Jacobs Engineering Group's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Jacobs Engineering Group (JEC)

Q2 2012 Earnings Call

May 01, 2012 11:00 am ET

Executives

Patricia Bruner -

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

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

Analysts

Jamie L. Cook - Crédit Suisse AG, Research Division

Rodney C. Clayton - JP Morgan Chase & Co, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Steven Fisher - UBS Investment Bank, Research Division

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

Andrew Obin - BofA Merrill Lynch, Research Division

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

Avram Fisher - BMO Capital Markets U.S.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

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

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

Stewart Scharf - S&P Equity Research

Presentation

Operator

Good morning, and welcome to the Jacobs Second Quarter of Fiscal 2012 Results Conference Call. [Operator Instructions] Please also note that today's event is being recorded. Now I'd like to turn the conference call over to Ms. Patty Bruner. Ms. Bruner, please go ahead.

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 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, and the most recent Form 10-Q for the period ended December 30, 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 I'll turn the call over to John Prosser, CFO of Jacobs.

John W. Prosser

Thank you, Patty, and good morning, everyone. I will just go briefly through the financial highlights and cover a couple of points that were in the press release, and then I'll turn it over to Craig Martin, our CEO, to go through our growth strategies and business overview and outlook for the quarter.

If you go to Slide 4, these are the information. Most of this was contained in the press release. As reported, we did have EPS for the quarter of $0.65 on net earnings of $83.9 million. These earnings were lower than expected and a little disappointing to us. Kind of the lower results were driven by really 3 items, 2 affecting margins, one on the G&A. The -- we had a lower field service activity for the quarter. That continues to wind down. But it was also exacerbated by the fact that we also had a number of deferrals of some turnaround activity that had been impacted in the second quarter but now have been postponed out and probably won't be initiated until fiscal 2013.

Also, we found that because of the continued competitive market, that the work flowing in this quarter has a slightly lower overall multiplier rate in margin rate, and so our operating margin was down from prior quarter both on the professional services side and the field services side. And with the mix, it was also down. So those 2 things contributed to the lower-than-expected margin.

And also, G&As were higher. While we usually will have a slightly higher G&A in the second quarter just because the first quarter tends to have a lot of holidays and such, we found that in -- the second quarter was driven also by just a lot of activity in hiring and delays in getting those people that we hired actually on to projects and billables. So most of the overrun in the G&As that we experienced were related to that, to labor and utilization and getting them utilized, which we think is a temporary activity. And as those people get onto jobs and such, we should be able to get our G&As more in line with expectations over the balance of the year.

Backlog was a very good reported increase year-over-year. We are up almost 8%. And quarter-over-quarter in total, we're up a little over 4%. Book-to-bill continues strong, 1.1 for the trailing 12.

As you'll see when we file our Q probably later today or tomorrow, we will -- we saw the strong balance sheet. Net cash position is still strong at $380 million. And we did revise our guidance and lowered the top end of the range, so our guidance now is $2.80 to $3. We had previously had guidance out there of $2.80 to $3.20. So with the lower results for this quarter, we did adjust the top end of the range.

Moving on to Slide 5, earnings history. Just point out that while we talk about long-term 15% average annual growth rate, we still are delivering that as we've gone through the recession and the downturn. And we still believe that that's a good goal and something that we expect to be able to meet going forward.

On Slide 6, just talk about backlog a little bit more. The professional services backlog had very good growth. And as we've said in the past, that's really the leading indicator for our business. So as -- if you look at that year-over-year, it's almost a 14% growth in professional services, while the overall...

[Audio Gap]

[Technical Difficulty]

Craig L. Martin

We apologize for that. Isn't technology a wonder these days? I think we got cut off somewhere about the time I was starting my discussion. So I'm going to pick up there. If we've missed something when we get into the Q&A, please let us know.

So I'm going to start on Slide 7 with the growth strategy. These are the same 5 points that we make every quarter because this is fundamentally our approach to the business. Nothing about it changes significantly from quarter-to-quarter. The first 4 bullets, our business model, our market diversity, our geographic diversity and our approach to acquisitions, I'm going to talk about in more depth as we go through the rest of the presentation. But I wanted to take just a minute to talk about the last bullet, driving down costs.

As you know, Jacobs has always taken the position that aggressive cost control is a good strategy for supporting growth and profitability, and we believe that continues to be the case. So we're very focused on cost control as we go forward. We've been pretty aggressive about recruitment and bringing in teams for the work that we see out in front of us. That's impacted our costs a little bit this quarter, as John mentioned. But overall, we see our cost posture as good, and the good news is, we see margins as starting to improve a little bit from a standpoint of new sales. So we think the opportunity to raise prices, particularly in the private sector, is out there as we speak. Public sector is going to remain a little more competitive, but that actually plays to our strengths. So we think the markets, from a cost perspective, will be a little bit better for us going forward.

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