Jacobs Solutions (J) Down 3.1% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Jacobs Solutions (J). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Jacobs Solutions due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Jacobs’ Earnings Miss Estimates in Q3, Backlog Increases
Jacobs reported mixed results for third-quarter fiscal 2023 (ended Jun 30, 2023), with earnings missing the Zacks Consensus Estimate but revenues surpassing the same.
Earnings declined year over year, but revenues increased on the back of solid performance across the portfolio. It also reported a near-record backlog thanks to a robust opportunity set, led by People and Places Solutions’ operating profit growth of 13% year-over-year.
On May 9, the company announced its intent to separate the Critical Mission Solutions (“CMS”) business. This marks one of its strategic portfolio transformation initiatives to create a higher-growth and higher-margin business portfolio focused on critical infrastructure and sustainability. Jacobs expects to complete the transaction in the second half of fiscal 2024.
Inside the Headlines
For the reported quarter, adjusted earnings of $1.82 per share lagged the consensus estimate of $1.84 by 1.1%. Also, the reported figure was down 2.2% from the year-ago period due to benefits received from a cost-method investment sold in the previous year.
Jacobs’ revenues totaled $4.19 billion, which topped the consensus mark of $4.05 billion by 3.4% and grew 9.4% year over year. Net revenues were up 7.5% year over year on an adjusted basis and up 8% in constant currency.
Adjusted operating profit grew 10.2% to $361 million from a year ago. The adjusted operating margin of 10.7% expanded by 27 basis points (bps).
Adjusted EBITDA fell 2.1% and adjusted EBITDA margin also contracted 100 bps year over year.
The backlog at the end of third-quarter fiscal 2023 amounted to $28.9 billion, up 3% from a year ago.
Segment Details
Revenues from the CMS segment of $1.19 billion increased 7.4% year over year. The segment’s operating profit of $99 million was up 12.2% from $88 million reported a year ago, with a margin expansion of 36 bps to 8.3%. The backlog at the fiscal third-quarter end was $8.097 billion, up from $7.22 billion a year ago.
Revenues from the People & Places Solutions or P&PS segment totaled $2.47 billion, which increased 11.1% year over year. Net revenues (excluding Pass-Through Revenue) were up 8.9% year over year. Segment operating profit grew 13.4% from the prior-year quarter to $243 million and the margin rose 58 bps to 14.4%. The backlog at the quarter’s end was $17.5 billion, marginally down from $17.53 billion a year ago.
Revenues from the Divergent Solutions segment totaled $239.3 million, which grew 9.8% year over year. Divergent Solutions’ net revenues were up 3% year over year. Segment operating profit improved 72% from the prior-year quarter to $21 million. Operating margin of 9.5% also grew 384 bps year over year. The backlog at the quarter’s end was $2.965 billion, down from $3.02 billion a year ago.
PA Consulting generated $286.9 million in revenues in the quarter, up 3.3% from the year-ago quarter’s figure of $277.6 million. Segment operating profit was $61 million, up 18.3% from $51 million a year ago. Segment operating improved by 268 bps to 21.2%. The quarter-end backlog amounted to $355 million, up from $326 million a year ago.
Balance Sheet & Cash Flow
At the fiscal third-quarter end, Jacobs had cash and cash equivalents of $1,092.1 million, down from $1,140.5 million at the end of fiscal 2022 (Sep 30, 2022). Long-term debt decreased to $3.15 billion at the fiscal third-quarter end from $3.36 billion at the fiscal 2022-end.
Net cash provided by operating activities totaled $321.1 million in the quarter versus net cash used in operating activities of $249.1 million in the year-ago quarter.
Fiscal 2023 Guidance Reiterated
Jacobs expects adjusted EBITDA between $1,420 million and $1,470 million and adjusted earnings within $7.25-$7.45 per share. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings is currently pegged at $7.35 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Jacobs Solutions has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Jacobs Solutions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Jacobs Solutions is part of the Zacks Technology Services industry. Over the past month, Trane Technologies (TT), a stock from the same industry, has gained 1.1%. The company reported its results for the quarter ended June 2023 more than a month ago.
Trane Technologies reported revenues of $4.7 billion in the last reported quarter, representing a year-over-year change of +12.3%. EPS of $2.68 for the same period compares with $2.16 a year ago.
Trane Technologies is expected to post earnings of $2.65 per share for the current quarter, representing a year-over-year change of +16.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Trane Technologies. Also, the stock has a VGM Score of C.
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