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Share price of KBR, Inc. (KBR) has trended downward since the company badly missed the earnings estimate with its fourth quarter results on Feb 27. Share price tanked nearly 15% to close at $27.18 on Mar 3.

The company’s adjusted net income for the quarter was 52 cents per share, falling significantly short of the Zacks Consensus Estimate of 90 cents. KBR reported GAAP net income of $27 million or 18 cents a share compared with the year-ago quarter’s net income of $30 million or 20 cents per share.

However, for full-year 2013, the company reported GAAP net income of $229 million or $1.54 per share, an increase from the last year’s income of $144 million or $0.97 per share.

Operational Update

Revenues came in at $1.7 billion compared with $1.8 billion in the fourth quarter of 2012. The revenues also fell significantly short of the Zacks Consensus Estimate of $1.9 billion. The decline was primarily due to the company’s adverse tax conditions along with additional legal and foreign exchange charges that were not anticipated earlier.

Moreover, delays in completion of a number of projects dragged the revenues lower. However, the company’s strong cash flow and a healthy book-to-bill ratio partially offset the negatives.

The company’s gross profit in the quarter increased to $84 million from $60 million in the prior-year quarter.

Segment Details

Gas Monetization segment’s revenues declined 40.7% year over year to $432 million. The decline in revenues was primarily attributed to low project activity in two Africa-based projects during the quarter. Moreover, prior-year revenues had benefited from the one-time favorable impact from a project in Australia.

Revenues in the Hydrocarbons segment increased 24.8% year over year to $432 million. The revenue growth came on the back of developments in the downstream ammonia, urea and ethylene projects in key regions like North America, Uzbekistan, and Azerbaijan. Prior-year revenues also included the benefit from a project settlement.

The Infrastructure, Government and Power (IGP) segment’s revenues in the quarter declined 15.5% year over year to $387 million. The decline was driven by reductions in infrastructure- and mineral-based projects. However, the company’s businesses were modest in international government, power generation and air quality control projects in the U.S.

The Services segment reported revenue growth of 5.9% during the quarter to $460 million. The increase in revenues was primarily driven by several new module fabrication projects in Canada and the absence of charges amounting to $62 million that occurred in the prior-year quarter.

Financial Update

KBR ended the quarter with cash and cash equivalents of $1.1 million, compared with $1.05 billion as of Dec 31, 2012.

Operating cash flow from this quarter was $209 million.

The board of directors also approved a $350 million share buyback program in an effort to share more profit with its shareholders.

Outlook

Along with the earnings release, the company provided its guidance for 2014 results. It expects the earnings per share (EPS) to lie between $1.75 and $2.10 while enterprise resource planning (ERP) expenses and capital expenditures are expected to be in the bands of $55–$65 million and $65–$80 million respectively. The capital expenditure also includes additional ERP charges between $25 million and $35 million.

Zacks Rank

KBR currently holds a Zacks Rank #4 (Sell).

Performance of Other Stocks in the Same Sector

Chicago Bridge & Iron Co. N.V. (CBI - Analyst Report) posted fourth-quarter adjusted earnings of $230.0 million or $1.91 per share, which easily beat the Zacks Consensus Estimate of $1.17 per share.

Quanta Services Inc. (PWR - Analyst Report) reported fourth-quarter 2013 non-GAAP earnings of 50 cents per share, beating the Zacks Consensus Estimate by 22%.

Fluor Corporation’s (FLR - Analyst Report) fourth-quarter 2013 net earnings of $167 million or $1.01 per share surpassed the Zacks Consensus Estimate of 98 cents by 3.1%.

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