KBR (KBR) Up 2.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for KBR Inc. (KBR). Shares have added about 2.6% in that time frame, underperforming 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 Estimates, Revenues Miss

KBR reported mixed third-quarter 2023 results, wherein earnings surpassed the Zacks Consensus Estimate, but revenues missed the same.

Earnings beat the consensus estimate for the eighth straight quarter. Revenues, on the other hand, surpassed the mark in three of the trailing eight quarters and missed on other five occasions.

Inside the Headline, Numbers

Adjusted earnings per share (EPS) of 75 cents surpassed the consensus estimate of 73 cents by 2.7% and increased 15.4% from a year ago. The upside was due to increases in gross profit and equity in earnings from unconsolidated affiliates. These were partially offset by increases in selling, general and administrative expenses and interest expenses.

Total revenues inched up 8.9% year over year (all organic) to $1.77 billion but missed the consensus mark of $1.78 billion by 0.5%. The growth was attributable to the increase in new contracts and on-contract growth within all Government Solutions business units, as well as a rising demand for the Sustainable Technology Solutions portfolio.

Adjusted EBITDA increased 9% year over year to $186 million in the quarter. Adjusted EBITDA margin was 11%, the same as the year-ago level. Our model expected adjusted EBITDA to grow 7.3% year over year to $183.5 million in the quarter.

Segmental & Backlog Details

Revenues in the Government Solutions or GS segment increased 4% year over year to $1,345 million. The upside was backed by new and on-contract growth across its four business units.

Adjusted EBITDA was $133 million (same as the prior-year quarter), and adjusted EBITDA margin of 10% (at par with the year-ago level). The segment benefited from the favorable international mix, excellent award fees and strong project execution.

Sustainable Technology Solutions’ (STS) revenues rose 27.6% year over year to $425 million, driven by increased sustainable services and technology. Meanwhile, the segment generated more revenues than we expected.

Adjusted EBITDA increased to $89 million from $66 million a year ago. Adjusted EBITDA margin for the segment was up 100 basis points to 21%. This was attributable to a favorable revenue mix, the achievement of certain licensing milestones, joint venture performance and increased demand.

As of Sep 29, 2023, the total backlog (including award options) was $21.8 billion compared with $19.76 billion at 2022-end. Of the total backlog, Government Solutions booked $12.28 billion. The Sustainable Technology Solutions segment accounted for $4.98 billion of the total backlog.

At the third-quarter end, the company delivered a trailing 12-month book-to-bill of 1.2x and recorded $3.5 billion in bookings and options.

Liquidity & Cash Flow

As of Sep 29, 2023, KBR’s cash and cash equivalents were $348 million, down from $389 million at 2022-end. Long-term debt was $1.52 million at September 2023-end, up from $1.38 million at 2022-end.

In the first nine months of 2023, cash provided by operating activities totaled $248 million, down from $336 million in the year-ago period. It had an adjusted free cash flow of $320 million during the same period, up from $297 million a year ago.

2023 Guidance

KBR still expects total revenues in the range of $6.9-$7.1 billion and an adjusted EBITDA between $730 and $750 million. Also, it expects an effective tax rate between 24% and 25% and adjusted EPS in the band of $2.76-$2.96. Adjusted operating cash flow is projected to be in the range of $425-$460 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 -6.85% due to these changes.

VGM Scores

Currently, KBR has a nice Growth Score of B, 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 C. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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