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Fluor Corporation (NYSE:FLR)
Q4 2018 Earnings Conference Call
February 21, 2019, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Fluor Corporation fourth quarter and year end 2018 earnings conference. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow management's presentation.

A replay of today's conference call will be available at approximately 8:30 p.m. Eastern time today, accessible on Fluor's website at investor.fluor.com. The web replay will be available for 30 days. Additionally, a telephone replay will also be available through 7:30 p.m. Eastern time on February 28th, 2019 at the following telephone number, 888-203-1112, using a passcode of 9818033.

And at this time for opening remarks, I would like to turn the conference over to Jason Landkamer, Director of Investor Relations. Please go ahead.

Jason Landkamer -- Director of Investor Relations

Thank you and welcome to Fluor's fourth quarter 2018 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer, and Bruce Stanski, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after market close. We have posted a slide presentation on our website, which we will reference while making prepared remarks.

Before getting started, I'd like to refer you to our safe harbor note regarding forward-looking statements, which is summarized on slide two. During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences in the company's Form 10-K filed earlier today.

During this call, we may discuss certain non-GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the investor relations section of our website at investor.fluor.com.

Now, I'll turn the call over to David Seaton, Fluor's Chairman and CEO. David?

David Seaton -- Chairman and Chief Executive Officer

Thanks, Jason. Good afternoon, everyone. Thank you for joining us today. I understand that most of you probably have a better view out your window than we have. So, I hope you're enjoying South Florida.

I'd like to start by discussing what we are seeing in the markets that we serve and what we expect to deliver to shareholders in 2019. If you'll turn to slide three, we can discuss a few milestones from 2018. We ended 2018 with a robust $40 billion backlog with new awards more than doubling to just under $28 billion. Fluor was able to capture the upturn in the commodities market with a number of significant mining and energy and chemical awards, including chemical and refining work in the United States, iron ore expansion in Australia, and copper projects in Latin America.

Our most significant award of 2018 and one of the largest in Fluor's history was the $8.4 billion LNG Canada project we booked in the fourth quarter. This award represents our largest project to fully utilize the investments in data analytics and our comprehensive integrated solutions model. We expect revenue contributions from this project to be relatively modest in 2019 as we begin engineering.

Revenue will start to accelerate next year as we start to release the module designs to our fabrication yards. I had a review of that project yesterday in Calgary. Turning to slide four, our infrastructure group continues to focus on and win projects that align with our core expertise of large rail, bridge, and highway programs. This includes the Gordie Howe International Bridge, the LA People Mover, and the Boston Green Line Rail Extension Project. We also successfully opened the Tappan Zee Bridge replacement project to traffic late last year.

2018 was a banner year for our government group. We completed our power restoration work in Puerto Rico and also received contract extensions from the Department of Energy on our decontamination and decommissioning work at Portsmouth and our management and operating contract for the strategic petroleum reserve.

Finally, our diversified services group had a solid year with Stork winning new technical support and operations and maintenance contracts for clients that include Shell, Ecopetrol, and Chrysador.

Turning to slide five, I want to talk about 2019 and some of the key themes we expect to see. As we discussed during our investor day a few months ago, we have seen a significant shift in contracting structure with clients seeking to execute EPC projects under a fixed price or hybrid pricing structure. Fluor has responded by developing a project governance and integrated solutions offering to perfectly manage Fluor's risk profile on meeting the capital efficiency demands of our clients and limiting project issues.

Additionally, we are beginning to be increasingly selective in pursuing projects we can execute profitably with a high degree of certainty. Stated another way, our growth strategy is not predicated on pursuing new awards outside of that risk profile. We have reason to be optimistic about the year ahead and beyond with the current strength of global economy, operators are moving forward with the higher long-term projects which play directly into Fluor's strengths.

We have a robust slate of prospects that we feel we are in good position to win over the course of this and next year. In energy and chemicals, we're attracting some exciting opportunities. And in fact, 2019 is off to a great start in our first quarter booking of Wanhua's new chemical complex in Louisiana. We anticipate additional petrochemical and derivative work projects as well as refining and LNG opportunities throughout the year. We are building off of the LNG Canada award and are tracking two more LNG projects that could reach FID over the next 12 months.

In mining, we have a great visibility into what we're calling the double curve of this market cycle. The first curve started in 2016 with fee awards converting to sizable mining awards in 2018. This drove our mining backlog to just over $7 billion at year end. We're currently working on four copper project FEED and feasibility studies that will drive second wave EPC awards in 2020.

In infrastructure, we're encouraged by the government's focus on infrastructure spending and are well-positioned to bid and win work as it arises. We expect to build off of our $6 billion infrastructure portfolio with several large prospects in 2019.

