KBR Earnings: Strong Backlog Gives Solid Visibility Heading Into the Second Half of 2023

KBR KBR grew its second-quarter revenue by 8% from the same period last year, and 11% excluding the completion of work related to the Operation Allies Welcome, or OAW, program. KBR’s GAAP net income included a $144 million cash charge related to the settlement of a legacy legal matter as well as a $314 million noncash charge related to the retirement of convertible notes.

We’ve raised our fair value estimate for KBR to $64 from $60, which reflects our slightly more optimistic margin assumptions as well as time value of money. We view the stock as fairly valued at current levels.

The government solutions segment delivered 6% year-over-year revenue growth, excluding OAW, with strong results in the readiness and sustainment, defense, and science and space business units. Sustainable technology solutions revenue increased 32%, thanks to strong growth across the firm’s portfolio of sustainable services and technology. The company posted a 1.1 times book/bill ratio and ended the quarter with a $21.1 billion backlog, up from $19.2 billion in the prior-year period.

Management raised its full-year 2023 guidance and now anticipates adjusted EBITDA of $730 million to $750 million (up from $715 million to $745 million previously). KBR maintained its full-year outlook for revenue of $6.9 billion to $7.1 billion and adjusted EPS of $2.76 to $2.96. Management said on the earnings call that 90% of the work required to reach the full-year targets is already under contract, which we think underscores KBR’s portfolio transformation toward a more predictable business model. Looking beyond 2023, we remain optimistic about KBR’s long-term prospects as we believe that both segments are poised to benefit from favorable secular trends, including growing demand for sustainable solutions.