Tag Archives: E&C

Jacobs Engineering FY 4Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Significant awards in building buildings

“Moving on now to buildings, our buildings list is growing globally, we’ve seen significant awards, we have had some since the quarter closed we had some major awards in the Middle East in the buildings and infrastructure space. Healthcare is another area where we see continuing growth and tremendous opportunity in lots of places in the world people are getting older and that’s going to drive a continuing expansion of spend.’

Oil sands market is very tough for us right now

“we’re seeing real weakness in the oil sands just because of where oil prices are. The oil sands market is apart, it’s a very difficult market for us right now.”

The chemicals industry isn’t as optimistic as the market maybe thinks it should be

“moving on to the chemicals business, lots of FEED and pre-FEED activity out there. It’s all unconventional gas driven FEED gas is the word of the day. We’ve got a great chemicals resume and an ability to deliver globally I think that’s a strength. But, everybody remains very measured in releasing these projects. And frankly, I think that’s going to continue for a while I don’t believe the industry is as optimistic about the prospect for chemicals as perhaps the general market thinks it should be, so we’re going to see very slow and steady releases of project. I think the work is coming, but it’s not coming fast.”

Still plenty of opportunity in wet gas

“I think the unconventional gas is a two-story marketplace. If you have dry gas, it’s not a very attractive business right now. Cost of production is probably higher than the value of the gas once it’s produced. If you have wet gas, so if you’ve got a lot of liquids in your gas, it’s still extremely attractive. And so what we’re seeing is a concentration of investment in those areas that have the good combination of both gas and liquids. The good news about all that is, there’s still lots of that and so it continues even in these lower oil price markets to be a very attractive investment for our customers and we continue to see lots of activity there.”

A lot of projects that are planned are not at the executed phase yet

“We’ve got probably as much FEED business in the company right now in the process industries as we’ve ever had. But at this point it continues to just be FEED work. And the leverage, particularly the leverage for field services is in the execute phase. So probably the top of my list in terms of what will drive that expansion in field services is getting these projects released through the final investment decision into execute. We’ve got a number of customers who are talking about those kinds of things happening in the next two or three months, but frankly I’ve heard that story before.”

I don’t think we’re at an end of the cycle kind of level right now

“I don’t think it’s an end-of-cycle conversation. So I don’t believe that we’re at that stage where everybody says okay, we’re at the end of the cycle and now we’re going to have a prolonged downturn. Generally, when our businesses are booming the cycles already over. And we’re not anywhere near that blooming stage yet. So I think what we may have is more like that a stagflation kind of growth. And I don’t mean that in the economic terms of that, I mean in the sense that growth is going to be slower than a normal up-cycle, but we’re going to continue to see an up-cycle. And that’s kind of where as best I can see it right now things are likely to go.”

Chicago Bridge and Iron 3Q14 Earnings Call Notes

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Backlog is 75% US compared to only 20% 3 years ago

“The mix of new work was predominately in the U.S., which now represents over 75% of our backlog compared with 50% last year and less than 20% only 3 years ago.”

Example projects

“More specifically, significant awards during the quarter included front-end engineering and design for an LNG export terminal in North America, additional defined scope work for our LNG export terminals on the Gulf Coast, technology and engineering awards for polypropylene, gasification units and on-purpose polypropylene in a variety of locations, storage awards in the Middle East and Asia, decommissioning and demolition work in North America and a variety of pipe fabrication contracts throughout the globe.”

I power, continue to show acceleration in pace of gas to replace coal

“Turning to Power. Markets in the United States continued to show acceleration in the pace of gas-fired projects to replace coal plant retirements, renewed interest in nuclear generation as well as nuclear decommissioning work. Outside the United States, we continue to see opportunities in new nuclear build-outs in a range of geographies, but little near-term activity.’

