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    KBR
    Earnings call· Dec 2025(Q4 FY25)

    KBR Q4 FY25 earnings call KBR

    Feb 26, 2026 Source

    Executive summary

    KBR Q4 FY25 — Strong Execution and Spin-off Progress Amidst Challenging Environment

    KBR delivered strong financial results in Q4 and full-year FY25, exceeding cash flow and EPS guidance, despite a challenging market. The company is progressing with its planned spin-off into two independent entities, Sustainable Tech and Mission Tech, targeting H2 2026. Both segments are demonstrating improved momentum and earnings quality, driven by strategic pivots, disciplined execution, and a focus on higher-margin work, positioning them for continued growth and value creation.

    Highlights

    5

    • Adjusted EBITDA increased $100 million year-over-year for FY25, reaching $980 million to $1.04 billion for FY26 guidance.

    • Operating cash flow was $557 million for FY25, representing 110% conversion to adjusted net income, exceeding guided ranges.

    • Returned a record $413 million to shareholders in FY25 through buybacks and dividends.

    • Sustainable Tech (STS) achieved a Q4 book-to-bill of 1.6x and a trailing 12-month book-to-bill of 1.2x.

    • Mission Tech (MTS) backlog and options grew 15% year-over-year to $19.1 billion.

    Concerns

    5

    • Revenues were down $223 million year-over-year in Q4 FY25, primarily due to award timing in MTS and reduced EUCOM contingency scope.

    • Sustainable Tech faced a challenging year in 2025 with a sharp decline in petrochemicals CapEx and a pause in many green projects.

    • Mission Tech experienced award delays, reduced contingency activity in Europe, and the impact of a government shutdown in 2025.

    • The COSMOS recompete was lost in 2025, though it was at the lower end of margin returns.

    • Projected effective tax rate for FY26 is 26% to 28%, higher than the current year, reflecting a greater mix of work in the Global South.

    Guidance & targets

    19
    CategoryTargetConfidence
    Full-year 2026 Revenue
    $7.9 billion to $8.36 billion
    high materiality
    High
    Full-year 2026 Adjusted EBITDA
    $980 million to $1.04 billion
    high materiality
    High
    Full-year 2026 Adjusted EPS
    $3.87 to $4.22
    high materiality
    High
    Full-year 2026 Adjusted Operating Cash Flow
    $560 million to $600 million
    high materiality
    High
    Full-year 2026 Sustainable Tech (STS) Revenue Growth
    low double-digit growth
    medium materiality
    High
    Full-year 2026 Sustainable Tech (STS) Margin
    20% plus
    medium materiality
    High
    Full-year 2026 Mission Tech (MTS) Revenue Growth
    low single digits
    medium materiality
    High
    Full-year 2026 Mission Tech (MTS) Margin
    10% plus
    medium materiality
    High
    Full-year 2026 Capital Expenditures
    $40 million to $50 million
    low materiality
    High
    Full-year 2026 Effective Tax Rate (ETR)
    26% to 28%
    low materiality
    High
    Full-year 2026 Estimated Adjusted Share Count
    127 million
    low materiality
    High
    Spin-off Transaction Target Distribution
    second half of 2026
    high materiality
    High
    Spin-related Transition Costs
    approximately $140 million to $180 million
    medium materiality
    High
    Annual Dividend
    $0.66 per share
    medium materiality
    High
    Q1 FY26 Revenue and Adjusted EPS Weighting
    46% to the first half and 54% to the second half
    low materiality
    High
    Q1 FY26 Performance Outlook
    largely in line with Q4 FY25
    low materiality
    High
    MTS Sequential Growth (Recast Basis)
    moderate sequential growth
    low materiality
    High
    Leverage Trend
    trend up modestly in the first half of the year before coming back down below the targeted 2.5 level
    medium materiality
    High
    Sustainable Tech (STS) Long-term Margin Target
    20% plus
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Sustainable Tech (STS)
    STS demonstrated resilience despite challenging market conditions, pivoting towards Global South, LNG, ammonia, and OpEx-driven markets. Strong book-to-bill and backlog growth provide good visibility for 2026. Margins held up well, and the segment is on pace to meet its long-term target of 20% plus by 2027. The SWAT acquisition is expected to more than double BRIS's EBITDA contribution.
    Q4 Book-to-bill: 1.6xTrailing 12-month Book-to-bill: 1.2xBacklog: $4.2 billionBacklog YoY change: +5%Backlog (excluding Plaquemines LNG) YoY change: +20%Near-term pipeline (excluding LNG): ~$5 billionWork under contract coverage for 2026 guidance: ~63%Adjusted EBITDA growth since 2023: +16%Cash conversion: >80%
    		—low double-digit growth (FY26 guide)—20% plus (normative long-term)
    Mission Tech (MTS)
    MTS performed well despite headwinds like award delays and reduced contingency activity. The segment continued to move upmarket, expanding with Space Force and Air Force. International performance, particularly in Australia, was a standout. Margin quality improved due to mix and disciplined program selection. No material recompete revenues are expected in 2026, reducing near-term risk.
    Trailing 12-month Book-to-bill: 1.0xBacklog and options: $19.1 billionBacklog and options YoY change: +15%Backlog and options funded (excluding PFIs): 40%Bids awaiting awards: $17 billionBids awaiting awards (new business): 80%Expected bids in 2026: >$25 billion (up double digits YoY)Work under contract coverage for 2026 guidance: ~82%Revenue growth (since 2023): mid-single-digit
    		—low single digits (FY26 guide)—10% plus (normative)

    Operational metrics

    18
    Operating cash flow conversion to adjusted net income
    110%
    FY25

    This conversion rate was a key highlight for the full year 2025.