These include the I-635 project here in Dallas, which we hope to win this year, as well as our recent selection as the preferred partner to design and build phase one of the Red and Purple Line Modernization Program for the Chicago Transit Authority. In addition to these large projects, our backlog will be further enhanced by small road and bridge projects being pursued by Fluor Heavy Civil Initiative here in the State of Texas.

For government, we're well-positioned for multi-year DOE contracts, including participation in the DOE National Laboratory Complex and significant ongoing support of various Department of Defense needs. We continue to work on our LOGCAP IV contract and expect to share more about our pursuit on LOGCAP V contract later this year. We're also looking at the timing of opportunities with Army Corps of Engineers and the DOE high-level liquid waste programs.

Finally, I want to point to our government activities and receipt of payments were not impacted by the government shutdown. Our diversified services group continues to do a solid job of serving their clients. The past few years have been a period of consolidation and cost competitiveness and redefining our role in the marketplace. In 2019, we were focused on where and how we grow. We are expanding our footprint beyond energy and chemical segment and focusing on higher margin businesses.

Before I hand the call over to Bruce to discuss the financial results and guidance for the year, I want to comment on our safety initiative. 2018 was again, a strong year regarding our safety performance. Our employees worked more than 300 million hours with an incident rate two-thirds lower than the industry average. We also made great progress on access to further improve our safety culture and this includes our new safer together initiative, which embraces our commitment to a caring and preventative workplace through worker and leadership engagement.

Now, I'll turn the call over to Bruce. Bruce?

Bruce A. Stanski -- Chief Financial Officer

Thank you, David. Good afternoon, everyone. Let's begin with our full year 2018 results on slide six. Revenue for the year was $19.2 billion compared to $19.5 billion a year ago. With new awards just under $28 billion, our book to bill ratio is 1.4, the highest we've delivered since the early 1990s. Corporate G&A expense for 2018 was $148 million, down from $192 million a year ago. Expenses for the year were favorably impacted by foreign exchange gains and reduced compensation expenses.

2018 net earnings attributed to Fluor were $225 million or $1.59 per diluted share. This includes $79 million or $0.56 per diluted share for the establishment of a valuation allowance on deferred tax assets. Excluding this non-cash item, adjusted earnings attributed to Fluor for 2018 were $304 million or $2.15 per diluted share. Consolidated segment profit for the year was $602 million.

Now, I'd like to ask you to turn to slide seven, if you would, for fourth quarter results. Revenue for the fourth quarter was $4.8 billion with new awards of $10.1 billion. Our book to bill ratio was above 2 for the second consecutive quarter. Earnings for the fourth quarter were $50 million or $0.36 per diluted share. Excluding the $58 million or $0.41 per diluted share and non-cash tax charges related to the valuation allowance which I just mentioned, adjusted earnings attributed to Fluor were $108 million or $0.77 per diluted share.

It's important to point out that our earnings for the fourth quarter also include a benefit of $0.36 related to favorable foreign exchange fluctuations and reduced compensation expenses and a $0.40 charge related to a gas-fired power project and a downstream project, both now online and an offshore project.

Shifting to the balance sheet on slide eight, cash plus marketable securities for the quarter was $2 billion compared to $2.1 billion a year ago. Our available domestic cash balance improved over 40% in 2018 and represents about 27% of our total cash. For the full year, we paid $119 million in dividends and we also took advantage of market conditions and repurchased $50 million of stock in the fourth quarter.

I'll conclude my remarks by commenting on our new guidance for 2019, which is on slide nine. We're establishing a 2019 earnings guidance range of $2.50 to $3.00 per diluted share. This range assumes double-digit revenue growth over 2018, primarily driven by our mining work. G&A expenses were approximately $190 million to $210 million, new scale expenses of $40 million, a tax rate of 25% to 30%, and excludes any potential foreign exchange gains or losses.

While we don't give quarterly guidance, we do expect earnings will sequentially improve each quarter and will be approximately 50% greater in the second half of 2019 than in the first half. This ramping up of earnings will continue throughout 2020. We do have good visibility on projects and backlog today that will significant contributions in 2020 and beyond.

Moving to slide 10, we anticipate full year margins in the energy and chemicals group to be approximately 6%. Mining, industrial, infrastructure, and power to be approximately 2%, government to be 3% to 4%, and diversified services, which does include power services, to be 4% to 5%.

Our mining, industrial, infrastructure, and power group margins reflect a significant ramp-up in mining revenue and client-furnished material. Excluding the clients furnished materials, mining revenue margins would be comparable to that of our energy and chemicals group.

For 2019, new scale has moved into the government group. The anticipated margins I just mentioned exclude the new scale expenses. While we have a strong backlog in place given the young nature of this backlog and how we now account for EPC projects, we won't see the immediate margin impact of the engineering work in newer, large awards like LNG Canada. However, we expect these projects will deliver higher average margins throughout the entire duration of the project, which is what drives the sequential increase in our quarterly results.

With that, Operator, we're ready to take questions.

Questions and Answers:

Operator

Thank you. To the audience today, if you do have a question at this time, please press *1 on your touchstone telephone. Just a reminder, if you're joining us via speakerphone today, make sure your mute function is turned off to allow the signal to reach our equipment. Once again, that is *1 for questions.

We'll move first to Jamie Cook at Credit Suisse.

Jamie Cook -- Credit Suisse -- Analyst

So, I guess my question is David, if you could, provide color on the color on the offshore project in terms of is that the FPSO, percent complete, how big, when is it expected to be done. Then I guess my second question is with regard to the guidance. I think you said back half of the year, earnings should be 50% greater than the first half, just what your assumptions are in that. Is it predicated on winning additional work? Is it just ramp up existing projects? What's embedded in the numbers in terms of rev rec? Thanks.

David Seaton -- Chairman and Chief Executive Officer

Well, the quick answer to your second question is we're not really expecting any new awards to drive that, just the normal flow that we expect. There's no big project in there that does it. As Bruce said, we feel really good about where the backlog is and have good visibility in probably the next three years, frankly, in terms of what that growth story is. I'll let Bruce answer that. Let me get to the first question. The project is about halfway done. It's not a significant issue. We are in negotiations with the customer. I'd really rather leave it to that at the moment.

Bruce A. Stanski -- Chief Financial Officer

Jamie, back to your question again relative to the profile, this is consistent with what we talked about at our investor day and how the revenue recognition standard is elongating the earnings streams of the program and flattening it over the life of the program, generating much more earnings later on in its lifecycle than early on, something we've talked about before.

Relative to rev rec, when we started with rev rec a year ago, we put $339 million in retained earnings. We burned off $103 million -- that's in our K -- in 2018 and we have $237 million more to go. The burn rate on that ramps down pretty significantly.

So, to burn off that $237 million, it's going to take over four years to do that, four-plus years. We are in a mode here as we predict earnings going forward, rev rec is not considered in that for us because it's part of our normal recognition of revenue on projects now. That will give you an idea of how to profile it over that four and a half years.

Operator

Moving next to Andy Kalowitz and Citi.

Andrew Kaplowitz -- Citi -- Managing Director

Good afternoon, guys. David, you mentioned that you're tracking two large LNG projects. Are you a candidate for both LNG projects in Mozambique? Then you said at the analyst day late last year, you said there were $40 billion in prospects for '19. You mentioned the pet chem award in Q1. Have you seen any slippage in any of those prospects? If you don't win a big LNG project in 2019, can you still grow backlog?

David Seaton -- Chairman and Chief Executive Officer

The quick answer to the last piece of that is yeah, we can grow backlog without an LNG plan in the count. It's going to be difficult, I think, to get to FID in '19 on one of them, marginally more positive in terms of FID in '19, but again, those things are going to push significant earnings just like LNG Canada is into 2020 and '21 and '22. We don't finish LNG Canada until that kind of timeframe.

So, we feel good about the base workload that we've got in our backlog. I do believe it's going to grow. I think the next big growth spurt is going to be 2020 because it's going to have several mining projects in there and hopefully at least one of the LNG plants in there. We are not considered in both of the Mozambique projects. We feel good about the one we're in.

I'm looking at a list of projects. I'll just talk about E&C quickly. We kind of look at it in different groupings of leads, prospects, things that are in preparation and then proposals that are pending. Just in prospects which are things that we've decided to chase, preparation in the pending column, there's about 45 projects that we're pursuing that are significant in terms of feed that leads to EPC awards in the out years, but there's also a pretty healthy number of them, EPC or EPFC to be awarded during 2019.

In mining, I mentioned in the prepared remarks, we're starting the FEED or the feasibility on four additional copper plants around the globe. You guys know that business as well as anybody and what that means in terms of new award values and the earnings schedule on those. You've heard me signal in the past we think we can see the end of the tunnel and it's not the lights, not the train. I truly believe it's not just oil and gas and mining.

When you look at the infrastructure spend that's coming and the proposals and prospects we're looking at, the government group has done a tremendous job of adding to their portfolio and are continuing to expand their service offering. Stork, we're starting to see the wins in terms of that integration solution and why Stork means so much. I'm getting to where I'm a little more enthusiastic about what the future has to hold.