Positive outlook for the government side

“I think we have a positive outlook for the government side. We shouldn’t see any retreat from current levels, so I think that run rate should continue into the fourth quarter. We don’t see anything that would tell us otherwise. ”

Tutor Perini 2Q14 Earnings Call Notes

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Backlog mix

“We ended the quarter with a backlog of $7.8 billion, up $1.2 billion compared to the second quarter last year. Our backlog mix is now 48% Civil, 26% Building and 26% Specialty. Our pending awards at the end of the second quarter were $4.2 billion, down slightly from $4.3 billion at the first quarter due to several large projects awarded.”

Cost to build some buildings

“Our Building Group had new awards and adjustments in the second quarter totaling $647 million. The largest awards included the $255 million Panorama Tower in Miami, Florida; the $120 million Broadway Plaza retail development project in California; and the $113 million Scarlet Pearl Casino Resort project in Mississippi. The Building Group’s backlog was $2 billion, up $275 million compared to the first quarter”

67m for dam excavation, 267 m for runway reconstruction

“The largest civil order book was the $67 million John Hart dam excavation and tunneling project in British Columbia, Canada. As I mentioned earlier, in the first week of July, Tutor Perini was awarded a contract by the Port Authority of New York and New Jersey valued at $267 million for runway reconstruction at the JFK International Airport.”

Specialty contractor project examples

“Significant new awards included 3 large electrical subcontracts totaling $104 million for Five Star Electric related to the Hudson Yards platform, a multi-unit residential tower and a mixed-use building all in New York; as well as a $26 million heating, ventilating and air conditioning project for WDF on a multi-unit residential tower, also in New York City.”

No end in sight to major civil works projects

“For our Civil Group, we continue to see a strong $10 billion pipeline of prospective work to be bid and awarded over the next 12 months. We are absolutely bidding the maximum of our physical capacity with what seems to be no end in sight in major civil works.”

Litigation in Boston and with MGM

“we’re in day-to-day continued to be negotiations and discussions with MGM and the insurance companies on a possible resolve of MGM CityCenter. We have a trial starting date of September 22 or thereabouts. So obviously, it’s coming down to the short strokes. I can’t really say whether there’s a high potential settlement in the offing or not, but it’s getting down to very short periods of time. Other than those 2 issues, I can’t really recall any pending litigation that might take place in the second half of the year.”

NYC is the most explosive market in the country

“New York City, which right now is the most explosive market in the United States, where it seems that, every day, another major project goes out to bid with very, very definitive lack of capacity.”

Capacity constraints in civil business

” think, nationally, the Civil business is growing with such leaps and bounds, there’s definitely capacity constraints, which the next step leads to better margins.”

Fluor 2Q14 Earnings Call Notes

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After today’s 2% drop hopefully you’re not on a ledge

“After today’s market performance, I hope you’re not joining us from a ledge somewhere, and those of you that are, I know who you are.”

Revenue down because mining weak

“Consolidated revenue for the quarter was $5.3 billion, which was down from our $7.2 billion a year ago, mainly due to a significantly lower revenue base in Mining business line.”

Backlog up though

“New awards for the quarter were $5.9 billion, including $3.1 billion in government, $1.5 billion in oil and gas, $1.2 billion in Industrial & Infrastructure bookings. Consolidated backlog for the quarter rose to $40.3 billion, which is up 9% from $37 billion a year ago.’

Mining showing some signs of return

” the Mining & Metals business line is showing some signs of return, and we could see modest awards for projects later this year, as well as into next year. ”

Customers want integrated solution not just services

“Fluor’s always been known as a company that can build large complex projects for our clients anywhere in the world. The execution of these projects under the typical EPCM model has served us well. What we see today, however, is an increasing demand for our firm to partner with our customers and provide an integrated solution, not just services.”

Analyst comment: seems like some E&Cs have done well, some haven’t

“there’s been mixed messages about the cycle. I’m listening to your competitors, which I’m sure you’ve heard. Some guys have done well; some guys, maybe not so much”

Not that much has changed from customers

“We really haven’t seen, aside from mining, any change in the decision-making process of our customers over the last little while. Some things are moving quarter — like this quarter to next quarter and next quarter to fourth quarter. But FID decisions are still being made in pretty much the timely manner that we anticipated.”

