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KBR Inc.(KBR) reported second-quarter 2013 earnings at 61 cents per share, beating the Zacks Consensus Estimate of 57 cents by 7%. However, earnings were down 12.8% from the prior-year tally of 70 cents due to nonrecurring charges related to office closure and severance costs.

Revenue

Revenues came in at $2.0 billion compared with $2.1 billion in the second quarter of 2012. However, revenues in the reported quarter exceeded the Zacks Consensus Estimate of $1.9 billion. The year-over-year decline in revenue was due to lower contributions from both IGP and Hydrocarbons business groups, lower project activity and the completion of the Escravos GTL and Skikda LNG projects. However, the performance of the Services segment and the Downstream division within the Hydrocarbon segment was praiseworthy

Segment Details

Revenues in theHydrocarbons segment were down 15% year over year to $955 million. The job income of the segment was up 8% year over year, driven by growth in job income from Gas Monetization, Downstream and Technology, partially offset by fall in Oil and Gas job income. Backlog at quarter-end was $8.75 billion, flat quarter over quarter as a rise in the number of projects from Downstream and Technology was offset by fall in Gas Monetization and Oil and Gas projects.

The Infrastructure, Government and Power (IGP) segment’s revenues in the quarter declined 20% year over year to $392 million. In addition, job income from the segment contracted 2% to $62 million. The rise in job income from the North American Government and Logistics (NAGL) and International Government, Defence and Support Services (IGDSS) segments were offset by fall in job income from Infrastructure, Power and Industrial (P&I) and Minerals. Backlog was $2.26 billion, down 10.6% quarter over quarter, due to lesser number of projects across the business.

TheServices segment reported revenue growth of 46% during the quarter to $622 million, while job income was up 31% to $38 million. The increase in job income was primarily driven by several new module fabrications and turnaround projects in Canada. Backlog in the services segment was down 9.96% quarter over quarter to $1.86 billion.

Ventures segment revenues increased 26.7% year over year to $19 million. Moreover, job income was up 20% to $12 million, driven by lower project maintenance costs in the U.K. Backlog was project maintenance costs in the U.K. Backlog was flat quarter over quarter at $931 million.

Margins and Balance Sheet

Operating income in the second quarter of 2013 was $123 million, compared with $129 million in the prior-year quarter. Operating margin grew 139 basis points to 12.88%, on the back of higher job income, partly offset by increased labor costs.

KBR ended the quarter with cash and cash equivalents of $800 million, compared with $1.05 billion as of Dec 31, 2012.

Net cash flow from operating activities for the first half of 2013 was negative $97 million, compared with negative $55 million in the prior-year quarter. 

Outlook

Along with the earnings release, the company revised the lower end of its earnings guidance in the range of $2.55–$2.90 per share, from $2.45– $2.90 projected earlier.

Currently, KBR carries a Zacks Rank #4 (Sell). Better placed stocks in the same sector that are worth a look include Dycom Industries Inc. (DY - Analyst Report), Chicago Bridge & Iron Company N.V. (CBI - Analyst Report) and EMCOR Group Inc. (EME - Analyst Report). While both Dycom and Chicago Bridge have a Zacks Rank #1 (Strong Buy), EMCOR carries a Zacks Rank #2 (Buy).

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