JACOBS ENGINEERING GROUP INC. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Jacobs Engineering Group Inc. for the period ended June 30, 2008. The company is a large accelerated filer providing engineering, construction, and technical services. The reporting period covers the third quarter and the first nine months of fiscal year 2008. The company completed the acquisition of Carter & Burgess, Inc. on November 2, 2007, which significantly impacts year-over-year comparisons.
Key Financial Metrics
| Metric | Q3 2008 (3 Months) | Q3 2007 (3 Months) | YTD 2008 (9 Months) | YTD 2007 (9 Months) |
|---|---|---|---|---|
| Revenues | $2,918.9 million | $2,083.7 million | $8,055.5 million | $6,193.9 million |
| Operating Profit | $168.9 million | $115.7 million | $464.3 million | $312.6 million |
| Net Earnings | $108.7 million | $74.8 million | $306.4 million | $203.2 million |
| Diluted EPS | $0.87 | $0.61 | $2.46 | $1.67 |
| Cash & Equivalents | $536.2 million (as of June 30, 2008) | |||
| Working Capital | $1.1 billion (as of June 30, 2008) | |||
| Backlog | $18.3 billion (as of June 30, 2008) | |||
| Long-Term Debt | $38.4 million utilized of $290.0 million facility |
Margins: Direct costs of contracts were 84.5% of revenue for Q3 2008 and 84.2% for the nine months ended June 30, 2008, representing an improvement over the prior year (84.8% and 85.8%, respectively).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 40.1% in Q3 and 30.1% YTD compared to the prior year. This growth is driven by the acquisition of Carter & Burgess and increased activity in energy, refining, and government sectors.
- Earnings Growth: Net earnings increased 45.4% in Q3 and 50.7% YTD. YTD earnings include a one-time gain of $5.4 million from the sale of an interest in an operations and maintenance company.
- Backlog Expansion: Total backlog increased 65.8% to $18.3 billion, driven by major new awards in energy, oil & gas, and national government programs.
- Cash Flow: Net cash provided by operating activities decreased slightly to $173.4 million YTD (from $180.0 million prior year) due to timing of working capital receipts/payments and stock-based compensation tax benefits. Investing activities consumed $320.6 million, primarily due to business acquisitions ($236.3 million).
Outlook, Risks, and Contingencies
- Outlook: Management expects strong investment in modernizing and expanding refineries and new refineries to continue. Capital spending in oil & gas extraction (particularly Canadian oil sands) remains strong, though sensitive to oil prices. The company believes it has adequate liquidity to fund operations and acquisitions for the next twelve months.
- Market Risks: The company is exposed to interest rate and foreign currency fluctuations. It utilizes derivative instruments (swaps and options) to hedge these risks. Management notes that while the credit crisis has not yet affected access to capital, it could adversely affect borrowing costs in the future.
- Legal Proceedings:
- Waste Incineration Project: The company is litigating a dispute with a European client regarding a waste incineration project, seeking damages in excess of €40.0 million (~$62.9 million). A counterclaim has been filed by the client.
- I-35W Bridge Collapse: The company is cooperating with the NTSB and MnDOT regarding the 2007 bridge collapse in Minneapolis. The company does not expect a material adverse effect on financial statements.
Investor Verification Checklist
- Verify the sustainability of revenue growth in the Energy & Refining and Oil & Gas sectors given potential commodity price volatility.
- Monitor the resolution of the European waste incineration litigation and the potential impact of the counterclaim.
- Assess the integration progress and financial contribution of the Carter & Burgess acquisition.
- Review the timing of working capital receipts, which impacted operating cash flow in the current period.
- Confirm the status of the $290 million revolving credit facility and any potential changes in borrowing costs due to the credit market environment.