    Cost savings
    $30 million
    FY25

    These cost savings contributed to margin expansion and cash performance momentum.

    Capital returned to shareholders
    $413 millionhighest in last decade
    FY25

    This record amount was returned through buybacks and dividends.

    Net leverage
    2.2x
    FY25 end

    This reflects strong cash generation and disciplined deployment.

    Annual Dividend
    $0.66
    FY26

    The Board approved this annual dividend for 2026.

    Investment in SWAT OpEx acquisition
    $115 million
    January 2026

    This strategic investment enhances resilience to CapEx cycles and supports OpEx expansion.

    Total Recordable Incident Rate (TRIR)
    0.033all-time low
    2025

    This reflects industry-leading safety performance.

    Zero Harm days
    96%all-time high
    2025

    This indicates strong discipline and accountability across operations.

    Adjusted EBITDA (Q4)
    $12 millionup YoY
    Q4 FY25

    Driven by disciplined program execution and favorable mix.

    Adjusted EBITDA Margin (Q4)
    12.6%up 190 bps
    Q4 FY25

    Driven by disciplined program execution and favorable mix as EUCOM volumes declined.

    Adjusted EPS (Q4)
    $0.99up $0.09 YoY
    Q4 FY25

    Reflecting stronger adjusted EBITDA performance and lower share count.

    Adjusted EBITDA (FY)
    $100 millionincreased YoY
    FY25

    This increase contributed to the full year performance.

    Adjusted EBITDA Margin (FY)
    12.4%up 100 bps YoY
    FY25

    Reflects prioritizing high-margin growth, disciplined program execution, and cost-saving initiatives.

    Adjusted EPS (FY)
    $3.93up $0.60 YoY
    FY25

    Supported by increased adjusted EBITDA and share repurchases, partially offset by higher interest expense and income taxes.

    EUCOM contingency scope impact
    $60 million to $70 millionper quarter
    Q1 & Q2 FY26

    The company will be comping against these elevated levels in the first two quarters of 2026.

    Adjusted EBITDA calculation change
    —
    Beginning 2026

    This change improves transparency and aligns EBITDA with how the business is managed; prior periods will not be recast as the impact is not material.

    Net leverage target (STS post-spin)
    circa 2x
    Post-spin

    This is the expected net leverage for Sustainable Tech post-spin.

    Net leverage target (MTS post-spin)
    circa 3x
    Post-spin

    This is the expected net leverage for Mission Tech post-spin.

    Orderbook & backlog

    3
    Sustainable Tech (STS) Backlog$4.2 billionFY25 end

    up 5% YoY

    Up more than 20% excluding Plaquemines LNG. Work under contract covers ~63% of 2026 guidance.

    Mission Tech (MTS) Backlog and Options$19.1 billionFY25 end

    up 15% YoY

    40% funded, excluding PFIs. Work under contract covers ~82% of 2026 guidance.

    Mission Tech (MTS) Bids Awaiting Awards$17 billionFY25 end

    80% of this represents new business.

    Product announcements

    2
    ProductTypeDetails
    INSITE 3.0launch
    Mura technologymilestone

    Deals & partnerships

    3
    SWATAcquisition within Brown & Root joint venture BRIS, enhancing OpEx-facing businesses.approximately $115 million (KBR's proportional share)

    The SWAT acquisition closed in January 2026. KBR invested approximately $115 million for its proportional share.

    Frazer Nash ConsultancyBusiness realignment for spin-off.

    The Frazer Nash Consultancy business is being moved into Sustainable Tech as part of refining the transaction perimeter for the spin-off.

    U.K. Civil Nuclear project portfolioBusiness realignment for spin-off.

    The U.K. Civil Nuclear project portfolio is being moved into Sustainable Tech as part of refining the transaction perimeter for the spin-off.

    Risks & headwinds

    7
    Challenging award environmentFY25

    Revenues down $223 million YoY in Q4 FY25

    Mitigation: Disciplined execution, focus on what can be controlled, pivot to Global South and OpEx-driven markets.

    Decline in petrochemicals CapEx and pause in green projectsFY25

    Sharp decline in petrochemicals CapEx; pause in many green projects

    Mitigation: Pivoting Sustainable Tech towards Global South, LNG, ammonia, and OpEx-driven markets where demand fundamentals remain strong.

    Award delays, reduced contingency activity, and government shutdownFY25

    Impacted Mission Tech performance

    Mitigation: Disciplined execution, focus on higher-margin work, strong international execution, and selective business development approach.

