Jacobs Engineering Group Inc. (J) 2024 Q3 Earnings Call Summary

Optimistic Highlights

• Strong Backlog Growth and Margin Expansion: Jacobs Solutions reported strong backlog growth and consolidated margin expansion, with a notable performance in the People & Places Solutions (P&PS) segment, achieving record backlog and strong adjusted operating margin.

• Strategic Shift Towards Higher Value Solutions: The company is making progress on its strategic shift towards a simpler, higher value, higher margin portfolio, confident in driving margin expansion in the coming years.

• Significant Progress on Planned Spin-off: Jacobs Solutions announced significant progress on the planned spin-off of its Critical Mission Solutions and Cyber & Intelligence businesses, expecting to complete the transaction in the second half of September 2024.

• Accelerating Demand in Critical Infrastructure: There is accelerating demand for critical infrastructure, especially in water, environmental, and advanced facilities end markets, poised for substantial growth.

• Strong Financial Performance: The company reported consolidated adjusted EBITDA of $392 million, an 11% increase compared to the same period last year, and strong operating cash flow of $483 million and free cash flow of $445 million.

Pessimistic Highlights

• Guidance Towards Lower End of EBITDA Range: Jacobs Solutions expects fiscal 2024 adjusted EBITDA to be near the lower end of the $1.54 billion to $1.585 billion range, due to weaker than expected performance in some segments.

• Delays in Backlog Burning: There are indications of delays in backlog burning, which could impact revenue growth.

Company Outlook

• Narrowed EPS Outlook: The company narrowed its consolidated adjusted EPS outlook to a range of $7.85 to $8.05, representing 10% growth year-over-year at the midpoint.

• Positive Momentum for Business Growth: Jacobs Solutions expects increased revenue growth in fiscal year 2025 compared to current levels, with ongoing positive momentum in its business leading to a solid growth profile.

• Investor Day Announcement: An Investor Day for independent Jacobs is scheduled for February 18, 2025, in Miami, Florida, where the company will share its long-term strategy and financial target model.

Q & A Highlights

• Q: Can you discuss the improvement in the gross margins in the P&PS backlog? (Michael Dudas, Vertical Research)

  A: The gross profit and backlog are positively affected by service mix and end market sector mix, with higher-end science-based consulting and advisory services contributing to higher margins. The company expects solid P&PS organic revenue growth for Q4 fiscal year 2024. (Bob Pragada)

• Q: Can you provide more color on the guidance towards the lower end of your annual EBITDA range? (Andy Kaplowitz, Citigroup)

  A: The guidance reflects weaker than expected performance in some segments and includes benefits from a tax advantage and stock buyback. The company remains confident in the P&PS backlog and its revenue growth and margin profile. (Venk Nathamuni)

• Q: What's the right framework for profit growth in P&PS? (Steven Fisher, UBS)

  A: It's early to quantify, but the company is optimistic about the tailwinds for FY 2025, with strong tailwinds in water and advanced facilities. (Bob Pragada)

• Q: Can you update us on corporate expenses and the path to hitting the target rate? (Andy Wittmann, Baird)

  A: The company expects to trend down to $50 million in unallocated corporate costs over time, contributing to the targeted 13.8% EBITDA margin. (Kevin Berryman)

• Q: Can you talk about the flow of projects in the U.S. and UK, especially with recent elections? (Sabahat Khan, RBC Capital Markets)

  A: The flow of bid activity and pipeline across infrastructure and advanced facilities remains strong in the U.S., with water and advanced facilities driving positive momentum globally. The UK election had a temporary pause on transport but did not affect water projects. (Bob Pragada)