KBR, AECOM Show How EPC Companies are Facing Different COVID-19 Challenges

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Researched by Industrial Info Resources (Sugar Land, Texas)--The COVID-19 pandemic has brought a full decade of growth in the U.S. engineering, procurement and construction (EPC) business to a screeching halt. At the start of 2020, design firms were looking to a buoyant environment that would provide a 10th straight year of market growth, according to Engineering News-Record, but they instead have spent the past two months dramatically altering their near-term (and, increasingly, long-term) outlooks. Industrial Info is tracking more than $44 billion in delayed projects featuring KBR Incorporated (NYSE:KBR) (Houston, Texas) or AECOM (NYSE:ACM) (Los Angeles, California), two EPC giants whose differing outlooks point to the sector's unpredictability.

Click on the image at right for a graph detailing KBR and AECOM projects affected by COVID-19, by country.

KBR took one of the biggest hits of any high-profile EPC company when it posted its first quarterly loss in more than three years. Market conditions forced KBR to reduce the value of its oil and natural gas business by $178 million, which led to a $104 million net loss in the first quarter--despite $1.5 billion in revenues, a 15% increase from the same period in 2019. Net profits for first-quarter 2019 were about $40 million.

In response to these conditions, KBR's executives have agreed to pay cuts of 10% to 15%, and about 90% of the company's office staff is now working from home. "If anything, COVID-19 has helped advance our sustainability agenda," Chief Executive Officer Stuart Bradie said in an earnings-related conference call.

KBR is performing design-engineering services for at least two high-profile liquefied natural gas (LNG) projects in North America that have seen their final investment decisions delayed due to COVID-19 concerns: Cheniere Energy Incorporated's (NYSE:LNG) (Houston) estimated $10 billion third-stage Corpus Christi Mid-Scale LNG Liquefaction Plant in Gregory, Texas, and Pieridae Energy Limited's (Halifax, Nova Scotia) Goldboro LNG Production Plant in Stormont, Nova Scotia, which includes a $5 billion first phase and a $5 billion second phase.

The Corpus Christi project would feature seven trains that would produce a total 9.5 million metric tons per year of LNG. Each phase of Goldboro would include a production train to produce 5 million metric tons per year; the entire facility is designed to have on-site storage capacity of 690,000 cubic meters. Even if approved, neither project would begin construction for at least one year. For more information, see Industrial Info's reports on the Corpus Christi project and Goldboro's first phase and second phase.

AECOM, on the other hand, picked up $8.6 billion in new project awards in its fiscal second quarter that drove its backlog to a record $42 billion. In an earnings-related conference call, Chief Executive Officer Michael Burke said AECOM had seen only 18 cancellations out of roughly 50,000 projects worldwide, as various governments have categorized most of its projects as "essential."

Nonetheless, AECOM reported a $77 million net loss for the quarter, compared with $93.5 million in profits in the same period last year. The COVID-19 outbreak most seriously affected AECOM's Asian projects, while its Americas segment reported a drop in revenues due to a reduction in disaster recovery activity in the U.S. Virgin Islands. Among its projects to experience slowing and stalled development are two airport developments on opposite sides of the world: Amazon.com Incorporated's (NASDAQ:AMZN) (Seattle, Washington) $100 million regional air hub in Lakeland, Florida, and GMR Group's (New Delhi, India) additions and upgrades to the Delhi International Airport.

Amazon's 285,000-square-foot facility, to be next to Lakeland Linder International Airport, is intended to bolster the retail giant's distribution capacity in the U.S. Southeast; for more information, see Industrial Info's project report. Improvements to the Delhi airport include:

• a $50 million runway; see project report
• $50 million in taxiway additions; see project report
• $50 million in upgrades to a passenger terminal; see project report
• a $20 million expansion of a cargo terminal; see project report

Burke expressed optimism about the remainder of the year: "We expect that shelter-in-place orders and construction shutdowns in the Americas and [the Europe, Middle East and Africa] regions will begin to ease in the third quarter. As a result, our guidance assumes that economic activity bottoms in the third quarter and that there are no material project delays or deferrals in the fourth quarter."

As with KBR, about 90% of AECOM's staff were working remotely at the end of its most recent quarter. Burke maintained an upbeat attitude about the precaution: "We've seen employee engagement that is higher than when people are working in the office. Our people are enjoying the additional flexibility of working at home."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.