雅各布工程 (J) 2012 Q1 法說會逐字稿

Good morning, and welcome to the Jacobs Engineering 2012 first-quarter conference call.

All participants will be in listen-only mode.

(Operator Instructions) After today's presentation there will be an opportunity to ask questions.

(Operator Instructions) Please also note this event is being recorded.

I would now like to turn the conference over to Mrs.

Patty Bruner.

Please go ahead, ma'am.

Thank you, Roka.

The Company requests that we point out that any statements that the Company makes today that are not based on historical fact are forward-looking statements.

Although such statements are based on management's current estimates and expectations and currently available competitive, financial and economic data, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause actual results of the Company to differ materially from what may be inferred from the forward-looking statements.

For a description of some of the factors which may occur that could cause or contribute to such differences, the Company requests that you read its most recent annual report on Form 10-K for the period ended September 30, 2011, including Item 1-A, risk factors; Item 3, legal proceedings; and Item 7, management's discussion and analysis of financial condition and results of operations contained therein, for a description of our business, legal proceedings and other information that describes the factors that could cause actual results to differ from such forward-looking statements.

The Company undertakes no obligation to release publicly any revisions or updates to any forward-looking statements, whether as a result of new information, future events, or otherwise.

And now, I'll turn the call over to John Prosser, Jacobs CFO, to begin today's discussion.

Thank you, Patty.

And good morning, everyone.

Thank you for joining us this morning.

I'll go briefly over the financial highlights for the quarter.

And then I will turn it over to Craig Martin, the CEO, to go through our business strategy and the results of the quarter.

Turning to slide 4, first quarter financial highlights.

We did report the diluted earnings per share of $0.70, which was pretty much in line with expectations and up nicely from a year ago's first quarter.

The earnings for the quarter were just under $90 million and backlog showed a nice growth to $14.5 billion up not only from last quarter, but also nicely from last year.

We've had a good trend in the backlog increases over the last year or so.

If you look at the book-to-bill, we were about 1.14 if you look at the trailing 12.

So it hasn't been just a one-time event.

It has been a nice progression as we've gone through the last four or five quarters.

We continue to have a very strong balance sheet.

Net cash increased up to $423 million.

And as we reported in the earnings release, we are maintaining our fiscal year '12 guidance at the range of $2.80 to $3.20.

So we think that -- a good solid quarter, in line with the expectations, and with that we felt that there was really no reason to change the guidance for the year.

Moving to slide 5, this just looks at our history, trailing earnings.

We have continued to show the nice uptick that we started last year.

And more importantly, if you look at the bars, the 10 year compounded growth rate at the bottom of the chart, we continue to track at a rate above that 15% that we always talk about as being our long-term target.

Moving on to slide 6, looking at the backlog.

Again, this breaks it down between Pro Services and other.

The total backlog, as I said, was up nicely.

Field Services backlog was flat.

But we had a very nice growth in the Professional Services.

You may have -- those that follow us saw that we did do a couple of small acquisitions during the quarter.

And while those are nice little niche acquisitions and have some nice potential to them, they collectively brought less than $50 million of backlog into the Company.

So it really didn't have a material impact on this.

So most of this is just related to our existing book of business.

But it was a nice growth in backlog.

As we said before in the Professional Services backlog, that does speak well because that is the precursor to the Field Services and other activity that we get on projects.

So we think this is really a good sign as we move forward for the rest of the year and into 2013.

With that, I will turn it over to Craig Martin who will make some comments on the business.

Thank you, John.

Good morning, everyone.

I'm on slide 7 now.

Just quickly reminding all of you about sort of our approach to business.

We are nothing if not constant about this.

We continue to be committed to our relationship-based business model.

We continue to believe that market and geographic diversity are important and being local to our customers will be a critical factor going forward.

We continue to have a strong cash position, based on our belief that acquisitions will represent growth opportunities as well.

I'll talk about all four of those things in a little more detail later on.

And of course, we continue to be focused on keeping our costs down.

The market remains pretty competitive.

We are seeing some improvements here and there in the market from a cost point of view.

The public sector probably has more pressure on it than it's had in the past.

The private sector seems to be stable, and, in fact, pricing may be improving just a little bit there.

But our focus on keeping our costs down will remain unchanged.

Turning now to slide number 8, I want to talk just a little bit about our business model and how it fuels our growth.

Let me remind you a little of the difference between our approach and what we see in most of our competitors.

Most of our competitors follow what we characterize as a transactional business model.

They focus on big events, global competition, a lot of lump-sum turnkey.

They are out there with the French and the Chinese and the Koreans in a very competitive market for very large projects.

You hear that quite often in their calls like this one as they talk about the prospects that are going to make or break a quarter or a year.

Our model, however, is quite a bit different.

We focus on high repeat business with our customers and a strong relationship-based business model.

