Shares of KBR, Inc. KBR gained 10.1% during the regular trading session on Apr 30, since its first-quarter 2015 results announcement on Apr 29. The company reported impressive earnings per share of 33 cents (excluding pre-tax U.S. Government legacy legal fees), which was significantly above the Zacks Consensus Estimate of 15 cents. This represents a remarkable turnaround for the company, which had reported a loss of 29 cents in the year-ago quarter.
Improvement in the bottom line is mainly attributable to excellent operational and financial performance across all business segments. Also, the KBR’s significant progress toward its cost-reduction targets has been a key driver of the results.
Inside the Headlines
Despite strong bottom-line growth, revenues slipped 12.1% year over year to $1,436 million, owing to volatility in oil and gas markets leading to depressed oil prices. Nevertheless, revenues managed to surpass the Zacks Consensus Estimate of $1,428 million.
In the first quarter, segment-wise, Technology & Consulting revenues decreased 20.9% year over year to $72 million due to decline in oil prices adversely affecting workloads for upstream business.
Moreover, Engineering & Construction revenues fell 14.1% year over year to $977 million, hurt by losses in North American projects and completion of an African LNG project in 2014 as well as sluggish activities in other LNG projects that are approaching completion.
Additionally, Government Services revenues moved south 16.7% to $155 million, on a year-over-year basis, owing to reduction in support services for the U.K. military.
Conversely, non-strategic business revenues improved 5.9% year over year to $232 million, mainly supported by prudent portfolio-streamlining decisions that involved closure of the company’s three non-strategic power plants.
In the quarter under review, KBR inked several deals, which includes a joint venture agreement with the State Oil Company of Azerbaijan Republic (‘SOCAR’), a project management contract from Saudi Aramco and a technical services agreement from Magnolia LNG LLC.
Also, the company won an engineering, procurement and construction contract from Yara International and was selected as Global Upstream Alliance Partner by the BG Group.
Liquidity & Cash Flow
KBR ended the first quarter with cash and equivalents of $758 million and shareholders’ equity of $872 million.
As of Mar 31, 2015, cash utilized for operating activities in the quarter was $108 million, compared with cash utilized from operating activities of $17 million as of Mar 31, 2014.
2015 Outlook Reaffirmed
Reiterating its 2015 outlook, KBR projects earnings per share in the range of $1.07–$1.22 and this excludes legacy U.S. Government contract-related costs.
The company also expects gross profit plus unconsolidated affiliates equity earnings margins in the low-twenties for Technology & Consulting, in low-teens for Government Services and in upper-single digits for Engineering & Construction by the end of 2016. All these percentages exclude legacy issues.
Our Take
In this quarter, KBR particularly benefited from its excellent project delivery capacity and solid award wins. Though oil price volatility continues to act as a major headwind, management expects its cost-saving initiatives and strong pipeline of awards to act as key drivers of profitability, going forward. Till date, the company has saved $100–$200 million through its cost-reduction measures and this trend is likely to continue for the rest of 2015.
KBR currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Capstone Turbine Corp. CPST, AO Smith Corp. AOS and Great Lakes Dredge & Dock Corporation GLDD. All three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment