KBR (KBR) Q2 FY26 earnings call: guidance and Q&A

How should we think about the financial structure and capabilities for both businesses to pursue their goals after the spin-off?

Management stated both businesses will have normative leverage ratios for their respective operations. Further details on the investment thesis and financial framework for each will be provided at the upcoming Investor Days in November.

“I mean we are setting both businesses on the right path, Mariana. You'll have seen the book-to-bill, particularly in STS, very strong. And obviously, the awards when you link in what's under protest and MTS, I think both businesses heading very strongly towards the year-end with momentum as they look to separate.”

asked by Mariana Perez Mora · answered by Stuart Bradie

How should we think about the quarterly volatility of STS margins, especially with the mix of pass-through materials or CapEx vs. OpEx, and the trend from mid-teens margins?

The full-year margin outlook for STS remains unchanged. Quarterly variability is normal and reflects project mix, particularly procurement content. Year-to-date margins (excluding LNG JV earnings) are 14.5%, consistent with expectations, positioning them well for full-year commitments.

“But I'll also say as importantly, this year, the year-to-date margin performance ex LNG equity and earnings is 14.5% which again is consistent with our expectations and puts us in a wonderful position to deliver on the full year commitments in STS.”

asked by Mariana Perez Mora · answered by Shad Evans

Could you discuss the geographic mix of STS awards in the first half, particularly for the Middle East, and if there's any customer uncertainty with oil and gas due to regional conflict?

STS awards showed a global mix, with 54% in the Americas and 25-26% in the Middle East this quarter. Despite increased activity related to the war, there has been no disruption to ongoing work in the Middle East. However, slower payments were observed in Q2, which started to normalize in July, and management expects full-year cash flow guidance to remain unchanged.

“In terms of your question on the Middle East itself, we've seen, although there's increased, I guess, activity in and around the Middle East as it relates to the war, we haven't seen any disruption to our ongoing work.”

asked by Ian Zaffino · answered by Stuart Bradie

What remains to be done for simplifying the cost structure ahead of the spin, and can you provide details on potential run-rate savings?

KBR is actively simplifying cost structures, including real estate rationalization, ahead of the separation. For Trinzic, the goal is rate neutrality to fit within existing cost structures. For new KBR, it involves building a fit-for-purpose organization, reducing complexity, and leveraging a digital backbone for efficiency. More details on cost structures and operating models will be shared at the Investor Days.

“For Trinzic, the objective is rate neutrality. So we're designing the company really to fit within the cost structure that's already embedded in our rates today. And that's really important not only from a cost-plus perspective but also to ensure we remain highly competitive on fixed price opportunities as the business transitions to a stand-alone company.”

asked by Ian Zaffino · answered by Stuart Bradie

The guidance implies a meaningful step-down in margins for the second half. Can you explain the puts and takes and any potential upside?

Management is encouraged by H1 performance and reaffirms the full-year outlook, including the 12.4% aggregate margin. While tracking ahead of plan, they are only halfway through the year, with remaining awards, program activity, execution milestones, and Washington dynamics still to play out. Therefore, they are reaffirming rather than raising guidance at this time.

“That said, we're only halfway through the year. And so while we're tracking ahead of plan, on awards, we still believe that the 12.4% aggregate margin for the full year puts us in a solid position to deliver across the board on our EBITDA and EPS commitments.”

asked by Tobey Sommer · answered by Shad Evans

How is STS planning to bridge the revenue gap from the planned roll-off of the Plaquemines project into 2027?

KBR is not relying on a single project but on strong leading indicators: a Q2 book-to-bill of 1.5x, a trailing 12-month book-to-bill of 1.3x, a 40% year-over-year increase in backlog to $5.5 billion, and a pipeline exceeding $6 billion (excluding large LNG EPC). The end markets (energy/food security, resilience) remain strong. Plaquemines will wind down through H1 2027, but the broad opportunity set provides confidence.

“What gives us confidence are the leading indicators, and they are clear for all to see. The quarter-to-date book-to-bill was 1.5. But importantly, our trailing 12-month book-to-bill is 1.3. So our backlog is roughly up 40% year-over-year. That's a big number.”

asked by Tobey Sommer · answered by Stuart Bradie

Regarding the $8 billion Antarctic Science project, how should we think about its annual revenue run rate, margins, and early ramp profile?

The project is valued at $8 billion over 20 years and will ramp up over the first couple of years. Management indicated that the incumbent's historical run rate of $150 million to $300 million annually is the best guide until KBR officially takes over and can assess the specifics.

“Yes. So it's $8 billion over 20 years. And -- it will ramp up over the first couple of years. I think we don't know until we get into the meat of this in terms of the run rates, I guess, the best guide is to look back at what the incumbent is running at. and that's somewhere around -- I mean, that's quite a range looking at depending on the years about $150 million to $300 million, depending on the particular year.”

asked by Jerry Revich · answered by Stuart Bradie

What opportunities does new KBR have after the spin, particularly in OpEx, emerging technologies, and AI?

Management is excited about emerging technologies acquired at low multiples and commercialized over time. They see genuine customer demand from AI, especially in combining engineering expertise with physics-based AI to drive operational performance, initially tested on ammonia plants. Broader market opportunities, geographical expansion, and strong relationships create high barriers to entry, which will be further detailed at the Investor Day.

“We actually see AI creating genuine customer demand. As it relates to STS, we're probably most excited about combining our engineering expertise with physics-based AI really to drive market-leading operational performance. And initially, we're test casing that on our licensed ammonia plants and now have 2 customers running that for us, and we'll be able to give you an update again at Investor Day about how that can impact KBR going forward and really position us obvious at the operations and maintenance portfolio that has different commercial advantage.”

asked by Michael Dudas · answered by Stuart Bradie