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Jacobs (JEC) to Report Q3 Earnings: Is a Beat in the Cards?

Zacks Equity Research

Jacobs Engineering Group Inc. JEC is scheduled to report third-quarter fiscal 2019 results on Aug 5, before the opening bell.

In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 9.2% but revenues missed the same by 1.4%. Notably, its earnings from continuing operations increased 37% from the year-ago figure, backed by strong revenues and margins. Jacobs’ revenues also grew 7.7% from the year-ago quarter.

Which Way are Estimates Trending?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported has declined from $1.26 to $1.25 over the past 30 days. This indicates a decrease of 7.4% from the year-ago earnings of $1.35 per share. Moreover, revenues are expected to be $3.15 billion, suggesting a 24.3% year-over-year decline.

Factors to Consider

Jacobs’ fiscal third-quarter earnings are likely to decline on lower revenue expectation. Jacobs expects a moderation in top-line growth in the second half of fiscal 2019 based on strong first-half results and tough comps. Notably, with the completion of the ECR sale and the KEYW acquisition, the portfolio transformation appears to be largely complete.

Jacobs’s Aerospace, Technology and Nuclear or ATN segment (comprising 34.3% of total second-quarter fiscal 2019 revenues) is likely to benefit from the U.S. federal government's increased focus on defense, energy, intelligence community and NASA. Highly fragmented nature of the government services market, its strong technical expertise, unique localized delivery model and an industry-leading efficient cost structure will certainly contribute to its revenues and profits.

The Buildings, Infrastructure and Advanced Facilities or BIAF segment is well positioned to deliver positive results, given favorable infrastructure spending. In the U.K., multi-year programs such as the Environment Agency's TEAM2100 and Highways England's Routes to Market — a six-year program to transform England's motorways — bode well for Jacobs. The water business is expected to benefit from a major water upcycle in the United States. Within transportation, aviation continues to be strong in the United States and Asia. This is another positive for the to-be-reported quarter.

Overall Earnings & Revenue Picture

Moderate revenue generation is expected to be offset by prudent cost management and improved project execution that will likely support the company’s bottom line to some extent in the to-be-reported quarter. Its efforts toward increasing the share of higher-margin backlog, and dependence on recurring revenues and rebid wins are expected to give a boost to its bottom line.

Meanwhile, the company expects to incur some of the one-time ECR-related transaction, separation and restructuring costs in the fiscal third quarter. It also expects about $16 million of transaction fees and one-time acquisition-related costs in the quarter.

What the Zacks Model Says

Our proven model shows that Jacobs is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.60%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Jacobs currently carries a Zacks Rank #3.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Peer Releases

Quanta Services Inc. PWR reported lower-than-expected results in second-quarter 2019. Both the top and bottom lines missed the Zacks Consensus Estimate during the quarter.

KBR, Inc. KBR reported strong second-quarter 2019 results, buoyed by continued solid organic growth in Government Services and Technology businesses. It reported adjusted earnings of 41 cents per share, beating the Zacks Consensus Estimate of 40 cents by 2.5%. The reported figure also increased 17.1% year over year from 35 cents per share registered a year ago. Total revenues of $1.42 billion surpassed the consensus mark by 3.3% and increased 12.2% year over year.

Fluor Corporation FLR reported adjusted earnings of 33 cents per share in second-quarter 2019, missing the Zacks Consensus Estimate of 50 cents by 36.5%. The reported figure also deteriorated significantly from the year-ago earnings of 81 cents per share by 59.3%. Revenues during the quarter totaled $4.09 billion, lagging the consensus mark of $4.56 billion by 10.2% and declining 16.2% year over year. The downside was mainly caused by lower contribution from Energy & Chemicals, Government, and Diversified Services segments.

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