Jacobs Engineering Group Inc. Reports Earnings for the Second Quarter of Fiscal 2017

DALLAS--()--Jacobs Engineering Group Inc. (NYSE:JEC) today announced its financial results for the second quarter of fiscal 2017 ended March 31, 2017.

Second Quarter Fiscal 2017 Highlights:

  • U.S. GAAP net earnings of $50 million, or $0.41 per share;
  • Adjusted net earnings of $95 million, or $0.78 per share;
  • Backlog of $18.5 billion – up $307 million vs. prior quarter and $247 million vs. year ago; highest professional services backlog in eight quarters;
  • Gross margin improvement of over 200 basis points vs. prior year, driven by strong project execution and increased focus on more profitable business;
  • U.S. GAAP G&A down 2% vs. FY16Q2; continued cost focus supporting adjusted G&A decline of 7% compared to prior year;
  • Repurchased 0.9 million shares during second quarter for $51 million; dividends paid of $18 million.

Jacobs reported U.S. GAAP net earnings of $50 million, or $0.41 per share, on revenue of $2.3 billion for the second quarter ended March 31, 2017. This compares to U.S. GAAP net earnings of $65 million, or $0.54 per share, on revenues of $2.8 billion for the second quarter ended April 1, 2016.

Jacobs’ second quarter 2017 results include approximately $45 million, or $0.37 per share, in after-tax costs associated with the 2015 Restructuring as well as other charges associated with our strategic review of our Europe, U.K. and Middle East regional operations (collectively referred to as “Restructuring and other charges”). Our second quarter 2016 results included approximately $26 million, or $0.21 per share, in charges related to the 2015 Restructuring. The increase in restructuring costs year over year drove a decline in the Company’s U.S. GAAP net earnings of 23% versus the year ago quarter.

Excluding the 2015 Restructuring and other charges above, Jacobs’ second quarter 2017 adjusted net earnings totaled $95 million, or $0.78 per share, up 4% as compared to $91 million, or $0.75 per share, from the corresponding period for 2016.

Our U.S. GAAP and adjusted results for the second fiscal quarter of 2017 include a net benefit of $0.05 per share associated with one-time benefit plan changes in India partly offset by certain legal settlements. Additionally, the Company’s fiscal 2016 second quarter adjusted net earnings reflected a net benefit of $0.03 per share related to several items, including the release of a foreign tax reserve and a one-time benefit in non-controlling interests pertaining to certain work performed by one of our partially owned subsidiaries; partially off-set by the impact of a customer bankruptcy and a litigation settlement.

Total backlog was $18.5 billion at March 31, 2017, including a professional services component of $12.4 billion, as compared to total backlog of $18.2 billion and a professional services component of $11.4 billion for the corresponding period last year. On a sequential basis, gross margin associated with our Q2 backlog continued to improve from our Q1 FY17 levels.

Commenting on the results for the second quarter 2017, Steve Demetriou, Jacobs Chairman and CEO said, "We are excited about the benefits from the significant steps we have taken over the past two years to improve our operating performance and capabilities, resulting in our first year over year adjusted operating profit improvement in almost 3 years. While commodity oriented markets continue to be impacted by weak prices, our results give us further confidence in our ability to deliver on a more profitable growth track, as evidenced by the growth in our backlog, improved gross margins and lower SG&A costs.”

The Company’s cash flow from operations was $96 million in the second quarter. Additionally, during the quarter, we repurchased 0.9 million shares of common stock at a total cost of $51 million and paid dividends of $18 million.

Outlook

Kevin Berryman, Jacobs CFO, added, "We are beginning to show improved profit momentum, as evidenced by a 4% improvement in adjusted earnings per share versus the year ago quarter. We have augmented this positive momentum with a more balanced capital return strategy, as evidenced by the authorization and payment of our inaugural dividend of $0.15 per share. Given our Q2 and year to date results, our expectations remain unchanged for the year, with a range of total adjusted EPS for the year at $3.00 to $3.30 per share.”