    Loss of COSMOS recompeteFY25

    COSMOS recompete lost

    Mitigation: This was at the lower end of margin returns within the portfolio; no material recompete revenues expected in FY26, reducing near-term recompete risk.

    NASA budget pressureFY26

    Science and Space segment down

    Mitigation: Contained within the overall MTS guidance; focus on other growth areas within MTS.

    Protests on awardsOngoing, resolution expected H1 FY26

    Mission Iraq award (circa $1 billion) and classified K2A program under protest; COSMOS and Diego losses also protested.

    Mitigation: Guidance does not assume success in protests, providing potential upside. Award cadence in Mission Tech expected to improve as protests resolve.

    Elevated EUCOM contingency levelsQ1 & Q2 FY26

    $60 million to $70 million per quarter

    Mitigation: The company will be comping against these elevated levels, but EUCOM is now at its base activity levels, and MTS is expected to show moderate sequential growth on a recast basis.

    What to watch in Q1 FY26

    5

    Spin-off Form 10 amendment filing

    March 2026
    CurrentInitial confidential filing made in late December 2025
    TargetAmendment incorporating full year audited FY25 financials

    Why it matters

    This is a key regulatory milestone for the planned spin-off, indicating progress towards the H2 2026 distribution.

    As committed, we made our initial confidential filing in late December, and we currently expect to file an amendment incorporating full year audited '25 financials in March '26.

    Q&A highlights

    6

    What is the pipeline for sizable STS projects to fill the gap and grow beyond Plaquemines, which is closing out next year?

    Management highlighted strong Q3/Q4 book-to-bill, particularly in the Global South, LNG, ammonia, and OpEx areas. They noted the Mura technology ramp-up and ongoing LNG front-end design contracts. The BRIS joint venture, with the SWAT acquisition, is expected to significantly increase EBITDA contribution, providing transparency and longevity to equity and earnings.

    “We've started this year in Q1 very strongly again in bookings in STS. So again, I think directionally, that's a very positive thing to see and obviously to disclose today.”

    asked by Tobey Sommer · answered by Stuart Bradie

    2 min read6 chapters

    Detailed Narrative

    01

    Strategy Execution in 2025

    Despite a challenging award environment, KBR successfully executed its strategy in 2025, expanding margins by over 100 basis points and generating operating cash flow with a 110% conversion rate. The company delivered $30 million in cost savings and returned $413 million in capital to shareholders, the highest in a decade. Strategic pillars included expanding in sustainable tech, leveraging contract vehicles in mission tech, and advancing innovation through initiatives like INSITE 3.0 and digital design labs.

    02

    Sustainable Tech (STS) Performance and Pivot

    STS faced headwinds from declining petrochemicals CapEx and a pause in green projects in 2025. However, the segment demonstrated resilience by pivoting towards the Global South, LNG, ammonia, and OpEx-driven markets. This pivot resulted in strong book-to-bill ratios of 1.6x in Q4 and 1.2x for the trailing 12 months, with backlog ending at $4.2 billion, up 5% year-over-year. Work under contract covers approximately 63% of the 2026 guidance, above normative levels.

    03

    Mission Tech (MTS) Performance and Upmarket Move

    MTS navigated award delays, reduced contingency activity, and government shutdown impacts in 2025, maintaining revenue year-over-year and improving margins. The segment continued its upmarket shift, expanding with the U.S. Space Force and Air Force Research Lab, validating the LinQuest acquisition. International performance, particularly in Australia, was strong with $800 million in defense awards. Backlog and options grew 15% year-over-year to $19.1 billion, with 82% of 2026 guidance covered by existing contracts.

    04

    Spin-off Transaction Update

    Preparations for the spin-off are progressing as planned, with a targeted distribution in the second half of 2026. Carve-out audits and pro forma financial statements are underway, with an initial confidential Form 10 filing made in December and an amendment expected in March 2026. The Frazer Nash Consultancy business and U.K. Civil Nuclear project portfolio are being moved into Sustainable Tech to ensure operational clarity for both future companies. Mark Sopp has been appointed Interim Spin CEO.

    05

    Capital Allocation and Balance Sheet Discipline

    KBR maintained strong capital allocation and balance sheet discipline, returning a record $413 million to shareholders in 2025 and ending the year with net leverage of 2.2x. The company approved an annual dividend of $0.66 per share for 2026. A strategic investment of $115 million was made in January to fund the proportional share of the SWAT OpEx acquisition within BRIS, enhancing resilience to CapEx cycles. Leverage is expected to modestly increase in H1 2026 before declining below 2.5x by year-end.

    06

    AI Impact and Digital Transformation

    KBR is disciplined in its approach to AI, focusing on use-case solutions that drive ROI. In MTS, AI is applied to R&D projects through digital engineering labs. In STS, AI is used to accelerate engineering, prevent human errors, and optimize facility operations through digital twins and predictive analytics. The company is also implementing AI in back-office functions to improve efficiency and reduce SG&A, including a Microsoft Dynamics ERP rollout across the STS portfolio to enhance real-time decision-making and digital procurement.

    AI-generated summary of the company’s earnings call. Not investment advice.