A month has gone by since the last earnings report for Jacobs Engineering (J). Shares have added about 11.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Jacobs Engineering due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Jacobs’ (J) Shares Rise on Q2 Earnings and Revenue Beat
Jacobs Engineering Group Inc.’s second-quarter fiscal 2020 (ended Mar 27, 2020) earnings and revenues beat the respective Zacks Consensus Estimate. Also, the top and bottom lines increased on a year-over-year basis, driven by solid segmental performance and cost-saving initiatives.
Meanwhile, the company has lowered its adjusted EBITDA and EPS guidance for fiscal 2020 owing to COVID-19 impacts.
Jacobs’ President and CFO Kevin Berryman said, “Our long-term outlook for the business, despite the short term challenges associated with COVID-19, remains intact and we expect to generate strong free cash flow for the remainder of 2020.”
On Mar 6, 2020, the company acquired John Wood Group’s Nuclear consulting, remediation and program management business.
Earnings & Revenue Discussion
During the reported quarter, its adjusted earnings of $1.39 per share topped the consensus estimate of $1.26 by 10.3% and increased 16.8% from the year-ago period. The upsurge was driven by accelerated CH2M cost savings and prudent strategy execution.
Jacobs’ revenues totaled $3.43 billion, which surpassed the consensus mark of $3.12 billion by 9.9% and grew 10.9% year over year. The improvement was driven by healthy segmental performance.
Backlog at fiscal second quarter-end totaled $23.3 billion, up 12.5% from a year ago.
Revenues from the Critical Mission Solutions segment of $1.24 billion increased 17.4% year over year. Backlog at the end of the quarter was $9.1 billion, up 25.4% year over year.
Revenues from the People & Places Solutions segment totaled $1.54 million, which increased 7.5% year over year. Revenues, excluding pass through revenues, also grew 10.2% from the year-ago period. Backlog at the end of the quarter was $14.2 billion, up 5.4% year over year.
In the quarter under review, adjusted gross profit increased 5.7% year over year to $648 million. However, adjusted gross margin contracted 160 basis points (bps).
Adjusted operating profit improved 6.7% year over year to $236.5 million. However, adjusted operating margin contracted 510 bps to 8.9% in the quarter.
Balance Sheet & Cash Flow
At the end of the fiscal second quarter, Jacobs had cash and cash equivalents of $1.66 billion, significantly up from $631.1 million at fiscal 2019-end. Long-term debt balance increased to $3.1 billion at the end of the reported quarter from $1.2 billion at fiscal 2019-end.
The company provided $$152.2 million cash for operating activities in the quarter compared with $169.5 million a year ago.
2020 Guidance Lowered
Jacobs now expects adjusted EBITDA between $950 million and $1,050 million compared with $1,050-$1,150 million expected earlier. Also, it anticipates adjusted earnings within $4.80-$5.30 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.23% due to these changes.
At this time, Jacobs Engineering has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 C. 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 these revisions indicates a downward shift. It’s no surprise Jacobs Engineering has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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