Jacobs will host a conference call today at 10:00 A.M. CT, which will be streamed live on www.jacobs.com.

Jacobs is one of the world's largest and most diverse providers of full-spectrum technical, professional and construction services for industrial, commercial and government organizations globally. The Company employs over 54,000 people and operates in more than 25 countries around the world. For more information, visit www.jacobs.com.

Statements made in this press release that are not based on historical fact are forward-looking statements. Although such statements are based on management's current estimates and expectations, and currently available competitive, financial, and economic data, forward-looking statements are inherently uncertain, and you should not place undue reliance on such statements as actual results may differ materially. We caution the reader that there are a variety of risks, uncertainties and other factors that could cause actual results to differ materially from what is contained, projected or implied by our forward-looking statements. For a description of some of the factors that may occur that could cause actual results to differ from our forward-looking statements see our Annual Report on Form 10-K for the period ended September 30, 2016, and in particular the discussions contained under Item 1 - Business; Item 1A - Risk Factors; Item 3 - Legal Proceedings; and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as the Company’s other filings with the Securities and Exchange Commission. We also caution the readers of this release that we do not undertake to update any forward-looking statements made in this release.

Financial Highlights:

Results of Operations (in thousands, except per-share data):

    For the Three Months Ended     For the Six Months Ended
March 31, 2017     April 1, 2016 March 31, 2017     April 1, 2016
Revenues $ 2,302,567 $ 2,781,763 $ 4,854,171 $ 5,629,697
Costs and Expenses:
Direct cost of contracts (1,883,283 ) (2,337,547 ) (4,015,575 ) (4,745,007 )
Selling, general and administrative expenses   (351,111 )   (357,435 )   (681,795 )   (738,459 )
Operating Profit 68,173 86,781 156,801 146,231
Other Income (Expense):
Interest income 2,088 2,264 3,574 4,484
Interest expense (3,755 ) (2,200 ) (7,273 ) (5,743 )
Miscellaneous (expense) income, net   (6,015 )   3,611     (6,731 )   3,271  
Total other (expense) income, net   (7,682 )   3,675     (10,430 )   2,012  
Earnings Before Taxes 60,491 90,456 146,371 148,243
Income Tax Expense   (16,326 )   (27,067 )   (41,053 )   (34,548 )
Net Earnings of the Group 44,165 63,389 105,318 113,695
Net Earnings Attributable to Noncontrolling Interests   5,853     1,861     5,236     (1,931 )
Net Earnings Attributable to Jacobs $ 50,018   $ 65,250   $ 110,554   $ 111,764  
Net Earnings Per Share:
Basic $ 0.41   $ 0.54   $ 0.91   $ 0.93  
Diluted $ 0.41   $ 0.54   $ 0.91   $ 0.92  
 
Weighted Average Shares Used to Calculate EPS
Basic 119,484 120,216 119,416 120,554
Diluted 121,714 121,143 121,801 121,553
 

Segment Information (in thousands):

    For the Three Months Ended     For the Six Months Ended
March 31, 2017     April 1, 2016 March 31, 2017     April 1, 2016
Revenues from External Customers:
Aerospace & Technology $ 577,040 $ 669,464 $ 1,154,476 $ 1,339,655
Buildings & Infrastructure 585,242 579,128 1,165,859 1,142,458
Industrial 582,458 666,556 1,334,196 1,338,656
Petroleum & Chemicals   557,827     866,615     1,199,640     1,808,928  
Total $ 2,302,567   $ 2,781,763   $ 4,854,171   $ 5,629,697  
 
