Jacobs Engineering Group Inc.’s (JEC) second quarter earnings for the fiscal year 2010 were $77.5 million, down from $109.3 million in the year-ago quarter. EPS was 62 cents compared with 88 cents in the second quarter of previous year. Reported EPS surpassed the Zacks Consensus Estimate of 58 cents.
During the quarter, total revenues declined 13.1% year over year to $2.587.0 million from $2,975.5 million during the same period of fiscal 2009. The decline was attributable to poor economic conditions. Revenues from Technical Professional Services dropped 3.4% while Field Services slipped 21.5%.
Costs incurred for contracts decreased 13.5% while as a percentage of revenue almost remained flat at 87%. SG&A expense grew 3.4% and also as a percentage of revenue increased 150 basis points. Operating margin decreased 100 basis points.
Jacobs’s backlog totaled $14.9 billion, same as the first quarter of fiscal 2010. However, it was down from $16.6 billion at the end of second quarter last year.
We believe that Jacobs’ track record of contract wins will help it to perform well in future. Another reason for the company to sustain in these difficult market conditions is its liquidity. The company has maintained a high level of liquidity, with a net cash position of $743 million from $240.4 million at the end of the first quarter of fiscal 2010.
For 2010, management has raised the EPS guidance from the range of $2.00 to $2.60 to the range of $2.15 to $2.65.
However, there are certain reasons that hinder a further upgrade of the stock. The company’s industry is very cyclical and is subject to significant fluctuations due to a wide variety of uncontrollable factors, including economic conditions and changes in client spending, particularly during periods of economic uncertainty.
The company also operates in a highly competitive environment. Thus, we reiterate our Neutral recommendation on the stock.
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