Jacobs Engineering Group (NYSE: JEC) designs and builds refineries, pharmaceutical manufacturing and chemical plants and other types of technically sophisticated facilities for its clients. For instance, the company is responsible for designing all aspects (power/steam generation, underground infrastructure, and tank farm) of a bitumen-collection facility in the oil sands of Fort Hill, Canada. In addition to facility design, the company provides both engineering and consulting services. In its role as NASA's primary services support contractor, the company helps design, test, and analyze space-and aircraft components.
Rising demand for oil has benefited the company in over the last few years. Although the company serves a number of different industries, its biggest source of revenue are refiners and oil exploration and production companies, which the company helps with expanding existing refineries and extracting more oil from existing wells. As oil prices rises, demand for JEC's services also increases.
In 2009, JEC generated a net income of $399.9 million on revenues of $11.47 billion. This represents a 5.0% decrease in net income and a 1.9% increase in total revenue from 2008, when the company earned $420.7 million on $11.25 billion in revenue.
Jacobs has only one reportable segment but breaks down its revenue in terms of geographic region. Well over half of the company's revenues come from customers in the United States.
Contracts with the United States government--principally through the Department of Defense (DOD), the Department of Energy (DOE), and the Department of Transportation (DOT)--accounted for 20.3% of Jacobs' total revenues in 2009. While this exposure is less than some of Jacobs' competitors it still represents a significant portion of the company's total yearly services and puts the company at risk of volatility in government spending. The US budget varies heavily from year to year depending on tax revenues, the party in power, military realities, and public's perception of the social worth of any given project. This volatility has the potential to impact Jacob's future revenues, either through adjustments in the number of new contracts awarded or the extent to which old contracts are completely funded and expanded upon.
While Jacobs' relatively small client base can be beneficial, it can also prove troublesome in shifting markets. This would quickly become apparent in the company's projects for the Pharmaceutical industry if new name-brand prescription drugs lost their traditional profitability. Through the 2000's the price of prescription drugs rose steadily, prompting many politicians to consider measures limiting prices or shortening the length of patent protection on these drugs. Any measure of this type would inevitably reduce the profitability of new drugs coming to market, and this would have a dampening effect on development and production efforts on the part of the name-brand drug manufacturers. In 2009, Jacobs received nearly 10% of total revenues from projects for the pharmaceutical and biotechnology industries for services ranging from construction of new labs and plants to maintenance of production facilities. Any spending cuts on these types of projects would have a significant negative impact on Jacobs' earnings. While government price-capping actions would have a positive effect on the generic drug market, Jacobs' ties to the major manufacturers would prevent it from quickly capitalizing on this growth.
Jacobs breaks its competitive markets down into four categories: a broad market: Engineering, Construction, and Maintenance (ECM); and then more specific Buildings; Infrastructure; and U.S. Federal Programs.