KBR Revenue Growth Returns as Spin-Off Cash Costs Mount
KBR posted revenue up 2% to $2.0 billion, its first quarterly growth in three quarters, even as operating cash flow fell 77% and new spin-off charges pressured margins.
KBR (KBR) reported second-quarter revenue of $2.0 billion, up 2% from a year earlier, marking a reversal after declines of 5% in the first quarter and 11% in the fourth quarter of fiscal 2025. Those earlier drops stemmed from the runoff of contingency work tied to the U.S. European Command. The government-services and technology contractor's return to growth came alongside a widening gap between what its income statement showed and what its cash flow showed, a divergence tied to the looming separation of its government-services unit.
Net income attributable to KBR rose 32% year over year to $96 million, an acceleration from a 12% decline in the first quarter and stronger than the 46% gain posted in the fourth quarter of fiscal 2025. The year-over-year comparison benefited from the absence of prior-year discontinued-operations losses tied to the HomeSafe moving-services venture. Operating cash flow from continuing operations fell 77% to $50 million after a 21% increase in the first quarter. Net leverage ticked up to 2.3 times from 2.2 times at the start of the fiscal year, as net debt rose to $2,258 million from $2,117 million.
Operating income margin compressed for a third straight quarter, slipping to 8.7% from 9.4% in the first quarter and 10.1% in the fourth quarter of fiscal 2025. The latest decline was in part due to a new line item: $31 million of spin-off costs and other charges in the quarter, compared with none a year earlier, bringing the year-to-date total to $46 million. Adjusted EBITDA margin moved in the opposite direction, improving to 13.0% from 12.4% a year earlier, even after a slight dip to 13.1% in the first quarter.
The company's two segments diverged sharply. Sustainable Technology Solutions revenue grew 10% to $676 million, while Mission Technology Solutions revenue fell 2% to $1.31 billion on the European Command runoff and reduced federal civilian activity. STS backlog reached a record $5.5 billion, up from $4.3 billion at the start of the fiscal year, on a book-to-bill ratio of 1.5 times, but the segment's Adjusted EBITDA margin fell to 18.2% from 21.8% a year earlier on a shift in equipment procurement mix. MTS moved the other way: Adjusted EBITDA rose 16% to $158 million with margin expanding to 12.1% from 10.2%, even as the segment's book-to-bill ratio of 0.8 times pulled backlog and options down to $17.5 billion from $18.9 billion. About $10.6 billion of awarded work, including a NSF Antarctica contract, remains outside backlog pending protest resolution.
KBR reaffirmed its full-year guidance rather than raising it, keeping revenue at $7.90 billion to $8.36 billion, Adjusted EBITDA at $980 million to $1,040 million, Adjusted EPS at $3.87 to $4.22, and Adjusted operating cash flow at $560 million to $600 million.
The company also named the planned MTS spin-off entity Trinzic, setting a completion date of January 4, 2027, the first business day of fiscal 2027 and a firmer target than previously disclosed. Share repurchases slowed sharply as the separation nears, with KBR buying back just $25 million of stock in the quarter and $4 million in the first quarter, down from $48 million and $156 million in the comparable periods a year earlier.