KBR Earnings: Portfolio Transformation and New Awards Enhance Long-Term Visibility

KBR KBR started the year with a strong first quarter, delivering 18% year-over-year revenue growth excluding the completion of work related to the Operation Allies Welcome, or OAW, program. We’ve raised our fair value estimate to $60 from $58, which reflects our slightly more optimistic revenue growth projections as well as time value of money.

Government solutions delivered 12% year-over-year revenue growth excluding OAW, driven by robust activity in the readiness and sustainment, defense, and science and space business units. Sustainable technology solutions revenue increased by an impressive 47% from the prior-year period, with broad-based growth across its portfolio of sustainable services and technology. KBR reported a 1.4 times book-to-bill ratio, with $3.1 billion in new awards and options in the first quarter, which we believe positions the firm well for continued strong momentum. New awards included three green ammonia projects as well as being selected as the primary integrated project management contractor for BP’s global hydrogen portfolio. The company ended the quarter with a roughly $16.5 billion backlog, up 6% from the prior-year period.

Management reaffirmed its full-year 2023 outlook and continues to anticipate revenue of $6.9 billion to $7.1 billion, adjusted EBITDA of $715 million to $745 million, and adjusted EPS of $2.76 and $2.96. We think that management’s outlook might prove to be conservative, as 85% of the work required to reach management’s targets is already under contract, but for now we’re modeling full-year adjusted EPS at the very top of the guidance range. Looking beyond 2023, we were encouraged to hear management reference on the earnings call a growing mix of long-term contracts in the sustainable technology solutions segment, which we believe would improve long-term visibility even further.