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Jacobs Engineering (JEC) Up 1.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Reliant Bancorp (RBNC) delivered earnings and revenue surprises of 0.00% and -1.25%, respectively, for the quarter ended June 2019. Do the numbers hold clues to what lies ahead for the stock?

It has been about a month since the last earnings report for Jacobs Engineering (JEC). Shares have added about 1.3% 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) Q2 Earnings Beat Estimates, Rise Y/Y, View Up

Jacobs Engineering Group Inc. reported second-quarter fiscal 2019 (ended Mar 29, 2019) results, wherein earnings surpassed the Zacks Consensus Estimate by 9.2% but revenues missed the same by 1.4%.

This construction and technical services company’s earnings from continuing operations of $1.19 per share increased 37% year over year. The upsurge was mainly attributable to strong revenues and margins.

Segmental Performance Drives Revenues

In the quarter under review, Jacobs’ revenues totaled $3,091.6 million, reflecting healthy growth of 7.7% from the year-ago level. The improvement was driven by healthy segmental businesses.

Backlog at the end of the fiscal second quarter was $20.7 billion, increasing 7.5% year over year.

ECR Sale & KeyW Buyout

On Apr 26, Jacobs completed the sale of its Energy, Chemicals and Resources (“ECR”) business unit to Australia’s WorleyParsons Ltd., as it intends to focus more on “highest-margin growth businesses.”

Meanwhile, on Apr 22, Jacobs announced that the company intends to acquire KeyW. This deal is in line with Jacobs' Aerospace, Technology and Nuclear (“ATN”) transformational strategy of delivering innovative and unique mission-oriented solutions for highly technical and high consequence government priorities. The transaction positions Jacobs as a leader in high-value Government Services.

Segment Details

Jacobs now reports revenues under two segments — Aerospace, Technology and Nuclear (ATN); and Buildings, Infrastructure and Advanced Facilities (BIAF).

Revenues from the Aerospace, Technology and Nuclear segment of $1,059.5 million increased 14.7% year over year and represented 34.3% of its total revenues in the reported quarter. Backlog at the end of the quarter was roughly $7.3 billion, up 1.5% year over year.

Revenues from the Buildings, Infrastructure and Advanced Facilities segment of $2,032.1 million increased 4.4% year over year and accounted for 65.7% of revenues in the quarter under review. Backlog at the end of the quarter was roughly $13.4 billion, up 11.1% year over year.

Margins Profile

In the quarter under review, Jacobs’ adjusted gross profit increased 2% year over year to $613.5 million. Adjusted selling, general and administrative expenses, which declined 8.2% to $391.8 million, represented 12.7% of the total revenues, decreasing from 14.9% recorded a year ago.

Adjusted operating margin expanded 110 basis points to 7.2% in the quarter.

Balance Sheet and Cash Flow

At fiscal second quarter-end, Jacobs’ cash and cash equivalents were $674.5 million, up from $634.9 million at the end of fiscal 2018. Long-term debt balance increased to $2.84 billion at the end of the quarter from $2.14 billion at fiscal 2018-end.

2019 View Up

The company now expects fiscal 2019 pro-forma EPS in the range of $4.45-$4.85 (assuming full-year ECR results), up from prior expectation of $4.40-$4.80. Jacobs continues to expect full-year adjusted EBITDA between $920 million and $1 billion (excluding ECR).

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Jacobs Engineering has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Jacobs Engineering has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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