Our reorganization has flattened the business to help us be more responsive to customers

“what we did is we flattened the organization. And we’ve put some really talented people in business lines that are closer to our markets, closer to our customers and in a better position to be more fleet of foot and answer — be more responsive to our customers. And I think that’s resonating. And I think that’s — that, by and large, is the reason why we’re seeing the win rates that we are because we’re listening better. And we’re tailoring those offerings specifically to what the clients need. But I think rapid response to those customer needs is really what’s driving the success.”

Old business got too siloed

“I think if you look at the older organization, which frankly, I was an architect of with my predecessor and frankly, created some silos that weren’t healthy.”

willing to partner with competitors

“in some cases, we’re actively partnering with many of the competitors that we’ve talked about in the past, and we’re finding out how best to utilize their supply chain, how to better utilize some of their abilities around technologies. And again, I think case in point is the Kuwait project that was awarded in the first quarter where you see us team with 2 Korean companies there. So I feel really good about the value proposition that we’re developing and the ability for us to articulate such that our customers choose us over the competition.”

Mining projects might start to come back middle of next year

” think that we are seeing a pickup. I think I talked about last quarter and again this quarter about increased study work and FEED work in mining, which is encouraging. But if you just stay on those normal schedules, you’re kind of middle of next year before you start to see the EPC projects come back.’

Light at the end of the tunnel

“I think we’re starting to see the light at the end of the tunnel, if you will, relative to mining.”

Tough to see a boom in construction by utilities

“I think that even if you look at the EPA rules, it’s still 20 years before they have to comply, give or take, completely. And I think they’re still going to take time to kind of rationalize what they have. Most of our customers have to deal with a rate base, and going back to the rate base for additional money isn’t something that they relish. So I think they’re going to be very measured in how they go forward relative to not only the coal cleanup fees but also in terms of gas. I do think that we’ve got the potential to maybe surprise a little bit, a little bit, in power as we go into next year.”

Kitimat still getting done even without Apache

“I still think that, that project, from a business model perspective, from a regulatory perspective, is still very solid.”

Competition has always been fierce in this business

“look guys, I mean, there’s no time in my history in this company where I’ve seen the competition not fierce. And I think you will always be fierce in this business. And that’s just incumbent upon us to continue to improve and continue to be cost-effective, but at the same time, make sure that we’re demanding the profitability that we need to return to the shareholders as they expect.”

Jacobs Engineering 1Q14 Earnings Call Notes

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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.”

Jacobs Engineering 4Q13 Earnings Call Notes

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

National government spending

“Starting with the national government’s business. It is clearly improving. Now that we have a budget that provides some funding certainty, that positions us very well. And the good news is that the money is going where we provide a lot of services.”

Hot areas of infrastructure spending:

“A lot of water projects out there, a lot of activity in Asia Pacific, and we see something on the order of $70 billion worth of infrastructure-related projects in the Middle East…tremendous opportunity in telecommunications and gas distribution business…in the Buildings business, there are just a lot of good activity particularly in the technically complex buildings that we favor. So things like scientific facilities, laboratories, healthcare, all very strong. And then of course the high-tech market, data centers, control and operation centers and the like remains very strong.”

Minerals and mining sector picking back up

“Mining and minerals is growing. It’s growing for us and the good news is, we think the industry is seeing the market come back a little bit. Commodity prices are firming. People’s expectations about where commodities would go, particularly iron ore and gold, haven’t come through. The copper supply situation remains a concern, and so we’re starting to see people contemplating real projects again.”