With rev rec, I think it gives us better visibility into what those earnings streams are going to be. I feel really good about what we are. I think '19 is a bit of a flat year, only because of the first two quarters, but I'm telling you, 2020, 2021, and beyond, the machine is starting to work. I can tell you from the investments we made in tools and systems, the governance changes we've made, I think we're locked and loaded.

I'm beginning to be very bullish about what's in front of us in terms of being able to capture them, but more importantly in the changes we've made that allows us to deliver the profitability at the end of the day.

Andrew Kaplowitz -- Citi -- Managing Director

That's very helpful. Let me ask you about MIIP in the context of the margin. I kind of don't understand the 2% guidance in the sense that we know it excludes new scale, but if I think about history, mining projects that I thought were 3% to 4% margins, infrastructure may be high-single-digits. I know you mentioned CFM. Is the passage just higher in this cycle? I guess the concern is that the infrastructure project margins are lower for something this cycle. Maybe you could sort of reconcile that for us.

David Seaton -- Chairman and Chief Executive Officer

I'll start and then Bruce can give more color. I think part of it is the timing of the mix. On a lot of the infrastructure projects that I mentioned in the prepared remarks, those were all just starting. So, you're not going to get the kind of profitability in those early stages than you will as the project matures. Bruce?

Bruce A. Stanski -- Chief Financial Officer

Yeah, Andy. If we take a look at just the fourth quarter here for MIIP and you adjust away the project adjustment, we were about 2.2% operating margin there, kind of in line with our guidance going forward. But very much in our prepared remarks, if we removed that CFM, all that material that the customer that goes through our books, the margins we get on more value-added services are very consistent to what we get in energy and chemicals. It's just the nature of how we book and burn off that back log with that customer-furnished material.

Andrew Kaplowitz -- Citi -- Managing Director

That's helpful, guys. Thanks.

Operator

We'll go next to Tahira Afzal at KeyBanc.

Tahira Afzal -- KeyBanc Capital Markets -- Managing Director

Thank you very much. So, David, just wanted to get a sense -- I know it's very early on LNG Canada and you provided a great framework of how we should watch and think about the project, but you said you were just on site. Any updates that you came across would be helpful.

David Seaton -- Chairman and Chief Executive Officer

Well, I wasn't on site. I was actually in our office in Calgary where the team is progressing the engineering. Early signs are positive. In terms of long lead equipment that we're out in the market with, we believe given the labor market there, we're out ahead of that, we've got good relationships in the province with First Nations and otherwise.

The way we're doing the project, there's sufficient labor there to do the pieces that would be done in Canada. Based on all the scrutiny because of the size of this project and the involvement of everybody, including myself in those reviews, I think we're in a really good place to be very successful there and have a very happy client in delivering this particular LNG plant on time.

Tahira Afzal -- KeyBanc Capital Markets -- Managing Director

Then David, in line with what you've been saying, the first splash of updates from major oil and gas companies on CapEx outlooks and really the FIDs we've even seen over the last month, month and a half have been very positive. When do you think we get to a point where you can really start to push back pricing, the competitive dynamics, start to neutrally improve themselves?

David Seaton -- Chairman and Chief Executive Officer

You always ask me that question, Tahira, or at least one of you do. I'll answer it the way I've always answered it. This business is a dog fight every single day. There's somebody that doesn't win one project that decides that the next project is absolutely critical and strategic or whatever words you'd like to use to describe it and people are still in the mode right now of some pretty predatory behaviors. We've been very lucky and part of it's because of our challenges and being more disciplined in making sure we're making decisions that fit Fluor's needs.

What I can tell you is relative to margin, we're continuing to work on our cost structure, our supply chain, and our project delivery in terms of efficiency and I look for improvements in margin to come from there. But you're not going to see that until we get toward the end of some of these projects just because of the nature of how they burn and the risks associated with them.

So, I know that our credibility has been shaken a little bit and I know that we've made improvements and I feel pretty daggum good about where we're headed in being able to deliver what I just said. As I said, when you start looking at 2020, 2021, 2022 because of just how long and how large a lot of these projects are, I think we're going to see significant improvement in terms of margin and in terms of what that EPS outlook is going to be or for those out years.

Tahira Afzal -- KeyBanc Capital Markets -- Managing Director

Got it. Thank you very much, David. That was helpful.

Operator

We'll go next to Andrew Wittmann at Baird.

