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Why Is KBR, Inc (KBR) Down 9.4% Since the 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 lost about 9.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
KBR Q1 Earnings in Line, Revenues Lag
KBR reported first-quarter 2017 adjusted earnings of $0.28 per share, which was in line with the Zacks Consensus Estimate.
On a reported basis (including one-time charges and legal fees), the company’s earnings came in at $0.26 per share, down 13.3% year over year. Rise in reimbursable cost on a large Liquefied Natural Gas (“LNG”) joint venture project in Australia proved to be a major drag on the bottom-line performance.
Inside the Headlines
Revenues were up 11.0% year over year to $1,106 million, missing the consensus mark of $1,110 million. The sturdy top-line growth is primarily attributable to recent acquisitions in the Government Services segment and organic growth from contracts with the U.S. Military.
Segment-wise, Technology & Consulting revenues fell 21.7% year over year to $76 million. Lower volume of activity on major projects, due to unfavorable timing in the upstream oil and gas business, weighed down on the top-line performance of this segment.
Moreover, Engineering & Construction revenues continued their weak trajectory and plunged 19.3% year over year to $489 million. Reduced activity on several projects continues to hurt sales of this business.
However, Government Services revenues charted phenomenal growth as it soared 145.2% to $515 million on a year-over-year basis. Previously completed buyouts, including Wyle and Honeywell Technology Solutions, Inc. in the third quarter of 2016, proved to be major catalysts. Furthermore, continued expansion of task orders on existing U.S. Government contracts, including LogCAP IV, as well as other contracts to support the U.S. military, boosted the top-line performance of this segment.
Contrarily, Non-strategic Business revenues plummeted 68.7% year over year to $26 million owing to lower activity on EPC power projects. KBR has been strategically winding down its fixed-price EPC power projects in the U.S. to focus on core profitable areas. The final fixed-price EPC power project in the U.S. reached substantial completion during the first quarter of 2017.
As of Mar 31, 2017, the company’s total backlog was $10.6 billion, down 2.8% on a year-over-year (y-o-y) basis. Of the total backlog, about $7.7 billion is booked under the Government Services segment (down 1.3% sequentially) and around $2.5 billion under the Engineering & Construction segment (down 10.7% sequentially). While Technology and Consulting accounted for $333 million of the backlog (down 6.4% sequentially), non-strategic Business had $14 million in backlog (down 60.0%).
Major Contract Wins
Under the Government Services business, KBRwyle clinched a multi-award task order contract from the U.S. Air Force's “Civil Engineer Center for engineering and construction” to support the U.S. military operations on a global scale. Also, it won an engineering services contract by NASA to support more than 20 NASA exploration missions.
In the Technology and Services business, the company won a contract by Mangalore Chemicals and Fertilizers LTD for its ammonia plant in India and another technology licensing and basic engineering contract from LG Chem in South Korea. KBR’s Engineering and Construction business secured a contract from Sydney Desalination Plant Pty Limited for its desalination plant and a services contract by international pager products maker, International Paper (IP).
Liquidity & Cash Flow
As of Mar 31, 2017, KBR’s cash and equivalents were $410 million, down from $536 million as of Dec 31, 2016.
For the quarter, cash flow used in operating activities came in at $115 million, significantly higher than $21 million recorded in the year-ago quarter.
Guidance
Concurrent with the earnings release, KBR reiterated its full-year 2017 results. The company continues to expect earnings per share within $1.10–$1.40. This guidance excludes legal costs associated with legacy U.S. Government contracts. KBR projects incurring legal costs of around $9 million or $0.07 per share for 2017. This estimated legacy legal fees exclude any future cost reimbursement from the U.S. Government.
Also, post the resolution of the PEMEX settlement, the company remains confident that earnings per share will be above the mid-point of the range. KBR’s EBITDA is expected to come in the range of $300–$350 million. Over 70% of the projected earnings are expected to be generated from contracts already secured in KBR’s backlog at year-end 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter In the past month, the consensus estimate has shifted by 47.4% due to these changes.
At this time, KBR, Inc.'s stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with an 'A'. 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 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Why Is KBR, Inc (KBR) Down 9.4% Since the Last Earnings Report?
