KBR rides ups and downs of market

The past year was a mix of highs and lows for KBR. As one major contract wound down, the company won others. And as its best customer — the U.S. government, especially the military — shifted its focus, KBR also made adjustments, such as reorganizing its government business unit.

Since 2001, KBR’s Government and Infrastructure (G&I) unit has supported troops in combat zones under the Army’s Logistics Civil Augmentation Program (Logcap) III contract, funded at $35 billion. But Logcap IV, awarded in 2007, is a multiple-award contract that opens KBR’s monopoly to competition at the same time that the Obama administration plans to reduce contractor spending and shift military focus from Iraq to Afghanistan.

“Under the Logcap III contract, KBR employees have served more than 1 billion meals, delivered approximately 440 million pounds of mail, produced nearly 23 billion gallons of water, issued more than 8 billion gallons of fuel, hosted more than 170 million patrons at MWR [Morale, Welfare and Recreation] facilities, logged more than 701 million miles transporting supplies and equipment for the military, and laundered 78 million bundles of laundry, all in an effort to support U.S. troops as they carry out important and dangerous missions,” said Linda McKnight, KBR’s senior vice president of sales and marketing.

Meanwhile, Logcap IV’s multiple-award effect is already being felt. Revenues under Logcap were $4.8 billion in 2009, compared to $5.5 billion in 2008.

But the company still saw overall revenues grow from $11.6 billion in 2008 to $12.1 billion in 2009. That success is attributed to continued performance on current contracts; new wins, including a task order to provide logistics support services, transportation assistance and postal services in Iraq under Logcap IV; and internal changes to meet the external demands. In sum, KBR landed at the No. 7 spot on the Top 100 list with $4.5 billion in prime contract revenue.

“The composition of our contract base will shift to meet the needs of military sustainment activities, which are different from those of major combat operations, and work will be performed under longer-term contracts that are more predictable than typical contingency support efforts,” McKnight said. “We are prepared to be a tough, agile competitor in the new environment, and we are pursuing other adjacent business opportunities with the potential to offset the income effects of the inevitable reduction in Logcap activity.”

The contract base is not the only thing that has changed to meet new customer needs. In August 2009, KBR sliced G&I into four distinct segments and 10 market-facing business units. “We are now NAG&D — North American Government and Defense — and part of the Infrastructure, Government and Power business group,” McKnight said. “Our focus is now only on the U.S. federal government, whereas previously it included defense and infrastructure clients in the U.S., [the United Kingdom], Australia and the Middle East.”

Will Gabrielski, vice president and senior analyst at Broadpoint Gleacher, said KBR is well positioned for future endeavors.

“With the two Iraq Logcap solicitations now over and KBR’s position within Iraq solidified as the U.S. winds down and demobilizes, the debate about what impact Logcap work will have going forward is mostly complete,” he said. “This provides stability and visibility on the federal side while the company deploys its capital to grow its nonfederal segments and support increasing activity in energy markets with the global recovery under way.”