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Analyst Blog

On Aug 13, Zacks Investment Research downgraded KBR, Inc. (KBR) to a Zacks Rank #5 (Strong Sell) from Zacks Rank #4 (Sell) largely due to dismal second-quarter 2014 results.

Why the Downgrade?

KBR has been on a downtrend for the past few quarters. The company missed earnings in all the four trailing quarters. Further, it has witnessed strong downward estimate revisions after a lackluster second-quarter 2014 earnings release on Jul 31.

KBR reported a loss of 6 cents per share in the quarter, lagging both the Zacks Consensus Estimate of earnings of 26 cents and prior-year quarter earnings of 61 cents a share. The company’s revenues also declined 14.9% year over year to $1,659 million, lagging the Zacks Consensus Estimate of $1,682 million. Gross profit plunged 80% year over year to $28 million.

The results were impacted by the continued disappointing performance of KBR’s pipe fabrication and module assembly business based in Canada. The company also recorded revenue declines in 3 of the 4 reporting segments.

All these factors triggered a downtrend in the Zacks Consensus Estimate. The downward earnings estimate revisions in the last 30 days led to a 59.7% decline in the Zacks Consensus Estimate for 2014 to 31 cents, whereas for 2015, the Zacks Consensus Estimate declined 9.2% to $1.58.

Moreover, stiff competition from other key players in the engineering and construction industry including Fluor Corporation (FLR - Analyst Report), AECOM Technology Corporation (ACM - Analyst Report) and Foster Wheeler AG (FWLT - Analyst Report), remains a concern going forward.

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