Jacobs Engineering Group CEO Discusses Q1 2011 Earnings Call Transcript

Jacobs Engineering Group (JEC)

Q1 2011 Earnings Call

January 25, 2011 11:00 am ET

Executives

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

Craig Martin - Chief Executive Officer, President and Director

Thomas Hammond - Executive Vice President of Operations

Patricia Bruner -

William Birkhofer - Senior Vice President of Public Sector Sales

Analysts

Alexander Rygiel - FBR Capital Markets & Co.

Yuri Lynk - Canaccord Genuity

Scott Levine - JP Morgan Chase & Co

Tahira Afzal - KeyBanc Capital Markets Inc.

Chase Jacobson - Sterne Agee & Leach Inc.

John Rogers - D.A. Davidson & Co.

Andrew Wittman - Robert W. Baird & Co.

Andy Kaplowitz - Barclays Capital

Will Gabrielski - Gleacher & Company, Inc.

Sameer Rathod - Macquarie Research

Jamie Cook - Crédit Suisse AG

Robert Connors - Stifel Nicolaus

Avram Fisher - BMO Capital Markets U.S.

Steven Fisher - UBS Investment Bank

Presentation

Operator

Good morning, and welcome to the Jacobs' First Quarter 2011 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Patty Bruner. Please go ahead, ma'am.

Patricia Bruner

Thank you. 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 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 I'd like to turn the call over to John Prosser, CFO of Jacobs, to discuss the quarterly results.

John Prosser

Thank you, Patty. I will go through the financial highlights for the quarter, and then I'll turn it over to Craig Martin, our CEO, for the full review of the business strategies and the results of the quarter.

If you go to Slide 4, this is a summary of the quarter. Earnings per share were $0.52. Net earnings of $65.8 million. These results include costs of $5.5 million after-tax or $0.04 related to acquisition costs that we incurred during the quarter. Backlog. We ended the quarter with Backlog of $13 billion. Our balance sheet continues strong. Net cash was actually up from last quarter at $957 million. And as we had in our press release earlier, we are raising our guidance for the year to a range of $2.40 to $2.85, and this increase includes the effects of the Aker Solutions' acquisition that we previously announced that we hope to close here in the next week or two.

Moving on to Slide 5. This tracks the 10-year history of our earnings. I think the important thing is looking at the bars underneath the graph. If you look at the 10-year compounded annual growth rate, we continue to be able to meet the target that we have put on ourselves of a 15% earnings growth rate and even through 11 with the last couple of years being more difficult through the recession, we're still showing over 16% compounded growth rate.

Moving on to Slide 6. And I can spend a little bit more time on this slide, because we did make some adjustments in Backlog this quarter. As I said earlier, that Backlog finished at $13 billion. This was down slightly from the prior quarter where it was $13.2 billion. But during the quarter, one client informed us that they were going to do some of the procurement, a pass-through cost on a direct basis and so took that out of our scope. So we reduced Backlog by about $450 million. So important to note that these are just pass-through costs, so the margin related to the activity of doing the procurement will still be going through our books as we assist our client in doing the procurement. But the pass-throughs would just be removed and won't be to revenues.

The more important figure and as we've been talking for a few quarters is the professional services backlog increased nicely. It went up to and finished the quarter at $7.9 billion compared to $7.6 billion last quarter. So we're seeing a nice pickup in activity on the professional services side of the business. And as we've talked about in the past, that really is the precursor for a broader range of activity going forward as the professional services design and turns into construction a number of our business groups.

With that, I will turn the call over to Craig to give a review of the quarter.

Craig Martin

Thank you, John. Good morning, everyone. I'm going to take a few minutes to talk about our strategies for growth and also to update you a little bit on some of our acquisition activity in the last quarter. I'm going to spend some time on our business model, but not so much. I think most of you have heard that before. I'll touch on it briefly on the next slide but then we'll move on.

I'm talking about selective market diversity as well, and I'll take time in that section to talk a little bit about what we see going on in the markets. We're going to go and talk about our growth strategy. I'll discuss our multi-domestic strategy as a part of my discussion about the Aker Solutions' P&C acquisition. I'm not going to spend any time on driving down cost continuously. I think we've told you many times how important this is to our business and how effective we think we are at it in general. But it's always a challenge to get your margins up and your costs down in difficult markets like this one.

And then I'm going to talk about the Aker acquisition in some detail. So we made several other acquisitions at close during the quarter. And I'll mention those briefly as we go through our discussion of the markets.

Turning now to Slide 8. This is our conceptual framework for the industry business model and our business model. The industry, as far as we see, continues to be very event-driven. So the industry is focused on transactional projects, big, lump-sum turnkey projects, big events in faraway places. A lot of that just comes from the history of our industry, because a lot of the businesses that started out in our industry started out with that kind of focus and have just maintained it. Some of them are quite good at running businesses that are focused on transactional projects. We have a little a different focus, and we focus entirely on preferred relationships and developing long-term relationships with our clients.

I just got the repeat business data for the first quarter of '11, and our repeat business was 95.6%. So you can see that our model works very effectively to keep us in close with our clients and keep building our repeat business book.

Remember that preferred relationships come from core clients which represent a very significant part of our business. Alliances, probably in and of themselves, are 65%, 70% and preferred relationships in general which run about 80% of the business. It is a very different business model than most of our competition, and we think it continues to serve us very well.

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