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01/11 03:15
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture: strong financial performance with revenue and EBITDA growth, but uncertainties like NASA funding and protest delays. The Q&A reveals confidence in future targets but lacks concrete evidence. Shareholder returns are positive, yet HomeSafe losses and geopolitical risks weigh down sentiment. Overall, the market may react with caution, resulting in a neutral stock price movement.
Revenue $2 billion, up 6% year-over-year. Growth driven by both MTS and STS segments.
Adjusted EBITDA $242 million, up 12% year-over-year. Margin increased by 70 basis points to 12.4%. Improvement attributed to cost management and operational excellence.
Adjusted EPS $0.91, up 10% year-over-year. Reflects normative interest and taxes, with net unfavorable non-operating expenses despite reduced share count from buybacks.
Operating Cash Flow $308 million year-to-date, up 20% year-over-year. Conversion rate against net income was 123%.
MTS Revenue $1.4 billion, up 7% year-over-year. Growth driven by LinQuest acquisition and international growth, particularly in Australia (up 10%).
STS Revenue $540 million, up 2% year-over-year. Growth attributed to LNG performance and strong project execution.
STS Adjusted EBITDA Margin 23.9%, an improvement of more than 300 basis points year-over-year. Driven by unconsolidated joint ventures and LNG performance.
Backlog and Options $21.6 billion at the group level. Reflects strong pipeline and bids awaiting award.
Djibouti-based operations contract: Awarded a $476 million contract, one of the major recompetes this year.
Ammonia and urea complex: Won a large award for a well-scaled ammonia and urea complex, showcasing integrated services and proprietary technologies.
Hydro-PRT technology: Mitsubishi Chemicals and ENEOS opened a plastics recycling plant in Japan using KBR's exclusively licensed Hydro-PRT technology.
Middle East expansion: Achieved 20% growth in the region over the trailing 12 months, with focus on Iraq, Kuwait, and UAE for energy diversification and infrastructure projects.
Defense budget alignment: Positioned to capitalize on the $1 trillion U.S. defense budget for 2026, including $150 billion in incremental spending for National Security priorities.
Adjusted EBITDA margin: Achieved 12.4%, up 70 basis points year-over-year, driven by cost management and operational excellence.
Pipeline and backlog: Ended the quarter with $21.6 billion in backlog and options, with $19 billion in bids awaiting award in MTS and $4.5 billion in STS opportunities for Q3 and Q4.
HomeSafe Alliance JV termination: Refocused energy on core business areas after the termination of the HomeSafe Alliance JV contract.
Organizational restructuring: Streamlined operations by collapsing the international government portfolio into mission tech and sustainable tech for greater alignment and efficiency.
Termination of HomeSafe Alliance JV contract: The unexpected termination of the HomeSafe Alliance JV contract by U.S. TRANSCOM resulted in operational challenges and a significant revenue impact. This necessitated adjustments to the company's 2025 guidance and long-term targets.
Delayed protest resolutions: $2 billion in contracts awarded to KBR remain under protest, causing revenue shortfalls and delays in expected contributions to the company's financial performance.
DoD defunding and program delays: Defunding of Department of Defense programs and delays in protest resolutions have impacted revenue and necessitated adjustments to financial guidance.
European command work slowdown: A slowdown in European command work supporting the Ukraine conflict and pauses in logistics work tied to the Army's transformation initiative have reduced revenue.
NASA funding uncertainty: Uncertainty in NASA funding policy under the new administration has limited growth opportunities in the Science & Space segment.
Soft bookings in STS segment: Softness in new awards and conversion in the Sustainable Technology Solutions (STS) segment has been driven by evolving market conditions, regulatory changes, and shifts in energy priorities.
Shifts in Middle East priorities: Priority shifts in the Middle East, particularly in Saudi Arabia, have impacted energy and infrastructure projects, though offset by opportunities in other countries like Iraq, Kuwait, and the UAE.
Protest delays impacting revenue: Protest delays have shifted approximately $250 million in expected revenue to 2026, impacting the company's 2025 financial performance.
