A month has gone by since the last earnings report for KBR Inc. (KBR). Shares have added about 6.1% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Second-Quarter 2018 Results
KBR, Inc. reported adjusted earnings of 34 cents per share in second-quarter 2018, beating the Zacks Consensus Estimate of 33 cents by 3%. However, the bottom line decreased 40% year over year from 57 cents per share a year ago.
The company's revenues were $1,267 million, up 16% year over year. Consolidation of acquired entities in the Aspire Defence program, strong organic growth of 11% in the Government Services business segment and the acquisition of SGT resulted in double digit top-line growth. Also, the reported figure surpassed the consensus mark of $1,189 million.
KBR's second-quarter gross margin of 10.3% was up 40 basis points year over year, largely driven by consistent execution across segments.
Government Services revenues rose an impressive 59.8% year over year to $868 million. The uptrend was mainly driven by 11% organic growth in the business, along with accretive revenues from the acquisition of SGT, and consolidation of Aspire.
Also, Technology revenues recorded an increase of 2.9% year over year to $72 million. The increase was attributable to strong demand for gas monetization technologies across petrochemical, ammonia and refining markets.
However, Hydrocarbons Services revenues were down 31% year over year to $327 million.
As of Jun 30, 2018, the company's total backlog was $13.5 billion compared with $13.2 billion on Mar 31 and $10.6 billion as of Dec 31, 2017. Of the total backlog, about $10.8 billion is booked under the Government Services segment (up 37.4% on a year-over-year basis) and around $2.1 billion under the Hydrocarbons Services segment (up 0.3% year over year). While Technology accounted for $509 million of the backlog (up 74.3% on a year-over-year basis), Non-strategic Business totaled $4 million in backlog (down 42.9%).
Major Contract Wins
In the quarter under review, KBR clinched some prestigious awards in its Government Services and Hydrocarbons Services segment. These include a $133-million task order by the U.S. Army to provide technical and engineering services to the PATRIOT missile system, and $900 million IDIQ contract for providing solutions under the Department of Defense's Joint Test and Evaluation Program. Under Hydrocarbon Services, KBR received a multi-year contract to provide engineering, procurement and construction management services to a fortune 100 chemicals manufacturer in the United States and Mexico.
Liquidity & Cash Flow
As of Jun 30, 2018, KBR's cash and equivalents were $519 million, up from $439 million at the end of 2017.
In the quarter, cash flow provided by operating activities totaled $94 million, much lower than $325 million in the year-ago quarter.
KBR increased its full-year 2018 outlook. The company currently expects adjusted earnings per share in the band of $1.45-$1.50 from $1.35-$1.45 expected earlier.
This guidance excludes legal costs associated with legacy U.S. Government contracts, and acquisition & integration-related expenses associated with Aspire and SGT acquisitions. The estimated legacy legal fees exclude any future cost reimbursement from the U.S. Government.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 12.86% due to these changes.
At this time, KBR has a subpar Growth Score of D, 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 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.
The company's stock is suitable solely for value based on our style scores.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise KBR has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.