Back to top

Solid Backlog & Government Business to Aid KBR's Q4 Earnings

Read MoreHide Full Article

KBR, Inc. (KBR - Free Report) is scheduled to report fourth-quarter 2018 results on Feb 26, before the opening bell.

In the last reported quarter, the company’s adjusted earnings came in at 46 cents per share, beating the Zacks Consensus Estimate of 39 cents by 18%. However, revenues lagged the same by 23.6%. Nonetheless, KBR, which share its space with Altair Engineering Inc. (ALTR - Free Report) and Jacobs Engineering Group Inc. (JEC - Free Report) in the Zacks Engineering - R and D Services industry, surpassed earnings estimates in three of the trailing four quarters, with average positive surprise of 12.6%.

KBR, Inc. Price and EPS Surprise

Its third-quarter revenues grew 23.6% and adjusted earnings surged 31.4% on a year-over-year basis. 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.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is currently pegged at 37 cents per share, remaining stable over the past 60 days. This reflects an increase of 32.1% from the year-ago earnings of 28 cents per share. Revenues are expected to be $1.25 billion, up 33% year over year.

Factors at Play

Solid contribution from Government Services and Technology businesses is likely to benefit KBR’s fourth-quarter results.

The company’s continuous growth in overseas logistics and mission support programs, given higher military exercise activities, will help it to post higher fourth-quarter revenues. Moreover, all the key markets are likely to benefit the company, with expected growth in the United States, U.K. and Australia, on the back of continued opportunities across the lifecycle of projects.

KBR’s Government Services unit or GS, which accounts for more than 72% of the total revenues, has been performing pretty well over the last few quarters. Notably, more than 80% of the total backlog represents work in the Government Services. KBR’s high-end and differentiated work under the GS segment is definitely a positive. Also, its overseas logistics and mission support programs, with higher military exercise activity, increased outsourcing of sustainment activities by the military and the ramp up of new wins, add to the positives.

The company’s Hydrocarbons Services or HS unit is expecting some decent opportunities in ammonia, petrochemical and refining, which will boost growth of the segment. As of Sep 30, 2018, the segment reported a backlog of approximately $1.9 billion, of which more than $1.8 billion was generated at the end of 2017. KBR believes that the healthy balance between hydrocarbons and government projects positions it well for future growth.

KBR’s Technology business has been performing well in recent times. This is driven by refining and petrochemicals projects in China, India, and Africa, as well as strong technology demand. In the last reported quarter, the segment recorded 35% organic growth and a record backlog of $544 million, which was up 95.7% from the prior-year level.

However, the company’s domestic and foreign operations are subject to significant competitive pressure. In order to keep itself updated about state-of-the-art construction procedures, the company requires huge capital expenditure, which hurts near-term margins and operating income.

What the Zacks Model Says

Our proven model does not conclusively show that KBR is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -2.70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

A Stock With Favorable Combination

Here is a construction stocks that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat in the upcoming release:

Thor Industries, Inc. (THO - Free Report) has an Earnings ESP of +2.27% and a Zacks Rank #3.

This Could Be the Fastest Way to Grow Wealth in 2019

Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.

These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.

Click here to see these breakthrough stocks now >>



More from Zacks Analyst Blog

You May Like