What Awaits Fluor Corporation (FLR) This Earnings Season?

Fluor Corporation FLR is set to report fourth-quarter 2015 results, after the closing bell, on Feb 18. Last quarter, the company posted a positive earnings surprise of 7.1%; and has managed to beat estimates twice in the last four quarters. The average earnings beat for the trailing four quarters is 7.1%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Multiple macroeconomic factors continue to threaten the company's fourth-quarter results. Crude oil price, plummeting persistently since Apr 2015, has proved to be the biggest challenge for the company's financial performance, of late. Also, sluggishness in general global industrial markets has been hurting Fluor's growth momentum.

Softness in industrial markets are leading to reduced client expenditure, particularly in the mining industry, and this will likely affect the company's financial performance in the fourth quarter. As a major portion of Fluor's revenues are derived from its Industrial & Infrastructure segment, macroeconomic woes are anticipated to hurt top-line growth in the quarter. This segment has been experiencing weakness for the past few quarters owing to a decline in contribution from its mining and metals business. At the same time, fluctuations in prices of commodity, including metal, may add to the company's woes.

Amid prevalent broader macroeconomic uncertainties and lower order levels, Fluor had narrowed its earnings per share guidance for 2015, concurrent with its third-quarter earnings release. The company reduced its earnings per share guidance to a range of $4.05–$4.20 from the previous range of $4.05–$4.35. This implies that fourth-quarter 2015 financials will likely be under pressure.

Despite these negatives, Fluor's fourth-quarter 2015 earnings are expected to benefit from a diverse business portfolio that mitigates operating risks. The company's strategy of maintaining a balanced business portfolio mix permits it to focus on more stable markets as well as capitalize on developing the cyclical markets. This strategy will help keep the company's overall growth momentum alive.

Moreover, Fluor's solid track record of winning profitable awards has been a key driver of top-line growth. During the fourth quarter, the company won some notable awards such as a construction management contract for two Westinghouse AP1000 nuclear power reactors; engineering, procurement and construction services contract from Pemex Transformacion Industrial, and a front-end engineering and design services contract from multinational chemical company LyondellBasell. Booked under the fourth quarter, all these contracts will likely be accretive to the company's financials.

Earnings Whispers

Our proven model does not conclusively show that Fluor will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 93 cents.

Zacks Rank: Fluor's Zacks Rank #4 (Sell), when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

American Capital, Ltd. ACAS with an Earnings ESP of +12.50% and a Zacks Rank #2.

Beacon Roofing Supply, Inc. BECN with an Earnings ESP of +8.33% and a Zacks Rank #2.

Magellan Health, Inc. MGLN with an Earnings ESP of +5.56% and a Zacks Rank #1.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>