KBR finds slimming down boosts earnings in a big way

KBR, a storied Houston company that established a global footprint building everything from malls to mines to offshore platforms, is finding new success with a lighter touch.

The construction and engineering company formerly known as Kellogg Brown & Root has slashed the number of business segments to five, from 16, while trimming $125 million in expenses over the past year alone. It's refocused its priorities solely on oil and gas and government services.

And investors like what they're seeing, sending the stock price soaring by 6.6 percent Tuesday after the company reported it had turned a $62 million profit for the second quarter, up from an $8 million loss during the same period last year. The turnaround came during a tough time in the energy business.

"I think it also shows that at their core what's always been true is that KBR has got some very good operations and projects, and those are delivering financial results," DA Davidson analyst John Rogers said, echoing the market's enthusiasm.

The process has come with a human cost as well: some 1,000 jobs, including 400 in Houston, had been cut as of July, and the goal is to trim a total of $200 million by the end of next year.

But KBR still employs some 25,000 people worldwide, with a network of 24 offices from Sweden to Russia to Indonesia.

Making his mark

Getting credit for turning things around is CEO Stuart Bradie, who took over a year ago. In December, he initiated the moves to cut costs and narrow the company's scope.

"I think a lot of the actions that he's taken are starting to show results," said Brian Konigsberg, an analyst with Vertical Research Partners. "He's certainly made his mark early in his tenure."

Another second-quarter accomplishment was completing the sale of KBR's buildings group, which brought in $28 million.

The company still bids to build things like chemical plants and housing on military bases. But low oil prices have spurred uncertainty over whether related projects will be completed.

Overall, Konigsberg gives the company high marks.

"I think all in all, it's really good, especially with the backdrop that isn't ideal," Konigsberg said. "They just seem to be executing on things within their reach and actually positioning themselves on projects that still have a good chance of succeeding."

KBR's Houston roots date back nearly a century to the founding of Brown & Root, which started out building roads and expanded to build ships and the U.S. Naval Air Station in Corpus Christi. In 1947, the company's official history recounts, it built the first offshore oil platform, off Louisiana, and 18 years later the first offshore platform in the seemingly indomitable North Sea.

After a series of combinations, Brown & Root was combined with M.W. Kellogg, an even older construction company founded in New York, by their mutual owner Halliburton into the Kellogg Brown & Root subsidiary. KBR was spun off from Halliburton in 2006.

Some of its highest-profile recent work was supporting the U.S. military in Iraq and Afghanistan, where it built housing, cooked meals and worked on such other initiatives as water purification. Today, it is again helping the U.S. military in support of the fight against the Islamic State.

Bradie said in an interview last month that KBR is giving a lot of consideration to which projects it invests in, pursuing only the most promising. He also said KBR has some protection from the effects of low oil prices with its focus on natural gas.

"Low oil prices continue to impact client capital expenditures," he said in a statement released Tuesday along with the earnings report. "However, KBR's technology and project delivery capability for natural gas derivative products and associated downstream facilities positions us well for this market."

In June the company won a major joint venture project to build a platform off Norway for Statoil.

Konigsberg said the company has positioned itself well to get liquefied natural gas work in the next several years.

Mideast opportunities

During a call with investors Tuesday, Bradie emphasized opportunities in the Middle East, which he appointed Jay Ibrahim to oversee in May. In Azerbaijan, KBR is partnering with the state oil company to form a new oil and gas services company there, the company announced in March.

A deal announced last month aims to boost KBR's industrial services through a new joint subsidiary that will bring back the Brown & Root name.

The new company joins KBR's industrial services with Baton Rouge, La.-based Wink Engineering, owned by Bernhard Capital Partners, with equal ownership by both parent companies.

Bradie also reinforced KBR's reach in Asia by establishing a new office in Chennai, India, earlier this year.

"It definitely appears to be bearing fruit," Konigsberg said of the restructuring.