Andrew Wittmann -- Robert W. Baird & Co. -- Managing Director

I guess maybe these questions are for Bruce. I just wanted to make sure that everyone understood the quarter as well as we could. Part of that, I think, would be decoupling the $72 million of total project charges. I was looking at this on a pre-tax basis. These are the numbers I calculated for the charges in the quarter and I wanted to see if you could verify these. It looks like the refinery took about a $20 million charge, a $40 million charge on the offshore project, and a $12 million pre-tax charge on the PowerPoint, if you finish that one up. Are those correct?

Bruce A. Stanski -- Chief Financial Officer

Correct. The charges were $0.40 for the quarter.

Andrew Wittmann -- Robert W. Baird & Co. -- Managing Director

As we translate those to EPS, we should us about a 25% tax rate or something like that to translate those to the $0.40?

Bruce A. Stanski -- Chief Financial Officer

Yes. You can use an average tax rate because we're adjusting for tax later in our roll forward here. Our tax rate for the quarter was in the tune of about 62%, but 50% to 60% because of these unusual tax charges.

Andrew Wittmann -- Robert W. Baird & Co. -- Managing Director

Right. Evaluation allowance -- makes sense.

Bruce A. Stanski -- Chief Financial Officer

25% is a good number to use.

Andrew Wittmann -- Robert W. Baird & Co. -- Managing Director

Okay. Then I guess maybe a similar question here to understand what was going on in the corporate segment -- it looks like the FX was a pretty significant benefit to the quarter here given that, I think, you had already talked and probably baked in what your bonus pool was going to look like heading into this quarter. Can you just quantify what the FX tailwind was maybe either on a pre-tax or EPS basis, specifically not included with the compensation of the corporate costs?

Bruce A. Stanski -- Chief Financial Officer

For about $40 million, we're about $40 million under our run rate, about half of that pretty equally was with our foreign exchange and the other have was the reduced incentive comp payments that we're making.

Andrew Wittmann -- Robert W. Baird & Co. -- Managing Director

Got it. Very helpful. Then I guess just looking at in your 10-K, the burn rate that you expect -- this year you have it at about 40% of your total backlog is expected to burn in '19 -- I guess the question here is implicit in the guidance, there's always some level of end year for the year book and burn, I guess I wanted to understand how you guys are thinking about that amount that you need this year in history context, just given that that's a component of your overall revenue growth that you're expecting this year.

Bruce A. Stanski -- Chief Financial Officer

Burn rates, you're looking at the 10-K for 2018. As we look forward, these larger programs that we have, particularly like LNG Canada have a much longer tail on them. So, the duration of the projects, instead of four or five years are eight years or longer. So, the burn rate will slow down as we go into '18 because of the nature of these large, large awards. We're not guiding right now on exactly what burn rate is going to be, but I think that will help a lot. If you increase the time duration by two or three years, that should help you.

Andrew Wittmann -- Robert W. Baird & Co. -- Managing Director

That's' all for me. Thanks. Have a good night.

Operator

We'll go next to Michael Dudas at Vertical Research.

Michael Dudas -- Vertical Research -- Analyst

Good evening gentlemen. David, following up on Andy's questions relative to current year 2019 booking levels and expectations, it sounds like you obviously are coming in with a record backlog. Do you feel comfortable that you can be more selective relative to what you're choosing.

Maybe share a little bit about the difference in win rates you're seeing because of that selectivity and relative to what you're providing to the client relative to your integrated solutions and the changes you've made from that standpoint. Do we need to see a big backlog pickup this year? It sounds like 2020 could be the real big delta for future earnings power going forward.

David Seaton -- Chairman and Chief Executive Officer

I'll answer the last part first. It's really 2020 and the first part of '21 when we see another significant jump. 2019, I'm not going to give you the number, but it's pretty robust in terms of our average year intake. Clearly, LNG Canada was a significant number, but even without that, the number still started with a 2. I wouldn't expect anything less as we go through '19.

Now, relative to selectivity, I think as I've talked in previous quarters and I could guarantee there's nobody more happy than I that 2018 is behind us, but there are learnings that come from the last two years and I think those learnings have already been applied as we booked work in '18 and even going back into '17. I would remind you that the issues we had were booked three and four years ago.

So, we have become more selective. In that process, given I think that the integrated solutions approach, we've been able to go to some of these customers and help them shake the opportunity to de-risk the opportunity for both sides of the equation there in some of the projects that we're winning. So, yes, we've become more selective.

I wouldn't say that win rate has -- it hasn't dropped or increased during this period of time, but I think what we've been able to do is really get back into the mode of being that consultant or the consultative sale with the customer and coming up with the right answer as opposed to maybe what the three bids and a cloud of dust would suggest.