Something on the order of 70% to 80% of our business comes from long-term relationships.

And about north of 90% of our business, I think the number was 92.7% this last quarter of our business, comes from repeat customers.

Our business is dominated by a few core clients with whom we have very strong relationships.

And our strategy is generally to grow our share of that customer's wallet, or those customers' wallet, in order to enhance our business and increase our profitability, scale, and growth.

The chart that we've shown you here kind of gives you a sense of how all that works.

So if you start at the bottom in the section named Employees and you look at the key factors there, our systems and processes, our people themselves, our knowledge and understanding of our clients, and our commitment to continuous improvement, all of that drives better performance by us, and therefore better outcomes for our clients.

As they get better outcomes they trust us more.

They are more willing to have long-term relationships with us.

They are more willing to expand their share of wallet.

And we get that repurchase loyalty that's so valuable to us.

That drives good steady profit growth.

And we hope that drives then investor loyalty and a strong belief in our Company.

It supports the financial strength that we need and allows us then to reinvest in that area at the bottom of the chart there.

And we get what we think of as kind of a virtuous circle in our business that lets us continuously grow that business with our customers.

And in the long run, we think that's going to prove to be very good model.

One that will produce some very good results, including that compound 15% growth that we talk about.

Moving on to slide 9.

You can see the market diversity.

This represents the revenues for the trailing 12.

Pretty good split.

I'm not going to spend a lot of time on this chart, because I'm going to break this down into individual charts coming up.

But you can kind of see how our business divided across the spectrum of markets this last quarter and -- sorry, for the last 12 months.

So now moving on to slide 10.

Let me talk a little more specifically about that part of our business that we characterize as public and institutional.

That's national governments, infrastructure and buildings.

And let me start with the national governments business.

We see that business right now as pretty stable actually.

There's a lot going on there.

There's lots of room for uncertainty, but what seems to be happening in overall terms is generally okay for us.

Not great.

We are not suggesting this market is growing rapidly, or is strong, but we see every reason to think our position will remain good.

There's lots of work in the information and communication technology area, things like cyber security are quite strong.

It's an area where Jacobs has developing strengths and an increasingly strong position.

We see some pressure on the RDT&E market, which is a big part of our business.

However there's an -- big focus if you listened to Secretary Panetta's remarks or read them, there is a big focus in supporting technology in the Air Force and Navy.

Those things will probably drive RDT&E investment and that may be very good for us.

There's also the shift to sustainment.

We think that requires quite a bit of work that we are very good at doing.

End-of-life extension kinds of evaluations, testing, and scientific and technical analysis is a strength of our Company.

And there's every reason to think that business will be strong as well.

We talked in the past about these MATOCs, that's Multiple Award Task Order Contracts, and the opportunity that that represents for us to grow our share.

We are seeing that opportunity work for us in that we are able to penetrate markets and geographies in the US for our federal customer that might have been closed to us in the past and to take share in those markets.

We are being attacked in the same way.

But at least so far, we have been able to hang on to more work in our existing incumbent situations and then take significant chunks of the other incumbents' work.

The net seems to be a positive and we think it's going to continue to be a positive.

I don't want to ignore our environmental business here.

It's still a strong part of our national governments business and that market has a lot of activity in it.

Certainly in the UK, the Nuclear Decommissioning Agency, $140 billion worth of work to come; spending about $3 billion a year.

The DOE spend in this market is also up.

It's up about 9% since fiscal '10.

Based on what we are hearing from government, it looks to me like environmental cleanup will continue to be an area where there's good opportunity and Jacobs is well positioned.

So overall, the national governments business is stable and I think our position is pretty good.

Moving on to infrastructure.

We have characterized that market as improving.

Highways remain soft.

We think there will be a Transportation Bill here fairly soon.

That may help a bit, but overall, the highways business is getting better little by little.

The strong markets are aviation, transit, rail.

All the things, water and wastewater, telecom, that are fueled by user fees.

It's a strength for us as a Company and we see a lot of activity there.

We are well positioned to take advantage of those businesses.

So we think infrastructure in those areas will represent a growth opportunity for us.

Of course, alternative methods of funding, design-build, public-private partnerships, are also growing in significance.

Jacob's very low cost position, relative to our competition in the infrastructure arena, is a real advantage to us in those things.

We are quite good at doing low cost engineering work that results in lower cost projects.

We expect that to continue to be a positive for us as a Company going forward.

Moving on now to buildings.

That's another business that we see as improving.

Particularly, the non-federal arena, so things like education and healthcare that have very strong demographic drivers.

Quite good for us.

In addition, the whole area of what we call mission-critical facilities, data centers, cyber security facilities, command-and-control facilities for the government, are all very strong.

The KlingStubbins acquisition, which seems like it's ancient history, but frankly was only a couple months ago, is hugely positive for us in that area.

