KBR Sees Profit Uptick in Third-Quarter 2015, Despite Weakened Revenues, Backlog

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Researched by Industrial Info Resources (Sugar Land, Texas)--KBR Incorporated (NYSE:KBR) (Houston, Texas), a leading provider of engineering, procurement and construction (EPC) services to the hydrocarbons and government services industries, managed steady profit gains, despite weaker revenue, in third-quarter 2015. Strong operational performances across several segments, particularly for Power Industry projects in the Engineering & Construction segment, offset the ongoing effects of weak commodity prices, which have reduced demand from the upstream Oil & Gas Industry. Industrial Info is tracking $137.72 billion in projects involving KBR.

Among the projects tracked is Magnida Nitrogen Idaho LLC's (Houston, Texas) $2 billion construction of a fertilizer plant in American Falls, Idaho. The facility is designed to produce 2,500 tons per day of ammonia, 1,000 tons per day of nitric acid, 4,100 tons per day of urea, 1,300 tons per day of ammonium nitrate, 2,900 tons per day urea of ammonium nitrate, 4,100 tons per day of urea granulation, and 1,050 tons per day of diesel exhaust fluid. KBR was selected to perform EPC services in late August. Magnida has secured the necessary land, water and air permits, and now only needs additional investors. If all goes according to schedule, the project will begin construction in fourth-quarter 2016.

Late in October, KBR announced that it had reached an agreement with SMOE Pte Limited (Singapore), the EPC contractor for Maersk Oil's (Copenhagen, Denmark) Culzean project in the U.K. sector of the North Sea, to deliver the living quarters, central processing facility and well-head decks for the three platforms for the project. Industrial Info is tracking numerous facets of the $4.7 billion project, including the construction and installation of a central processing platform with a flare tower, which will be the central part of the three bridge-linked platforms. The production capacity of the field is expected to be about 400 million standard cubic feet per day, with first gas expected in early 2019.

Net income for the quarter was reported to be $55 million compared with $30 million in third-quarter 2014; total revenues stood at $1.2 billion, a 27.64% decrease. The company's Engineering & Construction segment benefited from a strong operational performance, which offset the effects of reduced activity on LNG and pipe-fabrication projects as they move toward completion. KBR's Technology & Consulting segment saw lower revenues after equipment sales to the oil & gas industry declined; the Non-Strategic Business segment took a hit in revenues after it sold off its Building Group unit to Pernix Group Incorporated (Lombard, Illinois) in the second quarter.

"The strategy is on track to achieve the targeted margins and the cost savings by the end of 2016," said Stuart Bradie, the president and chief executive officer of KBR, in a conference call. "And the segment margins largely are at near-target levels, and we continue to be prudent in applying with regards to the competitive environment medium-term. And more than $150 million of savings have been identified to date, and the net benefit will obviously come through into 2015--but also beyond."

KBR's total backlog now stands at $13.3 billion, a drop of about $2 billion from the end of the second quarter. Executives cited two major factors: the strengthening U.S. dollar, and the formation of Brown & Root Industrial Services, a 50:50 joint venture with Bernhard Capital Partners (Baton Rouge, Louisiana). The new joint venture took half of the backlog from the Americas Industrial Services business, which is part of KBR's Engineering & Construction segment. But KBR expects to see a growth in maintenance-service and small-construction contracts in the longer term, particularly for pipe-fabrication services, with an improved access to facilities on the U.S. Gulf Coast.

"We have a definitive agreement in place to sell our Industrial Services businesses, which hopefully will close in the fourth quarter," said Brian Ferraioli, the chief financial officer & executive vice president of KBR, in the conference call. "The revenues should drop correspondingly associated with that sale."

KBR executives expect the ongoing weakness in crude-oil prices to continue hindering demand in the upstream oil industry--but, by the same token, they expect to see stronger opportunities in the refining, syngas and olefins markets.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 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.