HomeSafe-related financial losses: The wind-down of HomeSafe operations resulted in a year-to-date after-tax loss of $36 million and a cash impact of $30 million, with additional trailing expenses expected.
2025 Revenue Guidance: Updated revenue guidance for fiscal 2025 from $8.7 billion to $9.1 billion to a new range of $7.9 billion to $8.1 billion, with a midpoint of $8 billion. Adjustments include removal of $400 million from HomeSafe, $250 million from European command work and Army transformation impacts, and $250 million from delays in protest resolution.
Adjusted EBITDA and EPS Outlook: No change to adjusted EBITDA and EPS outlook for 2025 despite revenue guidance adjustments. Adjusted EBITDA midpoint remains unchanged, and cash flow guidance is maintained at $500 million to $550 million.
2027 Long-Term Targets: Revenue target adjusted to $9 billion+ (from $11.5 billion+), with MTS segment growth CAGR restored to 5%-8% and STS segment growth CAGR intact at 11%-15%. Adjusted EBITDA target remains $1.15 billion, with updated operating cash flow target of $650 million.
Defense and National Security Spending: Incremental $150 billion in spending for National Security priorities under the Reconciliation Act, with significant opportunities in advanced defense technologies, military space superiority, and digital engineering. KBR is well-positioned to capitalize on these areas.
STS Segment Outlook: Robust pipeline with over $4.5 billion in opportunities for Q3 and Q4 2025. Approximately $1 billion in potential awards shifted to the second half of 2025, with total expected awards exceeding $1.5 billion. Growth driven by energy security, energy transition, and critical infrastructure solutions.
Middle East Growth Strategy: Focus on expanding in key markets like Iraq, Kuwait, and UAE, leveraging investments in energy diversification, infrastructure, and sustainability. Significant opportunities in green hydrogen, ammonia, and renewable energy projects.
NASA and Space Programs: 2026 NASA budget expected to support KBR's operational work, including ISS operations, space launches, and Artemis program. $10 billion in budget reconciliation aimed at strengthening NASA's national security missions.
Dividends: During Q2, KBR returned $22 million in dividends to shareholders, as part of a total capital return of $70 million for the quarter.
Share Repurchases: KBR executed $48 million in share repurchases during Q2, contributing to a total capital return of $245 million year-to-date. This resulted in a 3% reduction in share count so far this year.
The earnings call presents mixed signals: revenue guidance was lowered, but EBITDA and cash flow targets remain unchanged. The STS segment shows potential growth, particularly in LNG projects, and there are opportunities in defense spending. However, uncertainties in NASA funding and strategic shifts in the MTS segment present risks. The Q&A reveals optimism for 2026, but concerns about budget pressures and unresolved protests. The market reaction is likely to be neutral, balancing positive prospects in defense and energy with revenue guidance cuts and NASA uncertainties.
The earnings call presents a mixed picture: strong financial performance with revenue and EBITDA growth, but uncertainties like NASA funding and protest delays. The Q&A reveals confidence in future targets but lacks concrete evidence. Shareholder returns are positive, yet HomeSafe losses and geopolitical risks weigh down sentiment. Overall, the market may react with caution, resulting in a neutral stock price movement.
The earnings call summary reveals strong financial performance, including a 13% revenue increase and a 27% rise in adjusted EPS. The strategic acquisition of LinQuest and significant contracts bolster future growth. The dividend increase and substantial share buybacks reflect confidence in the company's outlook. While there are competitive pressures and energy transition challenges, the management's focus on defense aligns with the new budget, and guidance remains optimistic. The Q&A section supports a positive outlook, with expectations for resolution of award protests and increased LNG activity.
The earnings call summary reveals strong financial performance, with revenue, EBITDA, and EPS showing significant year-over-year growth. The Q&A section highlights confidence in backlog growth and defense budget alignment, despite some energy transition delays. The increased dividend and substantial share buybacks indicate a positive shareholder return plan. While there are uncertainties in troop support and LNG project timelines, the company's strategic acquisitions and partnerships, along with optimistic guidance, suggest a positive outlook. These factors collectively point to a likely stock price increase in the short term.
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