They have tremendous strength in supporting that area of our business.

So, in addition to just being a straight-up accretive acquisition, like most of our acquisitions are, they've really put us in a preeminent position in these high-tech design and construction management markets.

And then the federal climate, as it goes forward, is offering new opportunities as well.

There are significant opportunities in things like the sustainment of existing facilities, dealing with lowering the energy cost of federal facilities, and the Company is very well positioned to take advantage of those things as well.

So, the public and institutional markets certainly aren't as strong as some of our other sectors, but it is a very, very solid business for us and we expect to continue to be solid going forward.

Moving on now to slide 11.

The markets we characterize as industrial.

I will start with PharmaBio.

The story here is still quite good actually.

We see continuing investment by our pharma clients in emerging markets.

They clearly have lots of products that are needed in places like China and India.

And they are investing to manufacture there.

Jacobs has the good fortune to have both presence in the countries of choice from an investment perspective, as well as strong relationships with these customers corporately and a strong know-how base in the PharmaBio market.

All of that's leading to a significant business for us.

Steady might be little understatement, I think it's probably a little better than that.

And we really continue to be the last major player in the pharma industry with significant capability and I think that also bodes well for us.

So I'm a little more upbeat about PharmaBio than I might have been even 90 days ago.

Mining and minerals remains very, very strong.

The demand for raw materials, particularly in the emerging markets, is driving new investments, particularly strong in Australia where we are well positioned.

I will talk about that in a minute.

Copper and gold are particularly strong and those happen to be our strengths as a Company in the mining and minerals area.

So that's a positive.

We see about $85 billion, $86 billion of investment in the next year from the top 10 players in the mining industry.

So it's a huge market.

And there are segments of that market that are relatively untested by the majors.

Things like continuous presence opportunities, the ability to not only do the mine and minerals processing work, but to support the infrastructure that goes with that.

Fairly unique to Jacobs because of our market diversity, we think those are also going to drive significant growth opportunities for us.

Obviously, Aker now has a much larger resource base.

So we are able to present a more capable combination of resources to our customers.

That also is driving growth.

And this set of customers resonates well with our relationship based business model.

We really like what we see so far in the sense of loyalty that we see in those customers.

And we think that is going to be a positive for us as well.

So very bullish on the mining and minerals business.

Moving on now to the Other category, which is a mix of a bunch of important markets for us.

I will try to work through each of those in turn.

Pulp and paper is, as I think I've mentioned in the past, very active in higher value products.

It's very active for us in particular.

Again there are few players left in the industry.

So while the aggregate CapEx is not large, our share of it is getting larger and we're pretty happy about that.

The power business, and I don't really think of Jacobs yet as a power player, is starting to generate a fair amount of work for us.

We get a lot of what I'll characterize as supporting cast work, off-site utilities, substations, the sort of things outside the power island that drive the power business.

We are increasingly developing a position in nuclear newbuild, particularly in Europe and most specifically in the UK, that I think is going to be a positive for us as well going forward.

High-tech spending, mostly that means semiconductor, is up, with selected clients that are particularly important clients to Jacobs.

We expect that market will be good for us for the next few years based on their forecast spending.

And then, consumer products market is another area where we've seen a lot of activity in emerging markets.

That customer set is very prone to the alliance model.

They like the way Jacobs approaches things.

And we think that's going to be a good business for us across the emerging markets as we go forward.

So overall, the industrial sector of our business is a positive.

We're doing pretty well in that arena.

Moving on now to slide 12.

That's the process area, made up of chemicals and the oil and gas business, both upstream and downstream.

Let me start with the downstream part of the business, refining.

We are seeing increased spending in North America.

A lot of that is for environmental and efficiency reasons, but also we are seeing activities related to reconfiguration as the crack spread on distillates is quite a bit better than the crack spread on gasoline.

We are continuing to see work related to changing crude slates.

All across the world, the crude's getting sourer and more viscous, and so many, many refineries are going to have to be reconfigured.

There have been a bunch of closures of minor refineries, smaller refineries which actually is good for our customers.

Where we work are in the bigger refineries where we expect long-term our relationships will continue to produce lots of good small project work as well as a few bigger projects.

Then, of course, in places like the Middle East and India we are seeing a tremendous amount of activity, and I will talk more about that when I get to the geographic discussion.

The oil and gas business is very strong.

For us, that's onshore gas and the oil sands.

Oil sands are just huge.

The numbers are so big people can't seem to get their hands on them.

I've seen estimates from sort of a low of $18 billion of CapEx next year, this year $12 billion, to as high as $22 billion.

And I've seen forecasts that are up anywhere from 10% to 25% in '13.

Certainly we see a lot of CapEx activity out in the '13 time frame as these projects go into construction.

We are still pretty solidly in the earlier phases of most projects, although we expect a few of those to go into the construction phase in '12.

