Shares of KBR, Inc. KBR tumbled 8.9% during the regular trading session on Feb 27, following its fourth-quarter 2014 results announcement. The company’s adjusted loss came in at $1.80 per share, which missed the Zacks Consensus Estimate of earnings of 22 cents.
Results were primarily poor due to high restructuring associated charges that were declared in Dec 2014.
On a GAAP basis, KBR reported loss of $8.57 per share, which widened significantly from the loss of 38 cents in the prior-year quarter. For the full year as well, KBR came up with a loss of $8.66 per share, as compared to earnings of 50 cents reported in 2013.
Inside the Headlines
Revenues slipped 15.7% year over year to $1,417 million and missed the Zacks Consensus Estimate of $1,613 million. This was mainly due to a decline in revenues across all operational segments. In addition, full-year revenues went down 11.8% to $6,366 million on a year-over-year basis.
In the fourth quarter, as per the segments, Technology & Consulting revenues decreased 27.7% year over year to $68 million due to low volume from completed Basic Engineering Design (‘BED’) activities on various projects.
Moreover, Engineering & Construction revenues dipped 6.1% year over year to $1,038 million, hurt by slow progress in large gas-to-liquid and LNG projects. Nevertheless, the segment benefitted from growth in ammonia, oil and gas projects and activities in Canada.
Additionally, Government Services revenues moved south 53.2% to $111 million, on a year-over-year basis. The results were affected by the legacy LogCAP III and RIO contracts related charges and rise in estimated costs of two projects.
On the other hand, non-strategic business revenues declined 17.7% year over year to $200 million, mainly due to fixed-price EPC power project related charges.
In the quarter under review, KBR inked several contracts such as a concept study contract by Statoil ASA STOHF; licensing and basic engineering design contract by Lotte Chemical Titan (M) SDN. BHD.; and an indefinite-delivery/indefinite-quantity job order construction contract by the Naval Facilities Engineering Command Europe Africa Southwest Asia.
Apart from this, KBR penned several agreements such as a technical services deal with Magnolia LNG LLC and a licensing agreement with Chiyoda.
In 2014, the company enhanced shareholders’ wealth by returning $153 million via share buybacks and dividends.
Liquidity & Cash Flow
KBR ended the year with cash and cash equivalents of $970 million and shareholders’ equity of $935 million.
Cash utilized for operating activities in the quarter was $8 million, as compared to cash flow from operating activities of $216 million. However, the company’s operating cash flow for the year came in at $170 million, a decline from the year-ago period figure of $297 million.
2015 Outlook
KBR expects its 2015 earnings per share to be in the range of $1.07 and $1.22. The guidance excludes the legacy U.S. Government contracts’ related costs, which is projected to be in the range of $18 million – $25 million.
Our Take
In tandem with its spree of disappointing results, KBR came up with weak results yet again this season. This time higher restructuring charges were the spoiler. Also, compressed oil prices added to the woes.
However, KBR expects 2015 to be a transition period for its business. The company is dedicated towards focusing on the global hydrocarbons and international government services markets. Additionally, KBR aims at cutting its operating costs and shedding of its non-strategic businesses. The company expects to achieve its 2016 goal of $200 million annualized savings.
KBR currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the industry include Willdan Group, Inc. WLDN and VSE Corp. VSEC. Both stocks carry a Zacks Rank #1 (Strong Buy).
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