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Why Is KBR (KBR) Down 4.3% 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 lost about 4.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is KBR due for a breakout? 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 Beats on Q3 Earnings, Raises 2018 Guidance, Shares Up

KBR, Inc. reported its third-quarter adjusted earnings of 46 cents per share in third-quarter 2018 beat the Zacks Consensus Estimate of 39 cents by 18% and also increased 31.4% from 35 cents a year ago.

The company’s revenues of $1,278 million lagged the consensus mark of $1,308 million but improved 23.6% year over year.

Strong organic growth from Government Services and Technology businesses, solid execution across all segments, accretive growth from Aspire and SGT, along with buoyant government contracting and hydrocarbons end markets led to the upside.

Segment Data

Government Services revenues rose an impressive 59.5% year over year to $928 million. The uptrend was mainly driven by 12% organic growth in the business and strong third-quarter bookings for Government Services, with a book-to-bill ratio of 1.3.

Also, Technology revenues recorded an increase of 35% year over year to $81 million. The increase was attributable to solid organic growth of 35% and strong demand for petrochemical, refining and agricultural technologies.

However, Hydrocarbons Services revenues were down 30.9% year over year to $268 million.

As of Sep 30, 2018, the company’s total backlog was $13.5 billion compared with $10.6 billion as of Dec 31, 2017. Of the total backlog, about $11.04 billion is booked under the Government Services segment (up 34.9% on a year-over-year basis) and around $1.9 billion under the Hydrocarbons Services segment. While Technology accounted for $544 million of the backlog (up 95.7% on a year-over-year basis), Non-strategic Business contributed to $3 million (down from $6 million a year ago).

Liquidity & Cash Flow

As of Sep 30, 2018, KBR’s cash and equivalents were $581 million, up from $439 million at the end of 2017.

In the quarter, cash flow provided by operating activities totaled $72 million, much higher than $28 million in the year-ago quarter.

2018 Guidance Raised

KBR increased its full-year 2018 guidance. The company currently expects adjusted earnings per share in the band of $1.45-$1.55 from $1.45-$1.50 expected earlier.

This guidance excludes legal costs associated with legacy U.S. Government contracts, as well as acquisition & integration-related expenses related to Aspire and SGT acquisitions. The estimated legacy legal fees exclude any future cost reimbursement from the U.S. Government.

The company maintained its expectation for operating cash flow, which is estimated in the range of $125-$175 million.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, KBR has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 this revision indicates a downward shift. Notably, KBR has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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