But I also go back and say -- I've never seen the market allow us to raise prices. I would rather come up with a better mousetrap, a more efficient execution, a more sure delivery in terms of cost and schedule and take that money to my bottom line from sticking to mine as opposed to really looking to the customer for more. I believe that when you look at the size of the projects these customers are doing -- and it doesn't matter the industry -- they're looking for somebody that can deliver the asset.

That is becoming a pretty small subset of competitors. I do believe we're one of that subset that can deliver these assets. Over time, we will be the go-to company. That's where we're headed. That's when I think we continue to approve our efficiency and competitiveness and at the same time drop more money on the bottom line.

Michael Dudas -- Vertical Research -- Analyst

To take that one step further, as you're setting up for this pretty big ramp in activity and project opportunities and earnings power, how do you feel today relative to your asset utilization, your people, your tools? Is there an appetite or requirements for acquisitions? How are you thinking through that in the landscape where we're seeing a lot of other companies shake out in different levels.

David Seaton -- Chairman and Chief Executive Officer

We showed you some of this in the investor day. I feel really good about the investments that we made in terms of tools and systems and the discipline and governance around how we big projects, how we start projects, how we go through the various phases and what those requirements are going to be. So, I feel really, really good about that.

I also feel really good about the talent that's coming up. I've spent a lot of time over the last 12 months all over the world with our people. There is an excited young, capable group of folks that we're going to be relying on that they're really talented folks, but they've also got a mix of scars on their backs, which I think differentiates us from maybe the competition because we're actually putting these people in the field and they're seeing what they're designing.

Those next designs are much more efficient and effective in terms of how we execute those projects. From a people standpoint, we look at attrition rates. We look at new hires. We look at college programs and all of those indicators are in the green, so to speak. I think our ability to attract the best talent in the industry and apply this talent, grow that next wave of talent still is pretty robust.

I feel really confident that we can continue to grow the organization organically from a resource standpoint. Notwithstanding that, there's going to be tangential things we're doing in new markets where we may require a shot in the arm in terms of some of the specialty resources and we'll look at that when those things arise. I think the depth and breadth of the organization frankly is as healthy as I've ever seen it.

Operator

We'll go next to Chad Dillard at Deutsche Bank.

Chad Dillard -- Deutsche Bank -- Analyst

Good evening, everyone. If you back out the LNG Canada award and the E&C, the resulting book to bill suggests a pretty big slowdown, around like a 0.2 times book to bill, which is understandable just given the fears of slowing global growth at the end of the fourth quarter. I was just curious whether you've started to see customers come back to the market since then and do you think you can get your book to bill above one times in early '19 for that segment.

David Seaton -- Chairman and Chief Executive Officer

Well, the second half of the year is going to be where we see the book to bill start increasing. Chad, I appreciate your question, especially taking out the Canada LNG. Canada LNG consumed a lot of resources and it was a target prospect for us. We could have used those resources to chase five or six or eight other jobs.

Instead, we use them to chase this job because it matched our integrated solutions strategy well and it was a significant award and we were very successful at it. We don't back that out to say, "What's our book to bill?" because we spent the energy resources to win that job, the same thing going forward into this year, into 2019.

While there might not be any jobs quite that size, we do have a lot of large prospects on the books. David talked about the mining prospects we expect to come to fruition in 2020. Those efforts will be spent on those large jobs as well as the refining, the commodities jobs, the infrastructure jobs that we're chasing going on. So, long answer to your simple question, but we'll see that book to bill in the second half of 2019 up to where you're asking over 1.0.

Chad Dillard -- Deutsche Bank -- Analyst

That's helpful. Just switching over to diversified services, I think David in your prepared remarks you talked about planning to expand the footprint beyond just energy and chemicals. What sorts of new markets are you targeting? How big of an investment in personnel capabilities are needed to actually get there?

David Seaton -- Chairman and Chief Executive Officer

I think you've got to start with the fact that after we bought it is when the markets kind of dropped. It gave us an opportunity to optimize what we already had in terms of the markets that we served. It wasn't just oil and gas. That's the one that probably hurt us the most in terms of growth.

When you look at the future, clearly the industrial piece of our business is key from owners like Procter & Gamble and Novo Nordisk and those types of industries are certainly targets. Further into the fine chemicals market, if you look at where Stork and most of our oil and gas projects in that segment were, they were kind of refining to gas processing, the pipeline maintenance, offshore fabric kinds of things.

But going further down into the petrochemical side is a key market. It's going to be regional, just like you would expect. The Gulf Coast is going to be a big place. Some places in South America are going to be a big place. Europe is still a big huge market for us. Finally, we've only dabbled in years gone by in the mining business. Who better to stay there and maintain those facilities that we're building right now than us.

