S&P Global Ratings revises KBR Inc. outlook to negative

Investing.com -- S&P Global Ratings has revised its outlook on KBR Inc. to negative from stable while affirming the company’s ratings, citing weaker-than-expected credit metrics.

The rating agency now expects funds from operations (FFO) to debt of 24%-27% in 2025 and 28%-31% in 2026, down from its previous forecast of over 30%.

The revision reflects slower revenue growth and weaker cash flows than anticipated. KBR’s total debt is higher due to less debt repayment and the addition of $550 million in debt in 2024 to fund its acquisition of LinQuest.

Several factors have contributed to KBR’s modest revenue growth outlook. The U.S. Transportation Command terminated KBR’s HomeSafe contract earlier this year, which was expected to generate about $400 million through the remainder of 2025. The company has also experienced reductions in other contracts, delays in awards, and slower activity in the IT services sector following Trump administration actions to reduce government spending and staffing levels.

KBR’s trailing-12-month book to bill ratio sits at 1.0x as of July 4, 2025, indicating limited organic growth potential. S&P now projects total revenue growth of 2%-5% in 2025 and 4%-7% in 2026, significantly lower than previous expectations of over 20% in 2025 and 12%-15% in 2026. The 2025 growth figure includes the full-year effect of the LinQuest acquisition, which closed in late 2024.

Share repurchases are also expected to absorb some free cash flow. With $204 million in share repurchases as of July 4, 2025, S&P doesn’t expect additional repurchases this year, though it anticipates $220 million-$250 million annually starting in 2026. These repurchases, along with steady dividends, will leave less cash available for debt reduction.

S&P could lower KBR’s rating if FFO to debt remains below 30% for an extended period, which could happen if government spending declines, program delays extend, KBR loses major contracts, or the company engages in significant share repurchases or acquisitions beyond expectations.

The outlook could return to stable if FFO tracks above 30% and is expected to remain at that level. This improvement could occur if KBR grows its high-value-added government services revenue base, the sustainable technology solutions business grows beyond expectations, and management commits to maintaining credit ratios at threshold levels.

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