Fluor [FLR], a pillar of the U.S. Energy Department’s nuclear operations and cleanup complexes, said Tuesday it will exit the government market as part of a shakeup following recent hard times at the Irving, Texas-based engineering and construction multinational.
CEO Carlos Hernandez and Executive Chairman Alan Boeckmann announced plans to divest the company’s government services business, as well as the AMECO construction business, during a conference call on a strategic review that the company launched in May.
“We are not selling government group because it is a high-risk business” but because “it has value,” Hernandez said in response to a question from a financial analyst. The CEO also said the government business has limited upside growth, and suggested Fluor did not see itself as a buyer of any rivals as the sector consolidates.
Industry rumors have suggested Jacobs [JEC] is taking a hard look at acquiring Fluor’s government sector. When asked if the company has received much interest in that business, Fluor executives stressed the divestiture plan is just being announced. Fluor aims in 2020 to divest the two non-core businesses, along with some real estate, leaving it with businesses such as Energy and Chemicals, Infrastructure, Mining & Industrial, and Diversified Services.
Revenue for Fluor’s government services business during the second quarter of 2019 was $612 million, a steep drop from $868 million a year earlier. Government services suffered a $226 million loss during the quarter, after posting a $27 million profit during the same period in 2018.
News of the planned divestitures comes less than two months after Hernandez said all options were on the table following the company’s $555 million loss in the second quarter.
Including joint ventures, Fluor’s government sector has more than 28,000 employees and more than 40 current projects.
Management hopes the divestitures will raise $1 billion.
Fluor also announced Tuesday that Peter Fluor, its lead independent director, will leave the board of the company that bears his family name. He will not stand for re-election at the 2020 annual meeting of stockholders, Fluor said in a separate press release.
Fluor is the full or partial owner of several multibillion-dollar contracts for the Energy Department’s Office of Environmental Management (EM), which manages cleanup at 16 nuclear sites around the nation.
Fluor-led Savannah River Nuclear Solutions earlier this year received a contract extension as manager of DoE’s Savannah River Site in South Carolina. The $1.5 billion agreement keeps the vendor on through Sept. 30, 2020. There is also the possibility of two additional one-year extensions. While EM manages this contract, Savannah River Nuclear Solutions does provide national security work – including production of tritium for U.S. nuclear weapons.
Elsewhere, Fluor Idaho has a five-year, $1.6 billion contract through May 2021 for environmental remediation at the Idaho National Laboratory. Fluor-BWXT [BWXT] Portsmouth is working on its second and final 30-month option period as part of its 10-year, $3.4 billion decontamination and decommissioning contract at the Portsmouth Site in Ohio. It runs through late March 2021.
Fluor is an integrated subcontractor to Battelle-led Triad National Security, which in 2018 secured the potential $20 billion, 10-year contract to manage the Los Alamos National Laboratory in New Mexico for DoE’s semiautonomous National Nuclear Security Administration (NNSA). Los Alamos is engaged in all aspects of the DoE mission: national security, science, energy, and environmental management.
Fluor plans by next year to completes its capital improvement work for BAE Systems for several key upgrades at the Radford Army Ammunition Plant in Radford, Va., company officials said. The 7,000-acre Radford facility is a propellant manufacturer for the Pentagon. Among other things, Fluor is building a new gas-fired power plant at the site that replaces decades-old coal-fired boilers.