Shares of KBR, Inc. (KBR) have dipped 8.05% since the company declared its first-quarter 2014 results on Jun 19. In contrast to the Zacks Consensus Estimate of earnings of 37 cents, KBR reported a loss of 29 cents per share in the quarter. In the prior-year quarter, the company had reported earnings of 59 cents per share.
The results were impacted by the disappointing performance of KBR’s Services business along with the ongoing sluggishness in the IGP business.
Operational Update
Revenues came in at $1.6 billion compared with $1.8 billion in the prior-year. Revenues also fell substantially short of the Zacks Consensus Estimate of $1.8 billion. The company’s gross profit in the quarter was $39 million plunging from $156 million in the first quarter of 2013.
Segment Details
Gas Monetization segment’s revenues plummeted 48.8% year over year to $400 million. The decline in revenues was primarily owing to reduced volumes in a Nigeria based gas-to-liquid (GTL) project coupled with a liquefied natural gas (LNG) project that was based in Algeria. However, the decline was partially offset by improvements in two Australia based projects.
Revenues in the Hydrocarbons segment increased 24.3% year over year to $452 million. The revenue growth came on the back of developments in the engineering, procurement and construction (EPC) activities in ammonia, urea and ethylene projects in key regions like North America.
The Infrastructure, Government and Power (IGP) segment’s revenues in the quarter declined 18.4% year over year to $337 million. The decline was driven by reductions in logistics, infrastructure and mineral-based projects. Moreover in the prior-year quarter, KBR had benefited from the LogCap III contract by the U.S. government, the absence of which made comparisons tougher for this quarter. However, the company’s businesses benefited from its cost-reduction initiatives and increased profits in some projects from the U.K. Ministry of Defence.
The Services segment reported a revenue decline of 10.4% during the quarter to $433 million. The decrease in revenues was primarily because of the losses incurred in Canada-based pipe fabrication and module assembly projects. The company also had to bear additional costs of $8 million for the legacy U.S. construction projects.
Financial Update
KBR ended the quarter with cash and cash equivalents of $996 million, compared with $1.1 billion as of Dec 31, 2013.
Operating cash flow from this quarter was a negative $17 million, narrower than the prior-year quarter’s figure of negative $93 million.
In the quarter, the company repurchased $56 million shares and has made dividends payouts worth $12 million. In the year-to-date time frame, KBR has repurchased 3.4 million shares for about $94 million.
Looking Ahead
The company did not provide any guidance along with the earnings results. Management is planning a strategic review to take some critical measures for the revival of the business, following which a guidance update is likely to be issued.
Zacks Rank
On Jun 20, Zacks Investment Research downgraded KBR to a Zacks Rank #5 (Strong Sell).
Stocks that Warrant a Look
Some better-ranked stocks that can be considered include Willdan Group, Inc. (WLDN), AO Smith Corp. (AOS) and Quanta Services, Inc. (PWR). While Willdan Group sports a Zacks Rank #1 (Strong Buy), both AO Smith and Quanta Services carry a Zacks Rank #2 (Buy).
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