Jacobs Engineering Group (JEC)

Q1 2012 Earnings Call

January 26, 2012 11:00 am ET

Executives

Gary Mandel - Former Executive Vice President of Process and Construction

Craig L. Martin - Chief Executive Officer, President and Director

Gregory J. Landry - Executive Vice President of Operations

George A. Kunberger - Executive Vice President of Global Sales

Patricia Bruner -

Thomas R. Hammond - Executive Vice President of Operations

John W. Prosser - Principal Financial Officer, Executive Vice President of Finance, Treasurer and Executive Vice President of Administration

Analysts

Andrew Buscaglia

Brian Konigsberg - Vertical Research Partners Inc.

Unknown Analyst

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Scott J. Levine - JP Morgan Chase & Co, Research Division

Alan Fleming - Barclays Capital, Research Division

Casey S. Deak - Stifel, Nicolaus & Co., Inc., Research Division

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

Min Tang-Varner - Morningstar Inc., Research Division

John Rogers - D.A. Davidson & Co., Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Compare to:
Previous Statements by JEC
» Jacobs Engineering Group Inc. - Shareholder/Analyst Call
» Jacobs Engineering Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript
» Jacobs Engineering Group's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Good morning, and welcome to the Jacobs Engineering 2012 First Quarter Conference Call. [Operator Instructions] Please also note, this event is being recorded. I would now like to turn the conference over to Ms. Patty Bruner. Please go ahead, ma'am.

Patricia Bruner

Thank you, Roque. The company requests that we point out that any statements that the company makes today that are not based on historical facts 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 involve risks and uncertainties that could cause actual results of the company to differ materially from what may be inferred from the forward-looking statements. For a description of some of the factors which may occur that could cause or contribute to such differences, the company requests that you read its most recent annual report on Form 10-K for the period ended September 30, 2011, including item 1A, Risk Factors; Item 3, Legal Proceedings; and item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations contained therein, for a description of our business, legal proceedings and other information that describe the factors that could cause actual results to differ from such forward-looking statements.

The company undertakes no obligation to release publicly any revisions or updates to any forward-looking statements, whether as a result of new information, future events or otherwise.

And now I'll turn the call over to John Prosser, Jacobs CFO, to begin today's discussion.

John W. Prosser

Thank you, Patty. And good morning, everyone. Thank you for joining us this morning. I'll go briefly over the financial highlights for the quarter and then I'll turn it over to Craig Martin, our CEO to go through our business strategy and results of the quarter.

Turning to Slide 4. First quarter financial highlights. We did report that diluted earnings per share of $0.70, which was pretty much in line with expectations and up nicely from a year ago's first quarter. The earnings for the quarter were just under $90 million and backlog showed a nice growth to $14.5 billion, up not only from last quarter but also nicely from last year.

We've had a good trend in the backlog increases over the last year. So if you look at the book-to-bill, we were about 1.14 if you look at the trailing 12. So it hasn't been just a onetime event. It's been a nice progression as we've gone through last 4 or 5 quarters. So we continue to have a very strong balance sheet. Net cash increased up to $423 million and as we reported in the earnings release, where we are maintaining our -- the fiscal year '12 guidance at the range of $2.80 to $3.20. So I think that's a good solid quarter in line with expectations and with that, we felt that it there was really no reason to change the guidance for the year.

Moving to Slide 5, this just looks at our history of trailing earnings. We have continued to show the nice uptick that we started last year and more importantly, if you look at the bars, the 10-year compounded growth rate at the bottom of the chart, we continue to track at a rate above that 15% that we always talked about as being our long-term target.

Moving on to Slide 6. Looking at the backlog, again breaks down between pro services and other. The total backlog as I said was up nicely. Field services backlog was flat, but we had a very nice growth in the professional services. We may have -- those who follow us saw that we did do a couple of small acquisitions during the quarter and while those are nice little niche acquisitions and has some nice potential to -- collectively brought less than $50 million in backlog into the company. So it really didn't have a material impact on this. And so most of this was just related to our existing book of business. But with a nice growth in backlog, as we said before, the professional services backlog, that does speak well because that is the precursor to the field services, other activity that we get on projects. So we think this is really a good sign as we move forward for the rest of the year and then to 2013.

So with that, I will turn it over to Craig Martin, who will make some comments on the business.

Craig L. Martin

Thank you, John. Good morning, everyone. I'm on Slide 7 now. Just quickly reminding all of you about sort of our approach to the business, we are nothing if not constant about this. We continue to be competitive. We're committed to our relationship-based business model. We continue to believe that market and geographic diversity are important and being local to our customers will be a critical factor going forward. We continue to have a strong cash position based on our belief that acquisitions will represent both opportunities as well. Now I'll talk about all 4 of those things in a little more detail later on.

And of course we continue to be focused on keeping our costs down. The market remains pretty competitive. We are seeing some improvements here and there in the market from a cost point of view. The public sector probably has more pressure on it than it had in the past. The private sector seems to be stable and in fact, pricing maybe improving just a little bit there. But our focus on keeping our costs down will remain unchanged.

Turning now to Slide #8, I want to talk just a little bit about our business model and how it fuels our growth. Let me remind you a little -- of the difference between our approach and what we see in most of our competitors. Most of our competitors follow what we characterize as a transactional business model. They focus on big events, global competition, a lot of lump sum turnkey, they're out there with the French and the Chinese and the Koreans and in a very competitive market for very large projects.

And you can -- you hear that quite often in their calls like this one as they talk about the main prospects they're going to make or break a quarter or a year. Our model, however, is slightly different. We focus on higher repeat business with our customers and a strong relationship-based business model. Something on the order of 70% to 80% of our business comes from long-term relationships and about North of 90% of our business, I think that number was 92.7% this last quarter of our business comes from repeat customers.

Our business is dominated by a few core clients with whom we have very strong relationships and our strategy is generally to grow our share of that customers' wallet or those customers' wallet in order to enhance our business and increase our profitability scale and growth.

The chart that we've shown you here kind of gives you a sense of how all that works. So if you start at the bottom in this section, named employees and you look at the key factors there, our systems and processes, our people themselves, our knowledge and understanding of our clients and our commitment to continuous improvement. All of that drives better performance by us and therefore better outcomes for our clients. As they get better outcomes, they trust us more, they're more willing to have long-term relationships with us, they're more willing to expand their share of wallet and we get that repurchase loyalty that's so valuable to us. That drives a good, steady profit growth. And we hope that drives then investor loyalty and a strong belief in our company, supports the financial strength that we need and allows us then to reinvest in that area at the bottom of the chart there. And we get what we think of as kind of a virtuous circle in our business that let's us continuously grow that business with our customers. And in the long run, we think that's going to prove to be a very good model, one that will produce some very good result including that compound 15% growth that we talk about.

Read the rest of this transcript for free on seekingalpha.com