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Analyzing JEC’s Backlog Position and Restructuring Actions

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Backlog position

Jacobs Engineering’s (JEC) backlog position rose by $440 million sequentially to $18.8 billion in 4Q16. It’s just 2% shy of the previous record of $19.1 billion. The company also alluded to the fact that the figure includes $182 million related to charges on foreign currency translations. Adjusting for that, the order backlogs are even better. Professional service backlogs, which typically have higher margins at $12 billion, were the best since June 2015. In terms of end market exposure, backlogs are almost evenly distributed with industrial end markets taking a smaller piece of the pie. Aerospace (XAR), Infrastructure, and Petroleum & Chemicals (XOP) have backlogs of $5 billion, $5.1 billion, and $5.5 billion, respectively. The remaining $3.1 billion backlog is from the industrial customers. The company expects to burn 60%–65% of its year-end backlog into revenues in 2017.

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Restructuring actions 

Jacob Engineering initiated certain restructuring actions in July 2015 to simplify the business and its cost effectiveness. The company expects to realize $260 million–$270 million in annual savings for total restructuring costs of $390 million–$400 million. Savings worth $127 million were realized in fiscal 2016 through reduced general and administrative expenses. The full run rate of these savings will be realized in fiscal 2017 onwards. The company stated that it’s currently in the last round of costs related to restructuring. Going forward, the costs will slow down or stop.

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