It has been about a month since the last earnings report for Jacobs Engineering (JEC - Free Report) . Shares have added about 10.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Jacobs Engineering due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Jacobs (JEC - Free Report) Q1 Earnings & Revenues Lag Estimates, View Up
Jacobs Engineering Group reported first-quarter fiscal 2019 (ended Dec 28, 2018) results, wherein earnings and revenues missed the Zacks Consensus Estimate by 25.7% and 19.1%, respectively.
However, its earnings from continuing operations of 78 cents per share increased from the year-ago figure of 46 cents. The upsurge was mainly attributable to strong revenues and margins.
Segmental Performance Drives Revenues
In the quarter under review, Jacobs’ revenues totaled $3,083.8 million, reflecting healthy growth of 73% from the year-ago quarter (up 12% on a pro-forma basis). The improvement was driven by healthy segmental businesses.
Backlog at the end of the fiscal first quarter was $20.3 billion, increasing 8% year over year.
On Oct 21, Jacobs agreed to offload its Energy, Chemicals and Resources (“ECR”) business unit to Australia’s WorleyParsons Ltd., as it intends to focus more on “highest-margin growth businesses”.
The deal, which is expected to close within Jun 30, is valued at $3.3 billion. Jacobs will receive $2.6 billion in cash and around $700 million worth of shares that equals to about 11% stake in WorleyParsons.
Effective first-quarter fiscal 2019, the company’s segments have been realigned. Jacobs now reports revenues under two segments — Aerospace, Technology, Environmental and Nuclear; and Buildings, Infrastructure and Advanced Facilities.
Revenues from the Aerospace, Technology, Environmental and Nuclear segment were $1,035 million, increasing 45.6% year over year. It represented 33.6% of the total revenues in the reported quarter. Backlog at the end of the quarter was roughly $7.2 billion, up 7.8% year over year.
Revenues from the Buildings, Infrastructure and Advanced Facilities segment totaled $2,048.8 million, increasing 90.9% year over year. It represented 66.4% of revenues in the quarter under review. Backlog at the end of the quarter was roughly $13.2 billion, up 7.4% year over year.
In the quarter under review, Jacobs’ direct cost of contracts (adjusted for restructuring and other costs) surged 74.2% year over year to $2,512.4 million. It represented 81.5% of revenues compared with 80.8% in the year-ago quarter. Adjusted gross profit increased 67% year over year to $571.4 million. Adjusted selling, general and administrative expenses flared up 56% year over year to $411 million. It represented 13.3% of revenues, down from 14.8% a year ago.
Adjusted operating margin expanded 79 basis points to 5.2% in the quarter.
Balance Sheet and Cash Flow
At fiscal first quarter-end, Jacobs’ cash and cash equivalents were $886.7 million, up from $793.4 million at the end of fiscal 2018. Long-term debt balance increased to $2.67 billion at the end of the quarter from $2.14 billion at fiscal 2018-end.
Fiscal 2019 Guidance
Jacobs continues to expect adjusted EBITDA of $920 million-$1 billion (excluding ECR) and adjusted EPS of $5.10-$5.50 (including ECR in discontinued operations). The company also provided an adjusted EPS outlook of $4.40-$4.80, which excludes the ECR discontinued operations, ECR related costs in continuing operations (stranded costs), pre-closing interest expense associated with indebtedness that will repaid with the proceeds from the ECR divestiture and the amortization of acquired intangibles.
The company’s fiscal 2019 assumptions excluding ECR include depreciation of approximately $80 million, net interest expense and other income of about $30 million, a tax rate of 25% and a weighted average share count of 139 million (benefit from buyback).
The company anticipates adjusted EPS of more than $5.00 for fiscal 2020, compared with the $4.40-$4.80 guidance for fiscal 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Jacobs Engineering has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Jacobs Engineering has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.