For the Three Months Ended For the Six Months Ended
March 31, 2017 April 1, 2016 March 31, 2017 April 1, 2016
Operating Profit:
Aerospace & Technology $ 45,057 $ 55,121 $ 96,144 $ 103,120
Buildings & Infrastructure 43,987 42,463 82,784 82,915
Industrial 24,073 12,417 49,202 39,772
Petroleum & Chemicals   35,619     30,945     59,271     62,548  
Total Segment Operating Profit 148,736 140,946 287,401 288,355
Other Corporate Expenses (8,338 ) (18,797 ) (26,634 ) (38,373 )
Restructuring and Other Charges   (72,225 )   (35,368 )   (103,966 )   (103,751 )
Total Operating Profit 68,173 86,781 156,801 146,231
Total Other (Expense) income (6,449 ) 3,675 (9,197 ) 2,012
Total Other (Expense) income - Restructuring   (1,233 )   -     (1,233 )   -  
Earnings Before Taxes $ 60,491   $ 90,456   $ 146,371   $ 148,243  
 

Other Operational Information (in thousands):

  For the Three Months Ended     For the Six Months Ended
March 31, 2017     April 1, 2016 March 31, 2017     April 1, 2016
Depreciation (pre-tax) $ 17,858 $ 21,059 $ 34,479 $ 43,226
Amortization of Intangibles (pre-tax) $ 11,299 $ 11,725 $ 23,213 $ 23,451
Pass-Through Costs Included in Revenues $ 560,565 $ 601,129 $ 1,233,545 $ 1,271,460
Capital Expenditures $ 24,707 $ 13,322 $ 45,761 $ 29,309
 

Balance Sheet (in thousands):

At March 31, 2017 and September 30, 2016

       

March 31, 2017
(Unaudited)

September 30,
2016

ASSETS
Current Assets:
Cash and cash equivalents $ 674,596 $ 655,716
Receivables 2,058,005 2,115,663
Prepaid expenses and other   88,545     93,091  
Total current assets   2,821,146     2,864,470  
Property, Equipment and Improvements, Net 316,077 319,673
Other Noncurrent Assets:
Goodwill 2,862,364 3,079,628
Intangibles 319,821 336,922
Miscellaneous   766,595     759,329  
Total other non-current assets   3,948,780     4,175,879  
$ 7,086,003   $ 7,360,022  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable $ 2,941 $ 2,421
Accounts payable 468,138 522,427
Accrued liabilities 872,858 938,378
Billings in excess of costs   389,279     319,460  
Total current liabilities   1,733,216     1,782,686  
Long-term Debt 334,925 385,330
Other Deferred Liabilities 843,606 861,824
Commitments and Contingencies
Stockholders’ Equity:
Capital stock:

Preferred stock, $1 par value, authorized - 1,000,000 shares; issued and outstanding - none

Common stock, $1 par value, authorized - 240,000,000 shares; issued and outstanding—120,453,954 shares and 120,950,899 shares as of March 31, 2017 and September 30, 2016, respectively

120,454 120,951
Additional paid-in capital 1,217,248 1,168,272
Retained earnings 3,611,953 3,586,647
Accumulated other comprehensive loss   (835,008 )   (610,594 )
Total Jacobs stockholders’ equity 4,114,647 4,265,276
Noncontrolling interests   59,609     64,906  
Total Group stockholders’ equity   4,174,256     4,330,182  
$ 7,086,003   $ 7,360,022  
 

Backlog (in millions):

  March 31, 2017     April 1, 2016
 
Aerospace & Technology $ 5,490.7 $ 4,887.2
Buildings & Infrastructure 5,270.3 4,838.9
Industrial 2,361.2 3,304.3
Petroleum & Chemicals   5,334.7   5,179.4
Total $ 18,456.9 $ 18,209.8
 

Non-U.S. GAAP Financial Measures:

In this press release, the Company has included certain non-GAAP financial measures as defined in Regulation G promulgated under the Securities Exchange Act of 1934, as amended. The non-GAAP financial measures included in this press release are adjusted net earnings, adjusted EPS, adjusted operating profit, adjusted revenue, adjusted direct cost of contracts, adjusted selling, general, and administrative (“G&A”) expenses, and adjusted total other income and expense.

