UPDATE 1-KBR gears up for growth beyond military contracts

Wed Jun 23, 2010 5:33pm EDT

Related Topics

* KBR eyeing growth in mining, infrastructure, power, LNG

* Company has bought back 2 mln shares of 10 mln approved

* KBR shares down in line with rivals, energy prices

(Adds quote from CEO, byline, closing share price)

By Braden Reddall

SAN FRANCISCO, June 23 (Reuters) - Engineering company KBR Inc (KBR.N) has set its sights on a handful of sectors with good growth prospects as it diversifies away from dwindling military contracts that are a major part of its business.

KBR is targeting an array of opportunities beyond its extensive British defense work and the $700 billion annual U.S. military budget, Mark Williams, president of infrastructure, government and power, told a meeting of analysts on Wednesday.

His division accounts for nearly half of KBR's revenue, while more than a third comes from the hydrocarbons unit and the rest comes from construction and maintenance services.

"We're not just a wartime contractor," Williams said, in reference to the potential of an expanded $3.8 trillion U.S. federal budget. "We'd all like to see that go down maybe a little bit, but the fact is, it's a large budget. There's plenty of opportunity."

KBR also has a strong presence in the UK, where it plans to work on expanding opportunities with a new government working hard to cut the size of its own budget. [ID:nLDE65L0CF]

"To be a well respected outsourcing company in the United Kingdom will play to our strengths, because they will outsource," KBR Chief Executive Bill Utt said.

The Houston-based company expects the "addressable market" for non-U.S. government and defense contracts to grow over the next five years, even while the market at home shrinks.

But power and industrial opportunities could triple to more than $50 billion by 2015; liquefied natural gas spending could quintuple to $35 billion; and the infrastructure and minerals market will likely quadruple to $40 billion, KBR said.

The company aspires, ultimately, to earn annual revenue of $1 billion from the latter market, or more than three times the current level. Executives later explained all the spending estimates were based on governmental and corporate plans.

KBR had said 2010 U.S. military logistics revenue will be half of what it was in 2009, but that was before the Army opted to stick with KBR under the current contract. It will give updated 2010 guidance on its second-quarter conference call.

The company has remained in Iraq to serve the energy companies that are now moving in, such as giant oilfield services company Schlumberger Ltd (SLB.N).

Iraq has been a deeply controversial place for KBR, where the quality and safety of its projects have been scrutinized by legislators, while the company also faces a lawsuit over unlawful kickbacks in the country. [ID:nN05255910]

Signaling a greater push to settle any disputes KBR does not feel it can win, Utt said he wants to clean out the case backlog.

"We're trying to get these matters settled," the CEO told the all-day meeting, which was webcast.

The company, which vies with San Francisco-based URS Corp (URS.N) for the No. 4 spot among publicly traded U.S. engineering firms, saw its shares fall 1 percent on Wednesday, roughly in line with URS and sector leader Fluor Corp (FLR.N).

KBR said on Wednesday it had already bought back 2 million shares of the 10 million authorized earlier in June. (Reporting by Braden Reddall; editing by Gerald E. McCormick and Andre Grenon)

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