A month has gone by since the last earnings report for Jacobs Engineering (J Quick QuoteJ - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Jacobs Engineering due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Jacobs (J Quick QuoteJ - Free Report) Tops Q3 Earnings & Revenue Estimates, Updates View

Jacobs Engineering Group Inc. reported third-quarter fiscal 2022 (ended Jul 1, 2022) results, with earnings and revenues surpassing their respective Zacks Consensus Estimate and rising year over year. The company, however, provided lower-than-expected fiscal fourth-quarter earnings outlook.

In connection with the earnings release, the company’s chair and CEO Steve Demetriou stated, “Our strong base business combined with an early ramp from our accelerators drove 13% constant currency backlog growth in the third quarter, providing significant revenue visibility.” He further added, “Our increased backlog, and alignment to well-funded public and private sector initiatives, provides us with confidence for long-term adjusted EBITDA profit growth. We also expect continued robust cash flow generation, which will strengthen an already healthy balance sheet, affording us opportunities to further increase shareholder value."

Earnings & Revenue Discussion

For the reported quarter, adjusted earnings of $1.86 per share topped the consensus estimate of $1.83 by 1.6%. Also, the figure was up 13% from the year-ago period.

Jacobs’ revenues totaled $3.83 billion, topped the consensus mark of $3.75 billion by 2% and grew 7% year over year. Net revenues improved 7.7% year over year, backed by substantial recurring revenues that are complemented by accelerating growth in the areas of Climate Response, Consulting & Advisory and Data Solutions.

Backlog at fiscal third-quarter end amounted to $28.1 billion, up 10.4% from a year ago (up 13% in constant currency).

Segment Details

Revenues from the CMS segment of $1.32 billion increased 8.1% year over year. Yet, segment operating profit of $104.3 million was down from $108.1 million reported a year ago. Backlog at quarter-end was $10.2 billion, up from $9.57 billion a year ago.

Revenues from the P&PS segment totaled $2.23 billion, which inched up 6.2% year over year. Segment operating profit grew 2.3% from the prior-year quarter to $210 million. Backlog at quarter-end was $17.5 billion, up from $15.6 billion a year ago.

PA Consulting generated $277.6 million in revenues in the fiscal third quarter, up 8.5% from the year-ago quarter’s figure of $255.8 million. Segment operating profit was $51.4 million, down 62.2% from the prior-year quarter’s levels. Quarter-end backlog amounted to $326 million, up from $314 million a year ago.

Margins Profile

For the quarter under review, adjusted gross profit increased to $824.5 million from the year-ago level of $816.9 million.

Adjusted operating margin contracted to 10.3% from 10.6% in the prior-year quarter.

Balance Sheet & Cash Flow

At the fiscal third-quarter end, Jacobs had cash and cash equivalents of $1,102.3 million, up from $1,014.2 million at the fiscal 2021-end (Oct 1, 2021). Long-term debt increased to $3.52 billion at the fiscal third-quarter end from $2.84 billion as of Oct 1, 2021.

Net cash used for operating activities totaled $249.1 million in the quarter compared with $173.3 million of cash provided by operating activities in the year-ago quarter.

Outlook

For the fiscal fourth quarter, Jacobs expects adjusted EBITDA between $340 million and $360 million and adjusted earnings within $1.75-$1.85 per share. On a reported basis for the fourth quarter, it expects revenue growth in the mid-to-high single digits, which translates into double-digit growth on a constant-currency basis.

Jacobs expects PAs operating margin to return to more than 20% in the fiscal fourth quarter and continue to strengthen further in 2023. It also expects continued double-digit revenue growth on a constant-currency basis.

Jacobs expects gross margins to marginally improve in the fiscal fourth quarter and expand further during fiscal 2023, driven by a higher margin backlog and sales pipeline, favorable revenue mix within CMS, acceleration in P&PS revenue and continued strong PA performance. It also expects G&A (as a percentage of revenue) to be the same sequentially in Q4.

Following the announcement of the fiscal 2022 outlook in November, FX translation has adversely impacted Jacobs’ net revenue outlook by approximately $320 million, adjusted EBITDA outlook by $40 million and adjusted EPS outlook by 20 cents. Nonetheless, on a constant-currency basis, the mid-point of the latest full-year outlook remains consistent with the original guidance provided at the beginning of the fiscal year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -8.9% due to these changes.

VGM Scores

At this time, Jacobs Engineering has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Jacobs Engineering has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.