So, a big focus on how do we leverage those relationships and basically the folks that we have in those countries? Why wouldn't we take advantage of that? That's just a little color on how we're looking at diversified services. It's not just Stork. You look at the mining business. Our AMECO business has always been very successful when the mining guys are spending capital, same thing for petrochemicals and refining around the direct hire components of those projects that we're doing.

Clearly, TRS, our temporary staffing business allows us to kind of flatten the peaks, if you will, and when those big markets are blowing and going like I see them coming, you'll see that business respond as well. It's almost like when the EPC side of the business is improving, it raises the water level for those guys too. I feel pretty good about their growth prospects, again, as we get toward finishing these projects. So, it is a longer-term play than a typical EPC burn on a project, I guess.

Chad Dillard -- Deutsche Bank -- Analyst

That's helpful. Thank you.

Operator

And we'll go next to Goldman Sachs and Jerry Revich.

Jerry Revich -- Goldman Sachs -- Analyst

Good evening. David, you mentioned growing client interest in hybrid-type structures and greater risk on the E&C contractor. Can you just expand on that? What sort of projects have historically been cost-plus? Are you seeing customers opting for that type of approach? As you look at your prospect opportunity list, hopefully you get an LNG project in 2020 which will likely also be fixed price. So, what's your level of appetite to undertake more fixed price work considering the backlog is now 47% fixed price?

David Seaton -- Chairman and Chief Executive Officer

Yeah. We said that we're comfortable in that kind of range and maybe a little bit more. What we're seeing is some change in behaviors of some of the key customers around the globe. Where they believe the market is needy and they're taking advantage of that and trying to pass the risk on to the contracting community. This goes back to the question that was asked earlier about discipline and bidding. So far so good.

But you've got some traditional international oil companies that are moving more toward the fixed price on some of the front-end stuff, whether it's FEED or the like. We're just trying to make sure we're sticking to our netting and what we can provide regardless of what the approach is. I also mentioned that we've been successful because of the relationships and because frankly they're interested in the new approaches that we've perfected, we're able to move some of the procurement to where it's more of a hybrid than an LSTK, which I think fits into our need.

So, some projects are fixed in terms of the services, engineering and procurement services. Some of them are EP and because it's in a questionable place around labor, we're kind of taking the tact that that's not fixed price. In some cases, we're fixing the unit, but not the number of units.

I think we're really looking more toward the hybrid based on our ability to help the client see what the best implementation strategy is as opposed to just, as I said earlier, three bids and a cloud of dust. It's going to be a mixed bag, but as I said earlier, I'm really confident that the changes that we've made over the last few years in terms of governance and tools and systems is going to provide a more sure outcome for Fluor and limit the issues that we've experienced over the last few years.

Jerry Revich -- Goldman Sachs -- Analyst

In terms of the projects that you folks are actively monitoring at the executive office that are close to over-budget or showing red flags, can you help us build comfort with what that list looks like as we think about the 6% E&C margin estimate for 2019 just to help us build comfort around there not being additional charges within that context? Can you remind us the size of the offshore project?

David Seaton -- Chairman and Chief Executive Officer

I'm going to answer it a different way. We do about 1,000 to 1,200 projects a year. 89% of those are operating at as sold margin or better. There's only 3% of those projects -- and this is dollar-wise -- are performing below profit. So, I think the vast majority of our projects, I would argue and use your term, are greenlighted. There's maybe 5% or 6% in yellow and the rest in red and we've already talked about the red ones.

Jerry Revich -- Goldman Sachs -- Analyst

Okay. In terms of the size of the offshore project and the target completion date, can you comment on that?

David Seaton -- Chairman and Chief Executive Officer

As I said, we're about halfway done, but I'm not going to get any further into the project than that.

Operator

We'll move next to Anna Kaminskaya at Bank of America.

Anna Kaminskaya -- Bank of America Merrill Lynch -- Analyst

Good evening, guys. Maybe I can start with a bigger picture question. If I look at the commentary from you, everybody sounds pretty upbeat about backlog growth for next year, but then if you look at the outlook from just energy companies for 2019, they're much more conservative and we do not see much growth in the outlook. So, I guess from your perspective, what's the disconnect. Our company is being conservative and guiding for 2019 outlook. Is it just specific initiatives of the market, where you play and how do we get comfort that your positive, upbeat outlook for 2019 connects with the outlook from the energy companies?