M&A is a long sales cycle

“there are a number of nice sized, privately held firms who have good positions in the power industry and whose positions are very consistent with our relationship-based business model. And to your point, they are — the ownership, the leadership is aging and that does usually create — seeming [ph] opportunities for us. But remember that these acquisitions are always opportunistic, we have to have a willing seller, as well as a willing buyer. So we continue to stop by and visit those folks and make sure they know we’re interested and that we would love to have them be a part of the future. And sooner or later, one of them will say yes but it’s just impossible to predict when that might happen.”

Consolidation needed in E&C industry

” have believed for some time and I continue to believe that our industry needs to consolidate and it will continue to do so and I think we will see both small consolidations, a lot of the things Jacobs traditionally has done, midsized consolidations like the SKM deal for us and then I think there’s still a potential for some fairly significant — not sure of public companies but public company scale businesses to be acquired as well. “

Jacobs Engineering 3Q13 Earnings Call Notes

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“I would characterize today’s marketplace as compared to 4 or 5 years ago, what you’re referring to, the 1 big project, I think, you’re thinking of, those aren’t necessarily out there. But there’s a large volume of projects that are sort of just a little bit below that, maybe half that size in size. A large number as opposed to before where there were a few of those really big ones, but only a few. So I’ve certainly — personally, where I sit, relative to the chemical business, as Craig said, in the U.S., in the Middle East and even to a degree, in Asia, the prospects are pretty broad and pretty rich and good sized. And I do think that we’ll have an opportunity to capitalize from a construction perspective on a large percentage of them, or at least our share.”

“I don’t think that the 15% growth number is going to be driven by cost-cutting. We’re just not going to save ourselves into the 15% growth.”

“we’re seeing pricing pressure in the public sector markets, part of it anyway, but mostly the federal government arena, that we have not traditionally seen. So that business is more challenging. It isn’t affecting our ability to win work. I think you can see that from the backlog numbers, but the margin that’s in that work is certainly not as strong as it might have been a few years ago. On the opposite hand, things like the private sector businesses, the heavy process market, we are seeing improvements in margins but not significant ones. It’s still more — because a lot of the stuff keep moving to the right, it’s still a more competitive marketplace than I would have told you a year ago I thought it would be at this time.”

“it’s not like the government is creating new kinds of work for us to do. So almost everything in the federal government arena is about market share. And moreover, when you look at the sort of overall contraction of the federal marketplace, coupled with the shift toward more small business awards and fewer large business awards, the pool of opportunity that we’re looking at as a company is clearly smaller year-over-year and probably has been getting smaller now for several years.”

“n the LNG world, as Craig said, there’s a couple of opportunities. There is certainly the infrastructure and overall development of gasfields, collection, distribution fields associated with LNG in general. The installed capital base of the LNG facilities that you can look at in Western Australia and are coming online in eastern Australia, plus other parts of the U.S., represent not immediate but, certainly, in the not-too-distant future, a large opportunity for us to try and capitalize in a continuous presence and support of those capital investments as they come online and go into the future.”

“our infrastructure business is definitely continuing to improve…What is driving is, quite frankly, there’s a lot of states, a lot of municipalities that are starting to re-spend — starting to spend, not re-spend — starting to spend to improve their facilities and do highways and do bridges and do transit systems that they haven’t been able to spend for quite some time in some large metropolitan areas around the south, southwest part of the United States. And so there’s a big — so that’s actually good news in a sense that, that stable, ongoing work at the state level that’s starting to occur pretty — not broadly around the entire United States, but certainly, in some very significant areas, in addition to a few of the large iconic projects. So we’re not looking necessarily to have to win big projects for 2014 to have our success. We’re really looking sort of a baseload business. The larger projects will be a little bit more icing on the cake, I would say.”

“our view of the market is that it’s another area where there are long-term demands for investment that are being under-met at this point in time and that, that investment will drive a good business. And I’m looking at this now in the 5-, 10-, 15-year kind of horizon, not the next quarter or next year kind of horizon. So we think the power business is a business that Jacobs should be in, and I don’t mean by that lump-sum turnkey gas-fired cogen. That’s not what I’m talking about at all. But I think there is a good business out there for a company like Jacobs with our business model, and what we — but we’re really going to have to make an acquisition to make it happen. We’re not going to be able to bootstrap that business. And so that’s why I made a point of mentioning the power business as an area of acquisition so you’d know where our thinking is, but also so people who are in that business listening on this call will know we’re interested.”

