KBR to slim down, get back to its roots

KBR aims to regain its footing with a new plan under CEO Stuart Bradie, who joined the company in June as it faced challenges in some construction sectors and ongoing lawsuits from its past work for the U.S. government in Iraq and Afghanistan.

The Houston engineering and construction company will shed some of its problem areas and get back to its roots in oil and gas, even amid dropping oil prices. It will stay in the government services sector too, though it's still reviewing its U.S. government business.

On Thursday, Bradie outlined his vision for slimming down the company from 16 business segments to five areas where it believes it has a competitive advantage and sees the most market potential. It will cut 1,000 jobs along the way.

His goal, he said Thursday during an investor presentation, is to "identify those businesses where we feel like we're world class and where we're differentiated."

"We've reduced the silos, we've brought the business together," he said. In a statement Thursday, the company said it aimed to "simplify the structure, reduce overhead costs and create a more market-focused business."

KBR will now focus on five core areas that fall under global hydrocarbons and international government services, leaving some of its non-oil and gas construction and infrastructure segments.

Michael Dudas, New York City-based managing director for investment bank and wealth management firm Sterne Agee, said this is a good first step for KBR's new CEO. He thinks KBR is focusing on its core business of energy and government services and by discontinuing businesses where it didn't have a market advantage.

"I think it was an initiative that was sorely needed," said Brian Konigsberg, an analyst with Vertical Research Partners, an engineering and construction research firm. "They had been losing quite a bit of money on projects they were working on. ... It kind of recognizes the reality of their situation."

The company, which Halliburton spun off in 2006, has up until now provided many services in engineering and construction of industrial, government and civil infrastructure, and consulting. With revenue of $7.3 billion in 2013, the company sits at No. 360 on the Fortune 500 list. It expects to take a $800 million to $1 billion hit in annual revenue from the restructuring. KBR now employs about 27,000, and Bradie said during the investor presentation it will have about 26,000 employees following its transformation.

KBR, according to a Chronicle survey this year, had almost 5,700 employees locally.

The company expects the changes will cut $200 million in operating costs by 2016, with about half coming from divestments and half from corporate overhead, to "make the corporate function as skinny as possible," Bradie said.

With its restructuring, KBR will turn toward oil and gas, leaving other infrastructure markets such as electricity and mining. It will cut its subsidiary KBR Building Group, which does commercial construction, and a standing construction crew. The company could sell some parts of the business, but Bradie expressed skepticism on Thursday that KBR would find interested buyers, especially in construction, because of the challenges afflicting those businesses.

In engineering and construction, KBR will continue to provide offshore and onshore services, liquefied natural gas work and maintenance.

Historically, the oil and gas industry has been KBR's strong suit, Konigsberg said. KBR has a competitive advantage with its technology offerings, much of which involve refining oil and gas. The company noted opportunities in developing countries where demand for fertilizer is rising, and in liquefied natural gas in the U.S.

With the price of oil dropping, "the near to medium term is going to be tough," Konigsberg said.

But long term, demand for oil and gas is expected to rise.

"That is where their strong offering resides and where their competitive advantages actually are," he said.

Still mired in lawsuits and contract disputes from its military work in Iraq and Afghanistan, which drew it and then-parent Halliburton unfavorable national attention, KBR will not abandon its government services business, though it could cut back on contracts with the U.S. government. Instead, the company has said it will focus on opportunities internationally, with the U.K. and Australian governments in particular.

Lawsuits include one soldier who was electrocuted in the shower, and others who suffer health consequences of alleged exposure to toxic chemicals from burn pits, and separately, sodium dichromate at a water treatment facility in Iraq.

Dudas expects government contracts will be a lesser part of KBR's mix. The U.S. government is reducing its contracts and, at the same time, other business that KBR focuses on have the potential to grow, he said.

In its most recent quarter, KBRhad $30 million in net income, compared with $47 million in losses in the same period last year. On Thursday, its stock closed at $15.73, up 2 cents.

Andrea Rumbaugh contributed to this report.