Dive Brief:

• Jacobs announced Tuesday it earned $216.5 million in its second quarter of 2023, a 144% increase from $88.8 million a year ago, according to the company’s earnings report.
• Revenue for its second quarter jumped to $4.08 billion compared to $3.83 billion in the prior year, up 7%, due to critical infrastructure, including water, transportation and sustainability work. Backlog hit $29 million, a 4.3% rise from last year.
• The Dallas-based company also announced plans to spin off its Critical Missions Solutions business into an independent company, according to a press release. The CMS business provides consulting services to government agencies, representing about 35% of Jacobs’ second quarter revenues.

Dive Insight:

Matt Arnold, industrial analyst with financial services firm Edward Jones, said in a research note that the CMS business wasn’t as lucrative as Jacobs’ other core divisions. 

“Jacobs has exited its energy, chemical and resource business, which teneded to be more cyclical and less profitable,” Arnold wrote. “We believe Jacobs' increased focus on infrastructure, aerospace, cybersecurity and technical building projects bodes well for the future growth and profitability of the company.”

CEO Bob Pragada said the spin off will help both firms thrive. 

“By separating CMS, we will streamline our business portfolio and transform Jacobs into a higher-growth, higher-margin company more closely aligned with key global mega trends and growth sectors,” said Pragada. “As an independent company, CMS will be better able to focus on its distinct strategy and operating needs, driving further momentum in its business.”

Excluding CMS, Jacobs generated approximately $10.5 billion in revenue in fiscal year 2022, according to the company. 

Going forward, Jacobs will focus on critical infrastructure, advanced facilities and sustainability projects. The new CMS company will target government services, national security, nuclear remediation and 5G technology work, said Pragada. 

The separation should be completed in the second half of fiscal 2024, according to the release.

Pragada expects a range of opportunities for growth, particularly in water and environment, energy and advanced facilities construction and transportation.

For example, Jacobs recently won a $500 million award for the Donald C. Tillman Advanced Water Purification Facility in Los Angeles. Pragada said water projects, along with infrastructure work, continue to be a pacesetter with pipeline growth up materially year over year.

“Our approximately $2 billion water business continues to exceed expectations and reinforce our position in the water sector,” said Pragada. “IIJA has really started to incrementalize in our business. We can see it, not only in our pipeline, but in our bookings.”

Takeaways from earnings

Jacobs’ increased focus on critical infrastructure, advanced facilities, and sustainability projects bodes well for the future growth and profitability of the company, according to Arnold.

“We believe Jacobs should benefit from a rise in infrastructure stimulus,” said Arnold. “In addition, management is prioritizing growth in more attractive end-markets that offer faster growth and higher profitability.”

Arnold added the separation of the CMS business “makes sense,” and will focus the company on its stronger assets. He said the remaining company, excluding CMS, will have solid positions in infrastructure consulting and advanced facility design.

“The intent of the spinoff is to focus Jacobs on its faster growing and more profitable building and infrastructure business,” said Arnold. “In addition, we view the remaining business as a likely beneficiary of the infrastructure stimulus that was signed into law.”