Shares of KBR, Inc. KBR plunged 13 percent after the company cut its 2016 earnings outlook Friday on expected cost increases to complete engineering, procurement and construction ("EPC") projects.
KBR cut its full-year earnings guidance to a range of $0.30 to $0.50 per share from the prior range of $1.20 to $1.45 per share excluding legal costs associated with legacy U.S. Government contracts. KBR expects the legacy legal costs to be approximately $15 million, or $0.11 per share in 2016.
In addition, the company will incur cost increases of about $130 million on a pretax basis (EPS $0.91), primarily related to an EPC ammonia project, which faced unforeseen costs related to mechanical failures of a vendor-supplied compressor and pumps.
That said, the work is 86 percent complete with anticipated completion in the first half of 2017, and would be the final project within its backlog of unfilled orders for its fixed price EPC segment.
The company is exiting fixed price EPC business to focus on primarily reimbursable governmental and industrial services businesses along with the acquisition of new hydrocarbon based technologies.
The company plans to acquire new companies engaged in providing these services, a move that would provide growing and more predictable earnings and cash flow in 2017 and beyond.
Separately, the company announced that effective September 28, Roy Oelking, Jr. has left as President, Engineering & Construction (E&C) Americas. Oelking will be succeeded by Farhan Mujib.
At time of writing, shares of KBR fell 10 percent to $13.61.
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