A month has gone by since the last earnings report for Jacobs Engineering (JEC). Shares have lost about 0.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Jacobs Engineering due for a breakout? 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 catalysts.
Fiscal Third-Quarter 2018 Highlights
Jacobs Engineering Group reported better-than-expected results in the third quarter of fiscal 2018 (ended Jun 29, 2018), beating both the top and bottom lines by 4.3% and 13.4%, respectively.
The company's adjusted earnings in the reported quarter were $1.35 per share, surpassing the Zacks Consensus Estimate of $1.19. Also, the bottom line increased by a significant 71% from the year-ago figure of 79 cents. The upsurge was driven by accelerated CH2M cost savings along with prudent strategy execution. Segmental Performance Drives Revenues
In the quarter under review, Jacobs' revenues totaled $4,156.7 million, reflecting healthy growth of 65.3% from the year-ago quarter. The improvement was driven by healthy segmental businesses. The top line outpaced the Zacks Consensus Estimate of $3,984 million.
Backlog at the end of the quarter was $27.2 billion, increasing 47% year over year.
The company reports revenues in three segments - Aerospace, Technology, Environmental and Nuclear; Buildings, Infrastructure and Advanced Facilities; and Energy, Chemicals and Resources. The segmental results are briefly discussed below:
Revenues from the Aerospace, Technology, Environmental and Nuclear
segment were $1,221.3 million, increasing 100% year over year. It represented 29.4% of the reported quarter's total revenues. Backlog at the end of the quarter was roughly $8.9 billion, up 57.2% year over year.
Revenues from the Buildings, Infrastructure and Advanced Facilities
segment totaled $1,707.1 million, increasing 72.9% year over year. It represented 41.1% of the reported quarter's revenues. Backlog at the end of the quarter was roughly $11.3 billion, up 75.2% year over year.
Revenues from Energy, Chemicals and Resources
segment totaled $1,228.3 million, increasing 34% year over year. It represented 29.5% of the reported quarter's revenues. Backlog at the end of the quarter was roughly $7 billion, up 8.5% year over year. Margin Profile Mixed
In the quarter under review, Jacobs' cost of sales surged 64.5% year over year to $3,380.3 million. It represented 81.3% of revenues compared with 81.7% in the year-ago quarter. Gross margin increased 40 basis points (bps) year over year to 18.7%. Selling, general and administrative expenses flared up 70.4% year over year to $563.7 million. It represented 13.6% of revenues, up from 13.2% a year ago.
Adjusted operating income in the quarter under review increased 89.7% year over year to $244.6 million. However, adjusted operating margin expanded 90 bps to 6.4%. Balance Sheet and Cash Flow
Exiting the third quarter of fiscal 2018, Jacobs' cash and cash equivalents were $824.4 million, up from $774.2 million at the end of fiscal 2017. Long-term debt balance decreased to $2.33 billion from $2.35 billion at the end of fiscal 2017.
Capital expenditure in the first nine months of fiscal 2018 totaled $63.4 million compared with $73.6 million in the year-ago period. Upbeat Fiscal 2018 Views
Buoyed by stellar performance so far this fiscal, Jacobs now expects fiscal 2018 adjusted earnings per share to be at the high end of its earlier guided range of $4.00-$4.40.
Jacobs anticipates benefiting from the CH2M buyout, having progressed well toward integrating these assets. Cost synergies of $175 million (earlier $150 million expected) will be achieved by the end of fiscal 2019. Also, healthy segmental business, especially of Aerospace, Technology, Environmental and Nuclear, Buildings, Infrastructure and Advanced Facilities, will be advantageous. Reduction of debt will be a priority in the second half of fiscal 2018.
The company expects fiscal 2019 adjusted EPS in the range of $5.00-$5.40.
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 nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 B. 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 this revision 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.
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