It has been about a month since the last earnings report for KBR, Inc. (KBR - Free Report) . Shares have lost about 9.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
KBR Q1 Earnings in Line, Revenues Lag
KBR reported first-quarter 2017 adjusted earnings of $0.28 per share, which was in line with the Zacks Consensus Estimate.
On a reported basis (including one-time charges and legal fees), the company’s earnings came in at $0.26 per share, down 13.3% year over year. Rise in reimbursable cost on a large Liquefied Natural Gas (“LNG”) joint venture project in Australia proved to be a major drag on the bottom-line performance.
Inside the Headlines
Revenues were up 11.0% year over year to $1,106 million, missing the consensus mark of $1,110 million. The sturdy top-line growth is primarily attributable to recent acquisitions in the Government Services segment and organic growth from contracts with the U.S. Military.
Segment-wise, Technology & Consulting revenues fell 21.7% year over year to $76 million. Lower volume of activity on major projects, due to unfavorable timing in the upstream oil and gas business, weighed down on the top-line performance of this segment.
Moreover, Engineering & Construction revenues continued their weak trajectory and plunged 19.3% year over year to $489 million. Reduced activity on several projects continues to hurt sales of this business.
However, Government Services revenues charted phenomenal growth as it soared 145.2% to $515 million on a year-over-year basis. Previously completed buyouts, including Wyle and Honeywell Technology Solutions, Inc. in the third quarter of 2016, proved to be major catalysts. Furthermore, continued expansion of task orders on existing U.S. Government contracts, including LogCAP IV, as well as other contracts to support the U.S. military, boosted the top-line performance of this segment.
Contrarily, Non-strategic Business revenues plummeted 68.7% year over year to $26 million owing to lower activity on EPC power projects. KBR has been strategically winding down its fixed-price EPC power projects in the U.S. to focus on core profitable areas. The final fixed-price EPC power project in the U.S. reached substantial completion during the first quarter of 2017.
As of Mar 31, 2017, the company’s total backlog was $10.6 billion, down 2.8% on a year-over-year (y-o-y) basis. Of the total backlog, about $7.7 billion is booked under the Government Services segment (down 1.3% sequentially) and around $2.5 billion under the Engineering & Construction segment (down 10.7% sequentially). While Technology and Consulting accounted for $333 million of the backlog (down 6.4% sequentially), non-strategic Business had $14 million in backlog (down 60.0%).
Major Contract Wins
Under the Government Services business, KBRwyle clinched a multi-award task order contract from the U.S. Air Force's “Civil Engineer Center for engineering and construction” to support the U.S. military operations on a global scale. Also, it won an engineering services contract by NASA to support more than 20 NASA exploration missions.
In the Technology and Services business, the company won a contract by Mangalore Chemicals and Fertilizers LTD for its ammonia plant in India and another technology licensing and basic engineering contract from LG Chem in South Korea. KBR’s Engineering and Construction business secured a contract from Sydney Desalination Plant Pty Limited for its desalination plant and a services contract by international pager products maker, International Paper (IP).
Liquidity & Cash Flow
As of Mar 31, 2017, KBR’s cash and equivalents were $410 million, down from $536 million as of Dec 31, 2016.
For the quarter, cash flow used in operating activities came in at $115 million, significantly higher than $21 million recorded in the year-ago quarter.
Guidance
Concurrent with the earnings release, KBR reiterated its full-year 2017 results. The company continues to expect earnings per share within $1.10–$1.40. This guidance excludes legal costs associated with legacy U.S. Government contracts. KBR projects incurring legal costs of around $9 million or $0.07 per share for 2017. This estimated legacy legal fees exclude any future cost reimbursement from the U.S. Government.
Also, post the resolution of the PEMEX settlement, the company remains confident that earnings per share will be above the mid-point of the range. KBR’s EBITDA is expected to come in the range of $300–$350 million. Over 70% of the projected earnings are expected to be generated from contracts already secured in KBR’s backlog at year-end 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter In the past month, the consensus estimate has shifted by 47.4% due to these changes.
KBR, Inc. Price and Consensus
KBR, Inc. Price and Consensus | KBR, Inc. Quote
VGM Scores
At this time, KBR, Inc.'s stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with an 'A'. 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 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.