Jacobs reports higher profits, more backlog but forecasts weak fourth quarter

Dive Brief:

  • Jacobs Engineering Group reported $196 million in profits for its third fiscal quarter Monday, or $1.52 per share, up from $165.8 million a year ago. Revenue increased to $3.83 billion, up 7% from $3.58 billion 12 months earlier, as the company won key projects in aerospace and infrastructure. 
  • Adjusted earnings per share from continuing operations hit $1.86, up 13% year-over-year, according to a press release. The results beat analysts’ expectations of both $3.75 billion in revenue and $1.83 per share, according to Zacks Investment Research. 
  • Despite the earnings beat, Jacobs lowered its financial guidance. The firm now expects fourth quarter earnings per share of $1.75-$1.85, which implies downside to the average analyst estimate of $1.93, according to Matt Arnold, industrial analyst with financial services firm Edward Jones.

Dive Insight:

Jacobs President and CFO Kevin Berryman dismissed concerns about a potential recession during the call, saying that the firms’ clients were not indicating changes in their investment approaches. 

“If you look at the private parts of the portfolio, specifically life science and semiconductor, most clients are really continuing to be quite robust in their outlook,” said Berryman during the earnings call.

Jacobs’ backlog jumped about 10.5% to nearly $28.1 billion, up from $25.4 billion a year ago. 

Its critical mission solutions (CMS) and people and places solutions (P&PS) segments added $10.22 billion and $17.54 billion to their respective backlogs. Its PA Consulting segment’s backlog rose to $326 million, a 3.8% gain from $314 million a year earlier.

Recent wins in the CMS division include a $3.9 billion NASA contract, a $500 million cyber and operational tech services contract for a classified client and a 5G telecom geographic expansion for AT&T in Mid-Atlantic and Western states.

The increase in backlog in P&PS was primarily due to a design project for a Danish biotech company, advising on clean energy transition policies with Asia Development Bank and a U.S. water supply project with New Mexico Water Utility Authority.

Top takeaways

Arnold said Jacobs’ increased focus on infrastructure, aerospace, cybersecurity and technical building projects bodes well for the future growth and profitability of the company. 

Growing economies and a rising middle class in emerging markets such as China and India promote the expansion of roads, new buildings and reliable energy, he said. That should serve as a tailwind for Jacobs’ long-term growth, despite the muted guidance the company provided. 

“While the outlook for the fourth quarter is weaker than expected, we believe currency impacts are the primary driver, while expected results from the underlying business are more in line with expectations,” said Arnold in an analyst’s note on the results. “In addition, we view Jacobs as a likely beneficiary of the infrastructure stimulus that was signed into law.”

But the primary downside risk for Jacobs is that its model is tied to customer capital expenditures. That tends to be related to the health of the economy, which has come under intense scrutiny as numerous economists warn of an oncoming recession. 

The International Monetary Fund recently cut its global forecasts, warning that high inflation and the Ukraine war could push the world economy into recession. If the global economy deteriorates more than expected, Jacobs’ business would likely be negatively impacted, according to Arnold’s report. 

Jacobs’ shares closed down about 6% Monday.

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