Shares of engineering and construction giant Fluor (NYSE:FLR) collapsed this morning, falling more than 11% before paring those losses back to a still-disheartening 9.2% loss as of 11:45 a.m. EDT.
The reason: This morning, Fluor announced the results of a "strategic review" -- and investors didn't like what it had to say.
So what was it that Fluor said, exactly? Well, there was good news and bad news.
For one thing, Fluor management intends to sell its "select ... government and equipment businesses ... [and] monetize surplus real estate and non-core investments," hoping to thereby generate "in excess of $1 billion" in cash. The company also plans to cut annual "overhead" costs by some $100 million.
So far, so good. But Fluor also plans to cut its quarterly dividend, currently $0.21 per share, by more than half -- to just $0.10 per share. If I had to take a guess, I'd say that's the announcement that most spooked investors today, because it turns Fluor from a company paying an above-average 4% dividend into one paying an S&P 500-average 2% dividend.
But is this news really as bad as it sounds? It depends.
On the one hand, of course the dividend cut is disheartening. On the other hand, Fluor has been earning only about a 3% gross profit margin lately (and losing close to 3% of sales, net). Clearly that's not a good situation, and with $1 billion in hand, Fluor management should be able to reinvest its cash in its most profitable businesses, potentially improving overall returns for the company.
Management says it wants to "refocus on engineering, construction and maintenance services in core markets," and expects to "emerge as a stronger and more profitable business in early 2020." The best news for investors, therefore, would appear to be that we won't have to wait more than six months or so to see if Fluor can turn things around.