KBR's Buyback: Real or Not?

Jun. 9.10 | About: KBR, Inc. (KBR)

As a spin-off - from Halliburton (NYSE:HAL) - and as a company with loads of excess cash, KBR, Inc. (NYSE:KBR) regularly pops up on my radar screen. The most recent 10k shows $941 million in cash a no debt. Significant, considering the current $3 billion market cap.

This combined with the underlying cash flow fundamentals caused me to own KBR for a time. I sold the position this spring as shares approached $24 a share. My worries about what KBR (the old Kellogg, Brown, and Root) would do with their cash didn't hurt. The company cited a lack of "transformational M&A activity" as one reason to hold cash.

I'd like to be on record as being against most (if not all) M&A activity. Especially the "transformational" kind. Most of it simply destroys shareholder value.

The recent pullback in KBR shares to around $19 got me wondering about a "double dip". Then came yesterday afternoon's headline: KBR to buy back up to 10 million shares.

This is a big deal, right? I mean, there are only 160 million shares outstanding. 10 million is over 6 percent of the total! Hey, this is great. KBR isn't going to throw the money away after all. They're going to reward shareholders.

Or are they?

HOUSTON--(BUSINESS WIRE)--KBR announced today that it is initiating a Board of Directors authorized share repurchase program to repurchase up to 10 million of its outstanding common stock and over time, maintain KBR’s outstanding shares at approximately 150 million shares.

Is this a classic case of "what the large print giveth, the small print taketh away"? Is this like most buybacks that simply offset employee stock options? The ones where for all the sound and fury, actual shares outstanding never fall... and in most cases continue to rise? The old "decrease in the rate of increase" routine?

It appears the answer is: No.

KBR's current shares outstanding are approximately 160 million vs. the stated goal of 150 million shares. Difference: 10 million shares. (I went to college.)

So if this announcement leads to action, allow me to say, "Bravo KBR".

But in the future, may I suggest that someone else write your press releases?

Disclosure: No positions.