J Financial Analysis

Analysis Date: 2/5/2025

Business Model

Jacobs operates through two main segments: Infrastructure & Advanced Facilities (I&AF) and PA Consulting. I&AF provides services across critical infrastructure, water and environmental, and life sciences and advanced manufacturing end markets. PA Consulting offers management and technology consulting services.

Revenue Sources

• Infrastructure & Advanced Facilities (I&AF): Design, engineering, construction, and operations and maintenance services for infrastructure projects, advanced manufacturing facilities, water and environmental solutions, and life sciences facilities.
• PA Consulting: Management and technology consulting services across various industries, including public sector, health, energy, and financial services.

Income Statement Analysis

• Revenue increased by 4.4% year-over-year, indicating continued business growth.
• Gross profit increased by 8.5% year-over-year, outpacing revenue growth, suggesting improved profitability in project execution.
• Operating profit significantly increased by 46.8% year-over-year, driven by gross profit improvement and controlled SG&A expenses.
• However, Net Earnings from Continuing Operations turned to a loss of $4.0 million in Q1 2025 compared to a profit of $134.8 million in Q1 2024.

Balance Sheet Analysis

• Cash and cash equivalents increased by 13.5%, indicating a stronger liquidity position.
• Investment in equity securities decreased by 20.2%, reflecting the mark-to-market loss in Amentum investment.
• Goodwill and Intangibles, net decreased slightly, possibly due to amortization and adjustments.
• Long-term debt increased by 27.3%, which could be a point of concern if not managed effectively, but could also reflect strategic financing activities.
• Total Jacobs stockholders’ equity decreased by 7.6%, primarily due to the net loss in Q1 and share repurchases.

Capital Allocation

Jacobs is focused on returning capital to shareholders as evidenced by a 10% increase in dividend per share and a significant $202 million share repurchase in Q1 2025. The Board authorized a new $1.5 billion share repurchase program, the largest in company history, indicating a continued commitment to buybacks. Management prioritizes organic growth and is open to M&A as an option but not an immediate focus. Reinvestment in the business is implied through ongoing operations and strategic initiatives.

Management Commentary

Total gross revenue increased over 4% in Q1 with adjusted net revenue rising over 5%.

Adjusted EBITDA for Q1 was $282,000,000 which represented a 24% year on year increase.

Our trailing 12 month book to bill was 1.3 times as our consolidated backlog increased 19% year over year in Q1.

The year on year decline in adjusted EPS was a result of a favorable tax item last year that resulted in a $0.49 per share benefit in Q1 2024.

GAAP EPS was negative $0.10 and includes a negative $1.16 impact from the mark to market loss in our investment in Numentum.

On the Advanced Manufacturing side, we expect growth to improve in the second half of the year as new projects start to ramp.

However, we continue to have good line of sight to reaching our 13.8% to 14% margin guidance for the full year and expect to see a nice step up in margins as we head into the second half of the year.

However, should the dollar strengthen from here, that would have an adverse translation effect on revenue and operating income.

Overall Sentiment: Positive to cautiously optimistic. Management is highlighting strong revenue growth, EBITDA increase, and backlog. They are confident in achieving their FY25 guidance. The negative GAAP EPS is attributed to a non-cash item, and adjusted EPS decline is due to a prior year one-off tax benefit, suggesting underlying business performance is strong. They acknowledge potential headwinds from FX.

Recommendation

Rating: Hold

Reason for Rating: Hold recommendation based on mixed GAAP and Adjusted results. Strong underlying business performance is offset by non-cash losses and a decline in GAAP earnings. Positive outlook and backlog growth are encouraging, but need to see consistent GAAP profitability and operating cash flow improvements.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 6:18:10 AM