Adjusted net earnings and adjusted EPS are non-GAAP financial measures that are calculated by excluding the after-tax costs related to the 2015 Restructuring activities as well as other charges associated with our Europe, U.K. and Middle East region (collectively referred to as “Restructuring and other charges”), which are not considered by management to be part of the Company’s ordinary operations. Adjusted revenue, adjusted direct cost of contracts, adjusted operating profit, adjusted G&A expense and adjusted total other income and expense are calculated by excluding the pre-tax costs related to the Restructuring and other charges. We believe that the adjusted net earnings, adjusted EPS, adjusted operating profit, adjusted revenue, adjusted direct cost of contracts, adjusted G&A expense and adjusted total other income and expense measurements are useful to management, investors and other users of our financial information in evaluating the Company’s operating results and understanding the Company’s operating trends by excluding the effects of the Restructuring and other charges, which can obscure underlying trends. Additionally, management uses adjusted net earnings, adjusted EPS, adjusted operating profit, adjusted revenue, adjusted direct cost of contracts, adjusted G&A expenses and adjusted total other income and expense in its own evaluation of the Company’s performance, particularly when comparing performance to past periods, and believes these measures are useful for investors because they facilitate a comparison of our financial results from period to period.

The Company provides non-GAAP measures to supplement U.S. GAAP measures, as they provide additional insight into the Company’s financial results. However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance with, or a substitute for, U.S. GAAP measures. In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures of the Company to those used by our peer companies.

The following tables reconcile the U.S. GAAP values of net earnings, EPS, revenue, direct cost of contracts, G&A expenses, operating profit and total other income and expense, to the corresponding "adjusted" amounts. For the comparable periods presented below, such adjustments consist of amounts incurred in connection with the Restructuring and other charges. Amounts are shown in thousands, except for per-share data:

U.S. GAAP Reconciliation for the second quarter of fiscal 2017 and 2016:

    Three Months Ended
March 31, 2017
U.S. GAAP    

Effects of
Restructuring and
Other Charges

   

Without
Restructuring and
Other Charges

Revenue $ 2,302,567 $ 16,529 $ 2,319,096
 
Direct cost of contracts 1,883,283 (4,663 ) 1,878,620
 
Selling, general and administrative expenses 351,111 (51,033 ) 300,078
 
Operating Profit 68,173 72,225 140,398
 
Total other (expense) income, net   (7,682 )   1,233     (6,449 )
 
Earnings Before Taxes 60,491 73,458 133,949
Income Tax (Expense) Benefit   (16,326 )   (23,587 )   (39,913 )
Net earnings of the Group 44,165 49,871 94,036
Net Earnings Attributable to Non-controlling interests   5,853     (4,663 )   1,190  
Net earnings Attributable to Jacobs $ 50,018   $ 45,208   $ 95,226  
Diluted earnings per share $ 0.41   $ 0.37   $ 0.78  
 
    Three Months Ended
April 1, 2016
U.S. GAAP    

Effects of 2015
Restructuring

   

Without 2015
Restructuring

Selling, general and administrative expenses $ 357,435 $ (35,183 ) $ 322,252
 
Operating Profit 86,781 35,183 121,964
 
Total other income (expense), net 3,675 185 3,860
 
Earnings Before Taxes 90,456 35,368 125,824
Income Tax (Expense) Benefit   (27,067 )   (9,668 )   (36,735 )
Net earnings of the Group 63,389 25,700 89,089
Net Earnings Attributable to Non-controlling interests   1,861         1,861  
Net earnings Attributable to Jacobs $ 65,250   $ 25,700   $ 90,950  
Diluted earnings per share $ 0.54   $ 0.21   $ 0.75  
 

Contacts

Jacobs Engineering Group Inc.
Kevin C. Berryman
Executive Vice President and Chief Financial Officer
214-583-8500

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