“There are some additional, again, sort of second tier — I don’t know, I hate to use that word, but different clients than you might normally think about that are looking at investments as well in the oil sands business in addition to the traditional big energy companies, which, again, adds to my confidence that the overall viability of the oil sands business over the medium and long term is very strong. That’s a business that those clients out there have to develop. It’s an important part of the economy, and they’ll find a way to get the oil out of the country. And one way or the other; it will take longer than maybe some other ways, but they’re all continuing to study and invest at a nice moderate pace, I would say, versus a hectic pace, which, I think, is, quite frankly, healthy in the long run.”

“when you see nontypical investors, it’s usually a good indication of an ongoing, solid capital base. And when the nontypical investors start to run away, things tend to turn down.”

“I would have to say that most of our clients are looking at their investment as long term, and short-term interest rates aren’t a big factor in their decision to invest. That might be true of smaller players. But when you look at big oil, big mining and minerals, big chemicals, big pharma, any of the major customers in this regard, I don’t think they are deceived by short-term interest rates as a key criteria for their investment decisions. So I don’t expect a nominal or reasonable rise in interest rates to have a materially negative impact on new investment.”

Fluor 3Q13 Earnings Call Notes

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“New awards for the quarter were $5.6 billion, including $2.4 billion in Oil & Gas, $1.9 billion in Government, $846 million in Power.

Consolidated backlog for the quarter was $36.5 billion. This compares with $37 billion last quarter.”

“In addition to petrochemicals, we continued to be optimistic about prospects for a number of LNG projects, including the ongoing FEED for Anadarko’s Mozambique project. As well as in North America, we expected to hear decisions in the next few quarters on our bids, both for the Kitimat project in Canada and the Cameron project in Louisiana.

In downstream, we continue to track several key prospects, including refinery work in Mexico, Canada, as well as in Middle East.”

“We continued to expect the demand for FEED work will translate into significant EPC awards over the next year, 1.5 years. Ending Oil & Gas backlog for the quarter was $18 billion, which is leveled with last quarter.”

“Moving to Industrial & Infrastructure. New awards for the quarter were $472 million. Backlog stood at $13.8 billion, continuing its downward trend from $18 billion a year ago. While a number of the new awards during the quarter were modest, the group is pursuing a number of road and rail infrastructure projects in North America and several developing opportunities in Mining & Metals.

“I’m pleased to announced that the San Francisco-Oakland Bay Bridge was completed and opened for traffic during the third quarter, which was on time. I want to commend our project team for its outstanding performance in delivering this complex project to our customer.”

“Ending backlog for the Government segment was $1.8 billion. This compares with $1.6 billion a year ago.”

“mining is not dead, regardless of what people say. So there’s a lot of opportunity there.”

“I’m very bullish on where Oil & Gas is and I feel confident that they can eclipse the former high.”

” I think what you’re seeing is the thirst for the PPP model, Public-Private Partnership model, I think, is only going to increase.”

“I think you’re going to continue to see margin in our Oil & Gas segment continue to rise every quarter over the next little while. But I’d caution you because a lot of those projects are fixed-price and they’re going to have a different curve than the refining boom that we enjoyed in the last cycle where there was pretty steady growth quarter-over-quarter. It’s going to look like a lot of the patterns of some of the Industrial & Infrastructure programs, where a lot of the profitability will fall out when we’ve mitigated the risk or passed that risk and have the ability to drop more profitability to the bottom line.”

“I think we have the ability over time — and I’m talking about the back-end of next year and as we get into ’15 and even into ’16 — that we will get back to those peak margins in Oil & Gas.”