KBR Inc. Leads Government Contractors In Return On Investment

Washington Technology annually ranks government contractors in a variety of ways. They look for the top 100 in revenue and then break it down different ways including some stock metrics such as Return on Investment (ROI). Their list of the Top 100 for 2009 was led by Lockheed Martin with almost $15 billion.

For ROI though the leader was KBR Inc. (KBR) followed by Dell Computer (Dell). KBR had a ROI of twenty-one percent and Dell just over twenty. In third place was Computer Sciences Corporation (CSC) at fourteen percent so the first two are head-and-shoulders above the rest.

Interestingly of the five big hardware contractors only General Dynamics was in the top ten based on ROI, although these were one to five in total defense revenue. KBR is sixth in this kind of revenue at almost $5.5 billion. Raytheon, Boeing and Lockheed were all in the eight to ten percent range while Northrop Grumman due to their loss for 2008 of over $1 billion due to pensions and some contract restructuring had no measurable ROI.

Dell Computer historically has had a high ROI because of the products and services they sell. KBR provides mainly services in the areas of logistics and construction management. They are not developing or building expensive hardware for the U.S. military. KBR has especially benefited from the money spent on housekeeping and logistic service contracts for troops in Iraq and Afghanistan. This has helped them make a good ROI even though their earnings are low. In the last quarter they made $73 million on revenue of almost $3 billion.

Most people imagine that the defense budget goes primarily to weapon systems and the focus on the cost and size of them make people think this way. In reality the majority goes to personnel and support costs. KBR makes their money off of logistics, services and support contracts. Of course if the U.S. actually starts winding down its troop commitment in Iraq and Afghanistan KBR stands a chance to lose a great deal of its business. Although for the next few years that doesn’t look likely.