David Seaton -- Chairman and Chief Executive Officer

That's a great question. The first piece of that is part of our bullishness comes from the fact that we're more diverse than most in our industry. So, we're not just relying on the energy companies to provide us with growth opportunities. That would be point number one. Point number two, I think that the energy companies are a little bit gun-shy in terms of announcing projects, simply because of what's gone on in the last little while and the volatility that you see in the markets.

In my conversations with those energy guys, at least on the oil and gas side, they haven't changed their outlook in terms of what oil price will be in the long-term, so that really is not going to change their decision-making process. In terms of whether the project is a high-value project or out, I think how it fits into their portfolio and in what cadence or sequence that it goes in is really why you're seeing some of them be a little bit circumspect in terms of that outlook, but I point to the growth we've seen in our infrastructure business.

I look at the growth that we've seen, again, in the manufacturing sector, which includes the customers that I mentioned on diversified services in terms of people like Procter & Gamble and Novo Nordisk and a lot of other of the industrial companies. So, we just look a little bit different in the marketplace and the diversity provides maybe a little bit more of a positive on the way we look at things because we're not beholden to one industry to drive the boat.

Now, I don't want you to think that oil and gas isn't important to us and mining is not important to us. It clearly is. Being able to say that we've got $6 billion to $8 billion worth of backlog and infrastructure is a big statement in terms of that overall Fluor look. And I'm very pleased with how the company has responded to that diversity piece of our strategy.

Anna Kaminskaya -- Bank of America Merrill Lynch -- Analyst

Maybe the next question is more for Bruce. How should we think about free cash flow for 2019? I look at your previous cycles, your free cash flow conversion is somewhere between 125% to close to 200% because you're getting some of the working capital coming in. Can we get to those levels for next year? What can you balance sheet and free cash flow look like next year with especially Canada LNG kicking in?

Bruce A. Stanski -- Chief Financial Officer

That's a good question, Anna. I'm glad you asked. When we look at free cash flow, we generally look at net earnings minus dividends and then any kind of capital expenditures that we have, other expenses. As we look into 2019, we are starting up a number of large projects and investing in joint ventures that are running those projects as well. So, we will see cash and if you look at our capital priorities, our first is supporting our business. We will be using a fair amount of our free cash to start up those programs as we go forward in the first half of 2019.

So, as far as exactly where are we going to be on cash, we'll see as the year progresses, but I expect to be a little less than numbers you're quoting for the very reasons I stated. We needed for these projects we're starting. That's been our objective the whole time. Once the projects start generating revenue and we're in the field, the cash spinoff of those will be very, very large.

Anna Kaminskaya -- Bank of America Merrill Lynch -- Analyst

But do you think that's at least 100% conversion and you can go north of that or just given how disappointing 2018 was with some of the project charges? Just trying to get a baseline for the free cash flow next year.

Bruce A. Stanski -- Chief Financial Officer

I think if you're talking about 1.0, I think that's reasonable, but maybe even a little less. Again, it's more important for us to use that cash to start up those large jobs that are really going to generate cash in 2020 and beyond.

Anna Kaminskaya -- Bank of America Merrill Lynch -- Analyst

Great. Thank you very much.

Operator

That does conclude the question and answer session. Mr. Seaton. I'll turn things back over to you for any additional remarks.

David Seaton -- Chairman and Chief Executive Officer

Thank you very much. Thank you for participating in the call today. 2019 is going to be an exciting year for us. As our businesses grow and we, I think, at least message optimism, we can capitalize on the investments we made in our business as well as the future profitability, we do believe we have the best people in the industry and I think that's going to prove itself.

As I said in the Q&A, I'm really excited about the people we have leading these big programs and the future group of people coming up. That gives me a lot of confidence as we start into this cycle and look at not only '19 but '20, '21, '22, and beyond. We really appreciate your support of Fluor and look forward to seeing all of you soon.

Operator

Ladies and gentlemen, once again, that does conclude today's conference. Again, I'd like to thank everyone for joining us today.

Duration: 56 minutes

Call participants:

Jason Landkamer -- Director of Investor Relations

David Seaton -- Chairman and Chief Executive Officer

Bruce A. Stanski -- Chief Financial Officer

Jamie Cook -- Credit Suisse -- Analyst

Andrew Kaplowitz -- Citi -- Managing Director

Tahira Afzal -- KeyBanc Capital Markets -- Managing Director

Andrew Wittmann -- Robert W. Baird & Co. -- Managing Director

Michael Dudas -- Vertical Research -- Analyst

Chad Dillard -- Deutsche Bank -- Analyst

Jerry Revich -- Goldman Sachs -- Analyst

Anna Kaminskaya -- Bank of America Merrill Lynch -- Analyst

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