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Jacobs (JEC) Meets Q3 Earnings, Announces $2.85B Buyout Deal

Zacks

Jacobs Engineering Group Inc. JEC reported in-line third-quarter fiscal 2017 (ended Jun 30, 2017) results.

The company recently (Aug 7, 2017) announced that it would acquire its rival CH2M HILL Companies Ltd. (CH2M), in order to become a premier $15-billion global solutions provider, moving ahead. The estimated value of the deal is $2.85 billion and will likely be closed by Jacobs’ first-quarter fiscal 2018. The deal is anticipated to boost Jacobs’ inorganic growth trajectory and reinforce its industry competency over the long term.

Quarter in Details

Quarterly adjusted earnings came in at 79 cents per share, in line with the Zacks Consensus Estimate. However, the bottom line came in higher than the year-ago tally by a penny.


Revenues

Revenues in the fiscal third quarter declined 6.6% year over year to $2,515.7 million. The top line missed the Zacks Consensus Estimate of $2,532 million.

Segment Details

Revenues of Petroleum & Chemicals segment came in at $600.5 million, plunging 21.7% year over year. Aerospace & Technology segment’s quarterly sales dropped 12.3% to $585.4 million. Industrial segment’s revenues were down 3.5% year over year to $681.6 million.

However, Buildings & Infrastructure segments’ sales climbed 16.9% year over year $647.3 million.

Jacobs Engineering Group Inc. Price, Consensus and EPS Surprise

Jacobs Engineering Group Inc. Price, Consensus and EPS Surprise | Jacobs Engineering Group Inc. Quote

Costs/Margin

Direct cost of contracts, a major expenditure for Jacobs, decreased 8.3% year over year to $2,055.4 million. Gross margin in the reported quarter came in at 18.3%, expanding 150 basis points (bps) year over year. The upside was driven by increased focus on more profit generating businesses and robust project execution.

Selling, general and administrative expenses were down approximately 3.2% year over year to $330.9 million. The company’s operating margin expanded 100 bps year over year to 5.1%.

At the end of the reported quarter, the company’s backlog totaled $18.6 billion, up 1.3% year over year.

Balance Sheet/Share Repurchase Update

Exiting third-quarter fiscal 2017, Jacobs’ cash and cash equivalents were approximately $758.3 million compared with $655.7 million as of Sep 30, 2016. Long-term debt was $282 million compared to $385.3 million as of Sep 30, 2016.

The company’s capital expenditure for the fiscal third quarter was $27.8 million, as against $17.1 million incurred in the year-ago quarter.

During the reported quarter, Jacobs paid dividends worth $18 million and repurchased 0.3 million common stock at an expense of $16 million.

Outlook

Jacobs aims to generate profitable commercial growth on the back of sound restructuring programs and the latest CH2M buyout. The company also intends to reinforce its business on the back of strategic cost-saving plans and record backlog levels. Based on the current market conditions, the company anticipates fiscal 2017 earnings to lie within the $3.00–$3.15 per share range.

Why a Poor Zacks Rank?

Jacobs currently carries a Zacks Rank #4 (Sell). Price volatilities in the energy market, dismal field services’ business or reduced public spending in the UK are expected to curtail near-term growth of the company. Moreover, headwinds such as stiff industry rivalry or a stronger U.S. dollar remain major causes of concerns.

Key Picks

A few better-ranked stocks in the industry are listed below:

KB Home KBH generated an outstanding average positive earnings surprise of 12.47% over the trailing four quarters and currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVR, Inc. NVR currently sports a Zacks Rank #1 and has an average positive earnings surprise of 14.19% for the last four quarters.

Potlatch Corp. PCH also flaunts a Zacks Rank #1 and generated an average positive earnings surprise of 41.16% over the past four quarters.

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