Jacobs Engineering 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Market is still price sensitive, cost remains an issue

“The market remains price-sensitive. We still are not seeing that point in the marketplace where price is not an issue and where we’re starting to see margin expansion other than in a most minor way. So it’s really important that we drive down our costs.”

Lots of opportunity in infrastructure

“Moving on now to infrastructure. We’ve described that market as strong, it certainly is. You can see that our comment on our road, rail. Airport opportunities are abundant, and particularly the U.S. and U.K. markets, they’re very strong right now.”

Leader in technology integrated buildings

“The fact that we are in a tech building differentiator for us is a positive across almost all the markets, and we think about things like the data centers, mission-critical facilities, that’s a tremendous strength for Jacobs, probably the leader in the industry there.”

M&A in pharma space leads to opportunities for Jacobs

“Some of the mergers and acquisitions activity in the pharma industry looks like it’s going to be a very strong plus for us. So we see there some significant opportunities that are going to be created by some of these recent merger acquisitions that should leverage up into a number of projects for Jacobs in the pharma space.”

Seeing good opportunities in LNG

“everybody knows about gas monetization, there’s a lot of activity there. The good news there is that there’s some increasing opportunity for us.”

Lot of chemicals plants being built

“chemicals, it’s very strong. If you think back, at one time, this was 12% or 13% of revenues, today, it’s 22%. The U.S. expansion in chemicals is enormous and a lot of that’s driven obviously by the low-cost gas that’s coming off the mission on conventional gas exploration development. But the good news about that is in addition to ethylene, which is the big driver, there’s a significant amount of derivatives business and that’s an area that plays very strongly to Jacobs’ capability. And we continue to believe we’re going to be able to be successfully in executing a number of sizable derivatives projects based on this ethylene expansion.”

Analyst comment: Exceptional at integrating acquisitions

“Jacobs is clearly exceptional at integrating”

Pricing better than 08 but still not great

“We are seeing the clients try to push more risk on to their suppliers. So that’s a battle we’re fighting constantly. So far, it’s a battle we’re winning but it is a battle we have to fight every time we look at one of these projects. And that’s partly an indication that the market is just not yet truly as strong as any of us would like it to be. So if margins are running faintly better quarter-by-quarter, but what I mean very faintly, we’re talking about 0.1 basis point or less kind of growth in the quarter. Thought it’s — excuse me, it’s not a robust market yet by any means. It’s not dirt cheap like it was after the bust in 2008, but it’s pretty skinny.”

Some typical project sizes in telecom

“these projects, the programs individually run from $50 million to $200 million in terms of capital cost. So just to use a hypothetical number, let’s say, that 20 projects have been awarded and we won 12, which is about the right ratio. They’ll range in size from, I say, $50 million to $200 million, maybe in a few cases, $300 million. So probably you’re looking on an average there of — well, let’s use an average of $100 million just to keep it simple. So that’s a $1 billion worth of work.”

$1 B+ projects 57% win rate too high of an assumption, but pretty significant

“The large project gestation continues to be a positive. I looked at a list yesterday in our sales review that must have had 25 projects on it. And these were all the sort of the big ones. And our win ratios continue to be good in that regard. So I’m certainly very positive about where we are. I don’t know that we’ll win 57% of the big projects. I think that would be unrealistic for us. But I do think our win ratios will be pretty significant and more than adequate to fuel the growth that we’re talking about.’

Mining activity improving primarily for copper

“South America and Asia, not Australia. And although there’s one fairly big program in Australia, I think we’re going to see. And then it’s almost all copper.”

Mining projects start to hit in 2015

” think the big impact is all 2015 and beyond because it will — there’s speed and study work that will be pretty substantial first.”

Lot of infrastructure development needed

“I saw a study from I think it McKenzie just the other day, and their argument is there’s a $57 trillion investment in infrastructure globally that has to be made between now and 2035, I think that was the date. I mean $57 trillion, that’s a really big number. So I remain very positive about our infrastructure business, and I’m seeing us start to get growing share of that market.”