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Why Is KBR (KBR) Up 12.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for KBR Inc. (KBR - Free Report) . Shares have added about 12.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is KBR due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

KBR Q3 Earnings Beat & Revenues Miss Estimates

KBR, Inc. reported third-quarter 2022 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Nonetheless, the increasing global importance of national security, energy security, energy transition and climate change have been acting as major tailwinds for KBR.

Stuart Bradie, KBR’s president and CEO, said, "We have a fantastic ballast of stable, long-term programs that afford tremendous multi-year visibility as well as exciting high-growth opportunities that favor our sustainable solutions and technologies.  As such, we are pleased to announce an increase in our FY 2022 earnings and cash guidance and have growing confidence in our 2025 targets."

Inside the Headline Numbers

Adjusted earnings of 65 cents per share surpassed the consensus estimate of 63 cents by 3.2% and increased from 64 cents reported a year ago.

Total revenues decreased 11.8% year over year to $1.63 billion and missed the consensus mark of $1.64 billion by 0.8%. The downside was mainly due to the completion of work related to the Operations Allies Welcome program in early 2022 that commenced in third-quarter 2021.

Nonetheless, adjusted EBITDA increased 5.6% year over year to $171 million in the quarter, driven by a strong performance of the Sustainable Technology Solutions business, acquisitions and solid project execution.

Segmental & Backlog Details

Revenues in the Government Solutions (GS) segment decreased 16.8% year over year to $1,293 million. Although GS continues to benefit from strong appropriations for government spending in all of the markets served, the unit experienced some outlays drag, particularly in the United States. Also, foreign exchange had an adverse impact on revenues.

Sustainable Technology Solutions' (STS) revenues increased 15.6% year over year to $333 million. STS benefited from strong end markets, superior technology offerings and highly sought-after engineering solutions.

As of Sep 30, 2022, the total backlog (including award options) was $19.77 billion compared with $19.71 billion at the 2021-end. Of the total backlog, Government Solutions booked $11.32 billion. The Sustainable Technology Solutions segment accounted for $4.01 billion of the total backlog.

At the third-quarter end, the company delivered a book-to-bill of 1.3X on a trailing 12-month basis and recorded $2.7 billion of awards and options.

Liquidity & Cash Flow

As of Sep 30, 2022, KBR’s cash and cash equivalents were $461 million, up from $370 million at the 2021-end. Long-term debt was $1,722 million at the third-quarter end, slightly down from $1,875 million at the 2021-end.

In the first nine months of 2022, cash provided by operating activities totaled $336 million, up from $276 million in the year-ago period. In the third quarter, it had an adjusted free cash flow of $102 million compared with $116 million a year ago.

2022 Guidance Lifted

The company expects favorable market tailwinds, good booking momentum and strong year-to-date performance.

For 2022, the company now expects total revenues in the range of $6.5-$6.7 billion (versus $6.4-$6.8 billion expected earlier) and an adjusted EBITDA margin of 10%. Also, it expects an effective tax rate between 23% and 24% (versus 24% and 25% of earlier projections) and adjusted earnings per share in the band of $2.60-$2.65 (compared with $2.53-$2.65 expected before). Adjusted operating cash flow is projected in the range of $375-$400 million (versus an earlier projection of $360-$400 million).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -5.63% due to these changes.

VGM Scores

At this time, KBR has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, KBR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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