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KBR Q2 Earnings & Revenues Beat on Solid Government Business

Zacks Equity Research

KBR, Inc. KBR reported strong second-quarter 2019 results, buoyed by continued solid organic growth in Government Services and Technology businesses.

Adjusted earnings came in at 41 cents per share, beating the Zacks Consensus Estimate of 40 cents by 2.5%. The reported figure also increased 17.1% year over year from 35 cents per share registered a year ago.

Moreover, total revenues of $1.42 billion increased 12.2% year over year on the back of robust performance of Government Services and Technology businesses. The top line also surpassed the consensus mark by 3.3%.

Adjusted EBITDA grew 15.8% year over year to $117 million in the quarter. EBITDA margin was also up 20 basis points from the year-ago level.

Segmental Data

Revenues from the Government Solutions segment grew an impressive 19% year over year (all organic) to $1,033 million. The upside was attributable to new work awarded under its portfolio of well-positioned contracting vehicles and on-contract growth across the logistics business. Continued disaster recovery work for the U.S. Air Force at the Tyndall Air Force Base and benefits from the SGT acquisition, completed in late April 2018, added to the positives.

Technology Solutions’ revenues increased 29.2% year over year to $93 million. This improvement was attributable to solid demand for KBR’s innovative solutions that grew across chemical, petrochemical and refining markets. Also, higher proprietary equipment sales contributed to the upside.

Energy Solutions’ revenues declined 9.5% year over year to $296 million.

KBR, Inc. Price, Consensus and EPS Surprise

KBR, Inc. Price, Consensus and EPS Surprise

KBR, Inc. price-consensus-eps-surprise-chart | KBR, Inc. Quote

Backlog & Major Wins

As of Jun 30, 2019, total backlog came in at $13.82 billion compared with $13.5 billion at 2018-end. Of the total backlog, Government Solutions booked $10.69 billion. Technology Solutions accounted for $500 million and the Energy Solutions segment contributed $2.63 billion to the total backlog. Backlog from the Non-strategic Business totaled $1 million.

Second-quarter 2019 book-to-bill was 1.5x, excluding the workoff of its long-term private finance initiatives, or PFIs.

Among the major contract wins, a notable one is a three-year deal received by the Government Solutions business from the U.K. Ministry of Defence to provide communications network support and deliver training services in the Middle East.

Moreover, the Government Solutions business won another noteworthy contract from the U.S. Marine Corps to provide worldwide maintenance and supply chain services for the USMC Blount Island Command. The ceiling value of this potential eight-year contract is $950 million.

Liquidity & Cash Flow

As of Jun 30, 2019, KBR’s cash and equivalents were $611 million, down from $739 million at the end of 2018.

In the second quarter, operating cash flow totaled $33 million compared with $94 million in the year-ago period.

2019 Guidance Maintained

KBR expects adjusted earnings per share in the band of $1.58-$1.73. Operating cash flows are projected in the range of $175-$205 million and operating cash flow to net income ratio is estimated within 90-110%. Moreover, its effective tax rate is anticipated between 23% and 25%.

Zacks Rank

KBR, which shares space with AECOM ACM Jacobs Engineering Group Inc. JEC and Altair Engineering Inc. ALTR in the Zacks Engineering - R and D Services industry, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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