Back to top

Analyst Blog

Zacks Equity Research

Jacobs' (JEC) Q4 Earnings in Line, Revenues Decline Y/Y

JEC IIVI AOS AIT

Trades from $3

Jacobs Engineering Group Inc. (JEC - Free Report) posted adjusted earnings of 77 cents per share in fourth-quarter fiscal 2016, in line with the Zacks Consensus Estimate. Earnings were, however, down 3.8% on a year-over-year basis.

While cost-saving initiatives proved conducive to bottom-line growth, tepid top-line performance proved to be a drag.

For fiscal 2016, the company’s earnings were $3.08 per share, well within the guided range of $2.90–$3.20. However, it declined 5.5% from the fiscal 2015 figure.

Revenues

Revenues in the fiscal fourth quarter decreased 15.3% year over year to $2,640.6 million and also fell short of the Zacks Consensus Estimate of $2,779 million.

Dismal sales in three out of four segments of the company resulted in the weak top-line performance. Economic headwinds in key end markets proved to be a major drag on the company’s sales.

For fiscal 2016, the company’s total sales came in at $10,964.2 million, down 9.5% from fiscal 2015. Significant market challenges in fiscal 2016 played a spoilsport.

Segment Details

Revenues of Petroleum & Chemicals segment came in at $684.0 million, down 33.1% year over year. While Aerospace & Technology segment’s quarterly sales dropped 17.8% to $650.0 million, Buildings & Infrastructure segments’ sales declined 12.6% to $557.5 million, both on a year-over-year basis.

However, Industrial segment revenues were up 12.5% year over year to $749.1 million.

Costs/Margin

Direct costs of contracts, a major expenditure for Jacobs, decreased 16.4% year over year to $2,208.9 million. Selling, general and administrative expenses declined approximately 16.8% year over year to $348.9 million.

The company’s operating margin expanded 140 basis points (bps) year over year to 3.1%.

At the end of fiscal 2016, the company’s backlog totaled $18.8 billion, relatively flat compared with the year-ago tally. Fiscal 2016 backlog comprised a technical professional services component of $12 billion.

Balance Sheet/Share Repurchase Update

As of Sep 30, 2016, Jacobs’ cash and cash equivalents were approximately $655.7 million compared with $460.9 million as of Oct 2, 2015. Total debt decreased to roughly $385.3 million from $584.4 million as of Oct 2, 2015.

The company’s capital expenditure at the end of the fiscal fourth quarter amounted to $21.3 million, up 7.4% year over year.

During the fiscal fourth quarter, the company repurchased 1 million shares of common stock for $50 million. For fiscal 2016, it repurchased total of 3.4 million shares for $153 million.

JACOBS ENGIN GR Price, Consensus and EPS Surprise

 

JACOBS ENGIN GR Price, Consensus and EPS Surprise | JACOBS ENGIN GR Quote

Outlook

For fiscal 2017, the company believes that cost savings from its restructuring actions and constant reinvestment in strategic growth initiatives will act as key growth drivers. Over the past few quarters, Jacobs has successfully trimmed general and administrative costs and improved receivables collection performance, which, in turn, have proved conducive to growth in cash flows. This trend is expected to continue in fiscal 2017 as well.

However, on the flip side, the company anticipates macroeconomic headwinds, such as strengthening of the U.S. dollar and weakness in the global commodity & energy markets, will continue to hurt its revenues and earnings performance.

Based on the current market scenario, Jacobs projects fiscal 2017 earnings to lie within the range of $3.00–$3.30 per share.

To Conclude

Jacob’s lackluster fiscal 2016 results are largely attributable to macroeconomic woes. Going forward, we believe that the company’s diligent cost saving and restructuring initiatives will help it combat some of the macroeconomic weaknesses. During fiscal 2016, the company implemented a global realignment into four lines of business.

These initiatives have resulted in greater accountability and improved project execution. The company remains bullish on efficient cost structure, end-market diversity and focus to drive margins. These will prove conducive to profitability growth in fiscal 2017.

Despite these strengths, energy market woes have significantly thwarted the company’s growth prospects and are proving to be a drag on its financial performance. Depressed oil prices are directly weighing on oil companies’ sales and hence, significantly reducing the extent of Greenfield investments made within the sector. Moreover, weak global economic growth projections have dragged down commodity and construction service prices, thus adding to the Zacks Rank #4 (Sell) company’s woes.

Stocks to Consider

Some better-ranked stocks in the broader sector include AO Smith Corp. (AOS - Free Report) , II-VI Inc. (IIVI - Free Report) and Applied Industrial Technologies Inc. (AIT - Free Report) . All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AO Smith has a robust earnings beat history, with an average positive earnings surprise of 5.9% over the trailing four quarters, beating estimates all through.

II-VI Incorporated has registered a remarkable positive average surprise of over 39.8% in the four trailing quarters, driven by four strong consecutive beats.

Applied Industrial Technologies has managed to beat estimates thrice in the trailing four quarters and has a positive earnings surprise of 4.9%.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>


In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

JACOBS ENGIN GR (JEC) - free report >>

II-VI INCORP (IIVI) - free report >>

SMITH (AO) CORP (AOS) - free report >>

APPLD INDL TECH (AIT) - free report >>