Jacobs Engineering Group Management Discusses Q3 2012 Results - Earnings Call Transcript

Jacobs Engineering Group (JEC)

Q3 2012 Earnings Call

July 31, 2012 11:00 am ET


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

George A. Kunberger - Executive Vice President of Global Sales


Jamie L. Cook - Crédit Suisse AG, Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

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

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

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

Steven Fisher - UBS Investment Bank, Research Division

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

John A. Allison - BB&T Corporation



Good morning, and welcome to the Jacobs Engineering Third Quarter 2012 Result Conference Call. [Operator Instructions] Please note this event is being recorded, and now I would like to turn the conference over to Patty Bruner to read the forward-looking statements. 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 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 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 from Form 10-Q for period ended March 31, 2012 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, CFO of Jacobs, who will discuss financial results.

John W. Prosser

Thank you, Patty, and welcome, everyone. I will go over the financial highlights briefly and then I'll turn it over to Craig Martin, our CEO, to go through the business overview and our going forward strategies.

Going to Slide 4, just a recap of the third quarter financial highlights. We did report diluted EPS of $0.76. This was in line with expectations, I believe. Included in the $0.76 was about $0.01 that related to some favorable tax activity in the quarter. While we've been bringing our tax rate down a little bit over the last couple of years, we had an extra benefit this quarter that's just a onetime event. But even at the $0.75, it's still right in line with what the expectation for the quarter was, I believe.

Net earnings were $97.9 million. Backlog increased nicely to $15.6 billion. That's up from $15.1 billion last quarter and represents, if you look over the trailing 12, a book-to-bill of 1.15. So a 15% growth is a nice trend in the backlog, so a 15% growth in the book-to-bill.

We continue to have a strong balance sheet. The net cash position was $386 million. Total cash was just under $900 million and we're maintaining our guidance from last quarter at the range of $2.80 to $3 for the fiscal year '12.

Turning to Slide 5, this just tracks the earnings over the last few years. More importantly, we show the 10-year compounded growth rate for each of those years. And as we talked a lot, our target and our expectations is that we should be able to grow over the long term our bottom line 15%. And if you look at those bars even through this downturn, we're still right there at that 15% growth rate.

Turning to Slide 6. Backlog growth, nice growth from a year ago, did have a tick up in field services as well as strong growth in the professional services. For the quarter, we were up, as I said, about 3.3% and hope for the year it's over 11% growth so -- and still strong growth in the professional services.

So with that, I will turn it over to Craig for a review of the quarter.

Craig L. Martin

Thank you, John. Beginning now on Slide 7, just a quick review of our growth strategy. It doesn't change. It hasn't changed. We continue to be committed to our business model of being relationship-based, being local to our clients and diverse in the markets, both domestic -- our multi-domestic strategy and through the focus on multiple markets. We're going to continue to leverage our cash position for strategic acquisitions and I'll talk more about all of those things later in the discussion.

The thing I want to focus on here is our ability to continue to drive down costs. We had an excellent quarter from a cost control point of view. As you know, we were very disappointed about cost control last quarter but we have recovered nicely and feel pretty good about our ability to continue to control costs going forward. That puts us in an excellent cost position just at the time when margins broadly are improving. We're seeing nice improvement in margins in the private sector. The public sector continues to be more price-sensitive than ever, although that's good for us. But of course, the margins have always been stronger in the public sector and they continue to be good margins going forward. So overall, I think our cost position is a positive in terms of our outlook.

Turning now to Slide #8, this is our relationship model. We've showed this to you in different forms at different times, trying to help make it clear how the process works. But it really is a function of long-term relationships creating value, which creates repurchase loyalty, creates a stable business for us that we can then grow, reinvest in the business and have this sort of virtuous circle of continuous improvement. It is different than many of our competitors, most of whom follow a big events kind of model, many of whom have a substantial portion of their business in the lump sum turnkey arena. As you know by now, I'm sure that's just not the Jacobs way. This model continues to work well for us. Repeat business last quarter was 91.3%, consistent with what we do pretty much every quarter. And we continue to get a significant part of our business north of 75% to 80% from preferred relationships with our customers.

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