FWLT (MM)

Jacobs Engineering Group Inc. (JEC) reported its financial results for the second quarter of 2011 on April 25. The company reported net earnings per share (excluding one-time items) of 63 cents in the quarter, compared with 62 cents in the year-ago quarter. Results were in line with the Zacks Consensus Estimate of 63 cents.

Second quarter’s EPS included a 4 cent contribution from the acquired businesses of Aker Solutions ASA. Excluding the contribution, net earnings in the quarter approximates 59 cents.

Top-line results were weak in the quarter; total revenue plummeted 1.1% year over year to $2,558.0 million but increased 8.6% sequentially and above the Zacks Consensus Estimate of $2,523.0 million. The year-over-year decline can be attributed to lower backlog and Field Services revenue.

Revenues from Technical Professional Services (58.3% of the total revenue) increased to $1,491.2 million from $1,344.6 million in the second quarter of fiscal 2010 while revenues from Field Services (41.7% of the total revenue) dropped 14.1% to $1,066.8 million.

Selling, general and administrative (SG&A) expense as a percentage of revenue rose 90 basis points to 10.2%. However, costs incurred for completing contracts, a major expenditure for Jacobs, as a percentage of revenue decreased 120 basis points to 84.8%. Thus, operating margin improved 30 basis points to 5.0% from 4.7% in the year-ago quarter.

At the end of second quarter, backlog totaled $14.0 billion, down from $14.7 billion at the end of the second quarter of 2010 and up from $13.0 billion at the end of the previous quarter.

Jacobs' cash and cash equivalents, exiting the second quarter, were approximately $747.9 million, down 28.1% sequentially. Total debt increased to $434.2 million from $82.4 million in the previous quarter.

Outlook

Jacobs narrowed its earnings guidance range for the fiscal year 2011 to $2.40-$2.80 from the prior range of $2.40-$2.85. The guided range includes the net contribution from the acquired businesses of Aker Solutions.

Jacobs is one of the leading providers of professional, technical, and construction services to industrial, commercial, and governmental clients. The company faces stiff competition from competitors including Fluor Corporation (FLR) and Foster Wheeler AG (FWLT).

We currently maintain our Neutral recommendation on the stock.

 
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