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KBR's Q3 Earnings Surpass Estimates, View Up, Stock Down

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KBR, Inc. (KBR - Free Report) reported impressive results for third-quarter 2020, wherein earnings topped the Zacks Consensus Estimate, given solid margins in the Technology business. However, both earnings and revenues declined year over year owing to reduced activity in Middle East contingency operations and previously announced portfolio shaping actions. Following the announcement, shares of the company dropped 1.5% during trading hours on Oct 29.

It also wrapped up the Centauri acquisition in early October, accelerating growth in critical national security missions and strengthening its position as a provider of high-end, digitally-enabled solutions as well as technologies in attractive end markets.

Inside the Headline Numbers

Adjusted earnings of 44 cents per share surpassed the consensus estimate of 42 cents by 4.8%. The reported figure, however, decreased from 45 cents per share reported a year ago.

Total revenues also decreased 3.2% year over year to $1,379 million. The downside was due to reduced activity in Middle East contingency operations and the legacy Energy Solutions business due to the previously announced portfolio shaping moves. The top line surpassed the consensus mark by 4%.

Adjusted EBITDA declined 4.6% year over year to $125 million for the quarter. Adjusted EBITDA margin of 9% remained flat year over year.

KBR, Inc. Price, Consensus and EPS Surprise

KBR, Inc. Price, Consensus and EPS Surprise

KBR, Inc. price-consensus-eps-surprise-chart | KBR, Inc. Quote

Segmental Details

Revenues in the Government Solutions segment inched up 0.2% year over year to $980 million. The double-digit growth in both space and defense systems engineering was offset by logistics in the Middle East. Lower level of troops in the Middle East and delay in transition to its role in Afghanistan under LOGCAP V primarily due to the COVID crisis situation added to the woes. Adjusted EBITDA margin of 10.8% remained on par with the year-ago level.

Technology Solutions' revenues decreased 26% year over year to $71 million due to higher concentration of license mix. That said, adjusted EBITDA margin grew to 35% from 25% a year ago, courtesy of higher license mix and strong execution cost-control measures.

Energy Solutions' revenues decreased 6.8% year over year to $327 million due to the previously announced portfolio shaping actions. That said, adjusted EBITDA of 4% was unchanged from the year-ago level.

Backlog

As of Sep 30, 2020, total backlog came in at $12.8 billion compared with $14.64 billion at 2019-end. Of the total backlog, Government Solutions booked $10.87 billion. Technology Solutions and Energy Solutions segments accounted for $582 million and $1.35 billion of the total backlog, respectively.

Government, Technology and Energy Solution units had a book-to-bill ratio of 1.3, 1.3 and 0.5, respectively, excluding the impact of long-term privately financed initiatives or PFIs.

Financials

As of Sep 30, 2020, KBR’s cash and cash equivalents were $949 million, up from $712 million at 2019-end. Long-term debt was $1.31 billion versus $1.18 billion at 2019-end.

For the first nine months of 2020, cash provided by operating activities totaled $245 million compared with $199 million in the comparable year-ago period. Adjusted operating cash flow was $269 million, up from $199 million a year ago.

Raises 2020 Guidance

KBR lifted its adjusted earnings per share guidance to $1.60-$1.80 from $1.50-$1.80 expected earlier. Moreover, it raised its adjusted operating cash flow guidance to $2.70-$290 million from $210-$250 million expected earlier.

Zacks Rank & Peer Release

KBR, which shares space with AECOM (ACM - Free Report) and Jacobs Engineering Group Inc. (J - Free Report) in the Zacks Engineering - R and D Services industry, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quanta Services Inc. (PWR - Free Report) reported impressive earnings for third-quarter 2020. Adjusted earnings not only surpassed the Zacks Consensus Estimate but also grew impressively on a year-over-year basis.

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