KBR (KBR) Down 4.1% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for KBR Inc. (KBR). Shares have lost about 4.1% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is KBR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
KBR Q2 Earnings Surpass Estimates, Up Y/Y, Backlog Strong
KBR, Inc. reported strong results in second-quarter 2022. Quarterly earnings and revenues surpassed the Zacks Consensus Estimate and increased on a year-over-year basis.
Stuart Bradie, KBR’s president and CEO, said, "Building on strong momentum in attractive end markets, we continue to make excellent progress toward KBR's 2025 long-term targets. Themes that favor our capabilities and technologies - national security, defense modernization, global energy security and climate change - continue to be at the forefront of priorities."
Bradie continued, "Our acquisition of VIMA Group, a leading UK company specializing in digital transformation for clients in the defense sector, advances our growing platform of high-end consulting, engineering and advisory services in the international defense market. Furthermore, the expansion of our investment in Mura Technology, a UK-based pioneer in circular plastics recycling technology, strengthens the alliance between our companies and places KBR at the center of enabling a global plastics circular economy.”
Inside the Headline Numbers
Adjusted earnings of 76 cents per share surpassed the consensus estimate of 64 cents by 18.8% and increased 31% from 58 cents reported a year ago.
Total revenues increased 5.2% year over year to $1.62 billion and topped the consensus mark of $1.61 billion by 0.2%. The upside was mainly driven by increased activity in the European Command related to the war in Ukraine and the acquisition of Frazer-Nash Consultancy in October 2021, partially offset by reduced activity in 2021 related to the exit from Middle East contingency operations.
Adjusted EBITDA increased 19.2% year over year to $186 million in the quarter, driven by a strong performance of the Government Solutions business, acquisitions and solid project execution.
Segmental & Backlog Details
Revenues in the Government Solutions segment increased 6.6% year over year to $1,312 million. The unit continues to benefit from a favorable international mix, strong project execution and excellent customer performance scores in challenging technical areas that reflect high client satisfaction, core revenue growth and favorable project closeouts.
Sustainable Technology Solutions' revenues declined 0.3% year over year to $304 million. STS benefited from strong end markets, superior technology offerings and highly sought-after engineering solutions. Also, acceleration of certain project closeouts and other timing items and a $16-million benefit associated with the settlement of a subcontractor dispute drove margins by 160 bps.
As of Jun 30, 2022, the total backlog (including award options) was $19.21 billion compared with $19.71 billion at the 2021-end. Of the total backlog, Government Solutions booked $11.68 billion. The Sustainable Technology Solutions segment accounted for $3.71 billion of the total backlog.
At the second quarter-end, the company delivered book-to-bill of 2.1x and recorded $2.9 billion of awards and options.
Liquidity & Cash Flow
As of Jun 30, 2022, KBR’s cash and cash equivalents were $516 million, up from $370 million at the 2021-end. Long-term debt was $1,746 million at the second quarter-end, slightly down from $1,875 million at the 2021-end.
In the first half, cash provided by operating activities totaled $214 million, up from $154 million in the year-ago period. In the second quarter, it had an adjusted free cash flow of $112 million compared with $98 million a year ago.
2022 Guidance Maintained
The company expects favorable market tailwinds, good bookings momentum, a strong first half, and work under a contract of more than 90% to deliver 2022 results.
For 2022, the company expects total revenues in the range of $6.4-$6.8 billion and an adjusted EBITDA margin of 10%. Also, it expects an effective tax rate between 24% and 25% and adjusted earnings per share in the band of $2.53-$2.65. Adjusted operating cash flow is projected in the range of $360-$400 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -6.27% due to these changes.
VGM Scores
Currently, KBR has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, KBR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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