Jacobs Solutions (J) Down 0.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Jacobs Solutions (J). Shares have lost about 0.2% 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 Q2 Earnings Beat Estimates, View Narrowed

Jacobs reported second-quarter fiscal 2024 (ended Mar 29, 2024) results, with earnings and revenues surpassing their respective Zacks Consensus Estimate.

The quarterly performance was backed by robust growth in its People and Places Solutions (P&PS) business, with a 7% year-over-year increase in gross profit and backlog growth. This reflects the company's broad-based strength in global infrastructure and sustainability investment.

The company is striving to create a leaner operating model that delivers higher growth and higher margin value for stakeholders. This can be achieved by focusing on disciplined execution and project delivery excellence. Furthermore, J is optimistic about the progress made toward the merger of its Critical Mission Solutions (CMS) and Cyber & Intelligence businesses with Amentum as it looks to establish two independent companies.

Meanwhile, the company has narrowed its guidance for fiscal 2024 adjusted EBITDA and adjusted earnings per share (EPS).

Earnings & Revenue Discussion

For the reported quarter, adjusted EPS of $1.91 topped the consensus estimate of $1.84. Also, the reported figure was down from $2.06 reported in the year-ago period.

Jacobs’ revenues totaled $4.27 billion, which topped the consensus mark of $4.25 billion and increased 4.7% year over year. Adjusted net revenues were up 2.9% year over year.

Adjusted operating profit grew 10% to $391.9 million from a year ago. The adjusted operating margin of 11.3% expanded 70 basis points (bps) year over year.

Adjusted EBITDA increased 9.8% year over year to $393 million and adjusted EBITDA margin expanded 70 bps year over year to 11.3%.

The backlog at the end of second-quarter fiscal 2024 amounted to $29.4 billion, up 2% from a year ago.

Segment Details

Revenues in the CMS segment of $1.23 billion increased 3.2% year over year. The segment’s operating profit was up 10.3% to $104 million from a year ago, with a margin expansion of 54 bps to 8.4%. The backlog at the fiscal second-quarter end was $8.45 billion, up from $8.14 billion a year ago.

Revenues in the P&PS segment totaled $2.52 billion, which increased 7.5% year over year. Net revenues (excluding Pass-Through Revenue) were up by 5.6% year over year. Its operating profit grew 15.3% from the prior-year quarter to $268 million and the margin improved 128 bps to 15.3%. The backlog at the quarter’s end was $17.93 billion, up from $17.56 billion a year ago.

Revenues in the Divergent Solutions segment totaled $224 million, which decreased 7.1% year over year. Divergent Solutions’ net revenues were down 11.6% year over year. Segment operating profit declined 23.7% from the prior-year quarter to $19 million. Its operating margin of 9.6% also fell 154 bps year over year. The backlog at the quarter’s end was $2.68 billion, down from $2.96 billion a year ago.

PA Consulting generated $294 million in revenues, down 2.3% from the year-ago quarter’s period. Its operating profit was $60 million, down 8.3% from $66 million a year ago. Its operating margin fell by 134 bps year over year to 20.5%. The quarter-end backlog amounted to $344 million, up from $319 million a year ago.

Balance Sheet & Cash Flow

At the fiscal second-quarter end, Jacobs had cash and cash equivalents of $1.03 billion, up from $926.6 million at the fiscal 2023-end (Sep 29, 2023). Long-term debt decreased to $2.16 billion at the fiscal second-quarter end from $2.81 billion at the fiscal 2023-end.

Net cash provided by operating activities totaled $375.5 million in the first six months of fiscal 2024 compared with $434.3 million in the year-ago quarter. The free cash flow was $330.4 million during the period versus $367 million a year ago.

Fiscal 2024 Guidance Narrowed

Jacobs now expects adjusted EBITDA between $1.54 billion and $1.585 billion versus $1.53 billion and $1.6 billion expected earlier. The estimated range reflects 9% growth from the previous year, considering the midpoint. It now anticipates adjusted EPS within $7.80-$8.10 versus $7.70-$8.20 of earlier projection, depicting 10% year-over-year growth at the midpoint.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Jacobs Solutions has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Jacobs Solutions has a Zacks Rank #4 (Sell). We expect a below average 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, Seagate (STX), a stock from the same industry, has gained 7.3%. The company reported its results for the quarter ended March 2024 more than a month ago.

Seagate reported revenues of $1.66 billion in the last reported quarter, representing a year-over-year change of -11%. EPS of $0.33 for the same period compares with -$0.28 a year ago.

Seagate is expected to post earnings of $0.69 per share for the current quarter, representing a year-over-year change of +483.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +15.7%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Seagate. Also, the stock has a VGM Score of B.

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