Jacobs Engineering Group (JEC)

Q3 2011 Earnings Call

July 26, 2011 11:00 am ET

Executives

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

George Kunberger - Executive Vice President of Operations

Craig Martin - Chief Executive Officer, President and Director

Thomas Hammond - Executive Vice President of Operations

Gregory Landry - Executive Vice President of Operations

Noel Watson - Non-Executive Chairman and Consultant

Patricia Bruner -

Analysts

Alexander Rygiel - FBR Capital Markets & Co.

Scott Levine - JP Morgan Chase & Co

Yuri Lynk - Canaccord Genuity

Tahira Afzal - KeyBanc Capital Markets Inc.

Robert Connors - Stifel, Nicolaus & Co., Inc.

Stewart Scharf - S&P Equity Research

Richard Paget - WJB Capital Group, Inc.

John Rogers - D.A. Davidson & Co.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Andy Kaplowitz - Barclays Capital

Sameer Rathod - Macquarie Research

Joseph Ritchie - Goldman Sachs Group Inc.

Brian Konigsberg

Will Gabrielski - Gleacher & Company, Inc.

Jamie Cook - Crédit Suisse AG

Steven Fisher - UBS Investment Bank

Presentation

Operator

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Previous Statements by JEC
» Jacobs Engineering Group's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Jacobs Engineering Group's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Jacobs Engineering Group F3Q10 (Qtr End 07/2/2010) Earnings Call Transcript

Good day, and welcome to the Jacobs Engineering Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Patty Bruner. Please go ahead.

Patricia Bruner

Good morning. The company requests that we point out that any statements that the company makes today 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 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 earnings release and its annual report on Form 10-K for the period ended October 1, 2010, 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, and the most recent Form 10-Q for the period ended April 1, 2011, for a description of our business, legal proceedings and other information that describes 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 let's turn the call over to John Prosser, CFO, who will begin the discussion of results.

John Prosser

Thank you, Patty, and good morning, everyone. I'll briefly go over the financial highlights for the quarter, and then, I'll turn it over to Craig Martin to do the business overview.

If we turn to Slide 4, that's the highlights for the quarter. We did report earnings per share of $0.71 for the third quarter. That was an earnings of $90.7 million for the year-to-date. Diluted EPS was $1.86 on earnings of $236.7 million. Backlog was right at $14 million. That was flat with the prior quarter and up from a year ago. We continue to show we have a very strong balance sheet. Our cash position continues to be very positive at $773 million. If you're looking on a net cash basis, we have about $222.6 million. A couple of big uses of cash this quarter were the -- or more significant uses of cash were the acquisition of the building that we -- one of the buildings we occupied in Houston as we bought out the end of the lease there and the closing and purchase of CES in India. And also, as was contained in the earnings release, we have continued our guidance for the balance of -- or for the fiscal year at $2.40 to $2.80 per share.

Turning to Slide 5. This is just a track of the history of our earnings, and I think a very good sign is that for the first time for a few years we've actually turned up and the trailing 12 is above the results for last fiscal year. I think more importantly, as you look at the bars that are underneath the graph, which gives our 10-year compounded annual growth rate, it shows that we still are exceeding that 15% target EBITDA over the 10 years even with the downturn of the business that we've experienced over the last couple of years. So I think it's a positive sign that we are starting to grow out of that bottom.

Turning to Slide 6, backlog. Backlog, as I said, was flat quarter-over-quarter, but up by about $500 million when you look at it year-over-year. I think with the increasing revenues we have this quarter, the sales rates at $2.7 billion was a positive sales result even though the resulting backlog still is flat. I think in a growing period like this, we do have projects that tend to be lumpy at times and I think it was a good sales quarter even with the backlog being flat.

And with that, I will turn it over to Craig to review the business overview comments.

Craig Martin

Thank you, John, and good morning, everyone. I'm going to start with Slide 7, our strategies for growth. They're the same 5 strategies we've always had. And I'm going to spend a little more time on the top 3 and the bottom ones, so let me just comment here on the fourth bullet, drive down costs continuously.

As we sit here today, competition in many of our businesses remains pretty intense. Many of our competitors are not full and there's -- price is still a factor in many competitions. And price is more of a factor today in the public sector markets that they have been, but there is a bit of good news. It appears that unit margins are starting to improve particularly in the private sector. We'll see if that really reconstitutes a trend, but at least you can say with some comfort they're not getting worse, at least they don't appear to be. So that is a positive, and it's a positive for our position in terms of having a good solid cost position and being able to be competitive.

Turning now to Slide 8. I want to talk about our relationship-based business model, and I'll talk first about the industry model on the right. This continues to be sort of our idealized view of our competitors who are largely focused on big events in faraway places on lump-sum turnkey competitions and they compete globally. So their competition not only includes U.S. and European companies but the French, the Chinese, the Japanese, a broad slate of competitors on these transactional projects. That results in pretty aggressive pricing and some other challenges, and it's a business that we think is brought with risk and doesn't represent the reward that we would like to see for it.

Everybody in the business has a set of customers that are relationship-based and they do a bunch of discrete projects as well. But if you look at our model on the left, you'll see that our model is almost the reverse of what we think most of our competitors focus on. Our focus is on preferred relationships and repeat business. In quarter 3, 92.5% of our business was repeat business, work for customers that we've worked for in the past year. 80% roughly of that business came from these preferred relationships, and slightly less than 50% of our business came from a very limited set of core clients.

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