Jacobs posts strong Q3, touts last year's acquisition of CH2M Hill

Dive Brief:

Jacobs Engineering Group Inc. announced strong third-quarter growth on its earnings call on Monday, with Q3 adjusted net earnings up 104% year over year to $194 million. Revenue of $4.2 billion was up 65% year over year on a reported basis (up 14% on a pro forma basis) and the backlog posting an increase of 47% on a reported basis (up 8% on a pro forma basis). The pro forma numbers create an estimate of what revenues would have been had the CH2M acquisition already taken place during the same timeframe last year.
Chairman and CEO Steven Demetriou attributed the strong numbers, in part, to exceeding integration commitments from the acquisition of CH2M Hill, which was announced last October and finalized in December. The expected run-rate synergies when the acquisition was announced was $150 million, but since has been revised to $175 million. Jacobs has seen double-digit pro forma revenue and profit growth since closing the deal. "The combination is surpassing our expectations," Demetriou said.
Each of Jacobs' three business areas — aerospace, technology, environmental and nuclear (ATEN); buildings, infrastructure and advanced facilities (BIAF); and energy, chemicals and resources (ECR) — contributed to profit growth, and the company expects all three areas will continue to see positive gains.

Dive Insight:

Jacob's $3.2 billion acquisition of CH2M Hill last year represented one of the largest deals ever in engineering, which many perceived as a move to obtain infrastructure and government-services business since CH2M was a leader in water, transportation, environmental and nuclear industries. Jacobs since has topped ENR's Top Design Firms list, as well as Building Design + Construction’s engineering/architecture and construction and construction management firms lists. The company also has posted positive numbers in each of its three business divisions and has an optimistic outlook moving forward.

ATEN's backlog is at $8.9 billion, compared to the $5.7 billion backlog it posted for the same timeframe last year. Its adjusted pro forma profit is up 22% compared to Q3 last year. Jacobs anticipates strong growth moving forward due to major part to healthy demand in U.S. federal and commercial markets.

Jacob's backlog in the BIAF sector nearly doubled compared to the same time last year — $11.3 billion this year compared to $6.4 billion in Q3 of last year, with profit rising 18% with pro forma adjustments compared to Q3 last year. Infrastructure is seeing a strong demand globally because of increasing population and aging infrastructure, as well as urbanization. Various transportation sectors also continue to be strong, especially aviation, with plenty of U.S. airports seeing huge overhaul programs, as well as several international airports such as those in London, Singapore and Dubai. There's also growth in the sector of emerging tech, as autonomous vehicles, artificial intelligence and edge computing all demand new facilities to accommodate their unique needs.

Likewise, backlogs in ECR increased to $7 billion from $6.5 billion last year. At 30%, it's had the biggest adjusted pro forma increase of all year over year. Demetriou cited a second wave of U.S. ethane cracker plants creating global opportunities, as well as further investments across refining and crude oil-to-chemicals and shipping industry regulations driving refinery upgrades.

Much of Jacobs' positive outlook coincides with ConstructConnect's chief economist Alex Carrick’s latest Construction Industry Snapshot, which indicated the industrial and engineering segments grew in the first half of 2018 by 35% and 13%, respectively. Carrick also attributes much of that growth to massive energy-related projects, including pipelines, polyethylene plants and ethane cracker plants. In addition, Carrick also told Construction Dive he believes that the high-tech sector will drive a lot of construction growth, as Jacobs' BIAF division also anticipates. "Rapid changes from high-tech area going to skyrocket from 2020 on," he said. "That's going to have an influence on everything — on construction processes and the kinds of buildings that are built. It's going to impact society."