KBR and the Factors That Affect It
Part of KBR’s (KBR) revenues is directly or indirectly derived from new contract awards. In this part of our series, we’ll examine KBR’s financial performance.
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In 2016, KBR’s total revenue was $4.3 billion, which was 16% below $5.1 billion in 2015 and 33% below $6.4 billion in 2014. In 2016, revenues fell mainly due to less activity for two ammonia projects in the United States and two LNG (liquified natural gas) projects in Australia.
Decreased activity in the non-strategic Business segment negatively affected 2015 revenues. Two businesses were sold, and two fixed-price EPC (engineering, procurement, and construction) power projects were terminated in 2015.
Reliance on government services
In 2016, 28% of KBR’s total revenues was through the GS (Government Services) segment, which includes US government and Chevron (CVX). In 2017, 45% of its estimated revenues are expected to be from the GS segment.
The GS segment primarily performs work under cost-reimbursable contracts with the U.S. Department of Defense, the United Kingdom’s Ministry of Defence, and other governmental agencies. Cost-reimbursable contracts are less risky since the price is variable based on actual costs incurred.
Dependence on oil and gas industry
Revenue fluctuations are due to various agents, including a decline in energy prices and the cyclicity of the individual markets (XLE) in which KBR’s customers such as Chevron (CVX), BP, and Shell (RDSA) operate.
Revenues rely on capital expenditures for LNG, refining and distribution plants, and other expenditures by oil and gas businesses. Oil and gas prices are subject to substantial fluctuations in response to changes in supply and demand and market uncertainty. The current global economic conditions, including oil and gas price volatility, have reduced and continue to unfavorably impact KBR’s revenues.