Jacobs Engineering Group Inc. Form 10-Q Summary
Reporting period: Three and six months ended March 29, 2013, compared with March 30, 2012. The filing identifies the registrant as Jacobs Engineering Group Inc.; the provided metadata references Jacobs Solutions Inc. Results are unaudited and interim.
Business Context and Reporting Period
Jacobs provides technical professional services, construction, operations and maintenance services across government programs, refining, chemicals and polymers, infrastructure, oil and gas, buildings, pharmaceuticals and biotechnology, mining and minerals, and industrial markets. Backlog was $16.8 billion at March 29, 2013, up 11.2% from $15.1 billion a year earlier.
Key Financial Metrics
| Metric | Q2 2013 | Q2 2012 | Six Months 2013 | Six Months 2012 |
|---|---|---|---|---|
| Revenue | $2.835 billion | $2.703 billion | $5.595 billion | $5.335 billion |
| Operating profit | $165.2 million | $133.1 million | $325.5 million | $275.1 million |
| Operating margin | 5.8% | 4.9% | 5.8% | 5.2% |
| Net earnings attributable to Jacobs | $104.4 million | $83.9 million | $203.4 million | $173.6 million |
| Net margin attributable to Jacobs | 3.7% | 3.1% | 3.6% | 3.3% |
| Diluted EPS | $0.80 | $0.65 | $1.56 | $1.35 |
| Operating cash flow | Not separately provided | Not separately provided | $252.7 million | $122.0 million |
Direct contract costs were 83.6% of revenue in the quarter and 83.9% for the six-month period, compared with 84.2% and 84.1%, respectively, in the prior-year periods. SG&A was $299.7 million in the quarter and $575.2 million year to date. Effective tax rates were 33.9% for the quarter and 33.5% year to date.
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $1.166 billion at March 29, 2013, compared with $1.032 billion at September 28, 2012.
- Total current assets were $3.642 billion and current liabilities were $1.654 billion, producing approximately $1.987 billion of working capital.
- Long-term debt was $447.2 million, down from $528.3 million at fiscal year-end.
- The $1.21 billion unsecured revolving credit facility had $447.2 million of direct borrowings, $12.1 million of letters of credit and $745.6 million of available borrowing capacity. The facility expires in March 2017.
- The company reported compliance with its debt covenants. Total letters of credit outstanding were $217.4 million.
- Management stated that cash, borrowing capacity and other facilities were adequate for operations, acquisitions and debt service over the next twelve months.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased $132.2 million, or 4.9%; six-month revenue increased $260.1 million, or 4.9%.
- Quarterly net earnings attributable to Jacobs increased 24.4%; six-month earnings increased 17.1%. Diluted EPS rose from $0.65 to $0.80 for the quarter and from $1.35 to $1.56 year to date.
- Operating profit increased 24.1% in the quarter and 18.3% year to date, reflecting improved field-services margins and slightly lower technical professional-services margins.
- Six-month revenue growth was strongest in Chemicals and Polymers, up 28.4%; Oil and Gas-Upstream, up 35.0%; Construction services, up 9.7%; and Mining and Minerals, up 12.8%.
- Refining-Downstream revenue declined 11.4% year to date, primarily because the prior-year period included substantial pass-through costs from a large project that was winding down.
- Buildings revenue declined 15.5% year to date, principally because of lower U.S. government spending. Process, Scientific and Systems Consulting revenue declined 4.5% as a federal project wound down.
- Operating cash flow more than doubled year to date, primarily because of higher earnings, lower pension contributions and favorable working-capital timing. Investing cash use declined because no business acquisitions were completed in the current period.
- Cash flow from financing activities was a $50.3 million use, including $69.1 million of long-term debt repayments, versus a $9.3 million use in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
- Management maintained a positive outlook for nearly all served markets and expected continued strength in chemicals and polymers, oil and gas-upstream, infrastructure and refining-downstream.
- Management expected increased Canadian operations and maintenance revenue for the remainder of fiscal 2013 and anticipated stronger oil and gas field-services activity, particularly in Canada.
- Federal budget sequestration caused near-term budget reductions and procurement delays. Its longer-term impact on National Government Programs was described as unclear.
- Mining and minerals customers faced slower Chinese growth, lower commodity prices and reduced capital spending, although management expected opportunities in smaller projects and maintenance work.
- Most contracts may be canceled or terminated at the client’s option. Backlog timing is subject to changes in scope, funding, costs and contract termination.
- The company is exposed to contract-performance risk, cost and pricing audits, government investigations, litigation, insurance limitations, pension obligations, foreign exchange movements and interest-rate changes.
- Pending matters included the Clark County, Nevada arbitration, litigation related to a 2009 ConAgra plant explosion, and a settled Victorville matter. Management expected these matters, individually and in the aggregate, not to have a material adverse effect; certain potential liabilities are insured or subject to indemnification.
- No material changes to the risk factors in the 2012 Form 10-K were reported. Disclosure controls and procedures were deemed effective as of March 29, 2013.
Important Facts for Investors to Verify
- Confirm that the filing entity and period correspond to the intended company and reporting period, since the filing names Jacobs Engineering Group Inc., while the request metadata names Jacobs Solutions Inc.
- Assess whether backlog conversion, client cancellations, funding changes and pass-through-cost volatility support the reported $16.8 billion backlog.
- Monitor federal sequestration and government-spending effects on National Government Programs and Buildings revenue.
- Evaluate the sustainability of improved operating margins and the contribution from field-services work.
- Review contract claims, incentive fees, unbilled receivables and government contract audits, which depend on estimates and recoverability judgments.
- Track debt repayment, letters of credit, pension contributions and the availability of the revolving credit facility.
- Review the pending litigation and arbitration matters, insurance coverage and indemnification arrangements for potential changes in exposure.