boom in engineering and construction and that there wouldn't be enough engineers to deal with it all," says analyst Byron Callan of Prudential Securities Inc. "That scenario has more or less evaporated." Fluor's share price has slumped to $ 43, from $ 53 after the Persian Gulf war.

Part of the problem is Fluor's operating margins of only 3%. Chief Executive Leslie G. McCraw wants to get margins up to around 6% or 8%, but that will be extremely tough. He already has cut costs drastically, and the sluggish economy makes it hard for him to raise prices. Meanwhile, Fluor's Doe Run lead-mining operations also continue to be a major drag on earnings, a fact that isn't lost on analysts. "The company has done a bit too much rah-rahing," complains Callan.

BLUEPRINT? It is counting on a steady flow of environmental-cleanup and pollution-control work to get outsiders cheering. It now has a team of some 250 engineers and staffers to chase such jobs. With its Energy Dept. victory over such longtime players as Waste Management Inc., Fluor has scored "a real breakthrough," says McCraw, CEO since 1990. He hopes the contract -- to mop up and dismantle a shuttered plutonium plant outside Cincinnati -- will serve as a blueprint for 16 other upcoming Energy Dept. cleanup jobs.

Fluor expects the payoff to extend beyond cleaning up existing waste sites. Fluor's customers plan to spend up to 40% of their capital budgets each year over the next decade meeting tougher air- and water-pollution laws. Plus, the company figures 90% of its revenues from domestic oil-refinery construction in the next five years will come from retrofitting existing refineries with systems that produce the cleaner-burning gasoline mandated by the Clean Air Act.

But Fluor isn't stopping there. With debt standing at just 9% of capitalization and a cash hoard of $ 320 million, Fluor has the leverage to make loans, take equity stakes, and line up financing for dozens of projects. When a U.S. chemical company recently had trouble getting bank financing for a new plant in Mexico, Fluor stepped in. It guaranteed loans for the company, which declined to be named, and agreed to defer payments on the plant until it goes into production. "We brought that one back from the dead," says Fluor Chief Financial Officer James O. Rollans. Having been close to the edge itself just a few years ago, Fluor can relate.

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