Our onshore presence with our core client continues to be an area of strength for us.

This is mostly related to the gas business and shale gas specifically.

Shale oil to a lesser extent.

We have tremendous strengths in those areas.

And we have the geographic diversity that onshore gas requires.

So overall, we think that's also going to be another plus for us.

So we see that market as a very strong market going forward.

And then the chemicals market is also very strong.

Probably the strongest it's been in more than a decade and you can start to see that in the revenue growth that the chemicals represents in our totals.

The shale gas activity is driving a big supply of natural gas liquids and a low-cost feedstock for chemicals investment in North America.

Jacobs' strengths tend to be in high-value chemicals, another area where we are seeing a lot of activity.

Those strengths were improved with Aker.

So that whole area of high-value and specialty chemicals are strong.

We have a global presence to support that and we are going to see, we think, a lot of investment in that area.

And I'll talk again about that a little bit when I talk about the geographies.

So the process business is another area that we are really very positive about.

If you kind of summarize the three sets of markets, or groups of markets, public and institutional is steady, maybe slightly improving.

Industrial is clearly a strong market and the process side is very strong.

So overall, as you think about our historic five cylinders out of eight conversation, we are certainly in that position today.

Let's move on now to the slide Geographic Diversity.

I think that's slide 13.

Let me just start by talking about North America.

We've already talked about the oil sands, tremendous growth.

We think that in North America as well, we're going to see a lot of activity.

And I think we heard that in the President's remarks in the area of cyber security and the whole sort of technology area, related to where our government will invest.

Jacobs is extremely well positioned in that area.

Infrastructure is showing signs of improvement in North America, particularly things like utilities work.

We're seeing a nice uptick there.

There's going to be a tremendous boom in chemicals in North America as well.

There have been $10 billion worth of ethylene projects that have been announced for the Gulf Coast.

That will drive huge investment over the next few years.

And CapEx forecast for US chemicals is expected to be somewhere between $25 billion this year and $35 billion three to four years out.

That's a stronger chemicals market in North America than we've seen in a very, very long time.

Moving on now to South America.

We are a major player in the mining and minerals market there and we're seeing lots of growth.

Interesting enough, we think South America represents a very significant refining opportunity.

There is something on the order of $80 billion worth of refinery projects that have been announced in Latin America.

Our increasing geographic presence and our historic strength in refining, I think gives us a tremendous position to take advantage of that expansion.

So I think you will see more of Jacobs in Latin America and I think you'll see some really, really positive things coming there.

There are clearly emerging markets in places like Brazil for PharmaBio and food and consumer products.

That's where most of the population is, so that's where a lot of the interest for those companies goes.

And we're working to be positioned to help those customers be successful in that area.

Moving on now to Europe and Africa.

Kind of an odd combination, I know, but it is the easiest way to talk about them.

The infrastructure spending is under pressure.

But we've done, I think as a Company, a particularly good job of positioning in the right places.

And we are doing well in terms of our relative share in the UK in the infrastructure business.

There are some bright spots in Europe in terms of energy, nuclear, and defense, and we are taking advantage of those.

On the oil and gas side it's largely sustaining capital kinds of work, which again as we know plays to Jacobs' strength.

Then we have our relationship with OCP in Morocco and that relationship remains very, very strong, with very solid investment as we go forward in developing that business.

Then we do see some emerging opportunities in the mining industry in Africa, particularly South Africa.

We will see how those develop as we go forward.

Moving on now to the Middle East.

Just a huge opportunity for Jacobs in terms of the process end of the business.

The Kingdom of Saudi Arabia and United Arab Emirates, just between the two of them have a $220 billion program over the next five years.

Whether all that gets spent or not is always a question.

But we are very well positioned, in particular, in part because of our localness and our ability to execute work in-Kingdom.

That's becoming a very key differentiator.

GES Plus remains a strength for us.

We are still one of the only two contractors.

We see that as an ongoing opportunity.

There's a lot of activity there.

And then, of course, our traditional buildings and infrastructure business are also significant growth opportunities in the Middle East.

So we think the Middle East is a really positive engine for growth for Jacobs going forward.

Moving over to India.

We've been very successful with the CES acquisition.

Lots of activity in water and wastewater, ports, airports, the entire business of infrastructure in India.

India has announced a $1 trillion five-year plan for infrastructure.

It's highly unlikely they'll actually spend all that.

But it does mean there'll be lots of project activity in India.

We continue to grow nicely in our historic markets in India, chemicals, oil and gas, refining.

We have big, big programs coming from customers like Reliance, where we think we'll be successful.

As well as Indian Oil, who's committed to spend something like $75 billion to expand their refining capacity by 2.5 million barrels over the next decade.

Our position in India helps our business overall, as well, as it continues to be an excellent resource for low-cost engineering services, or what we would call high-value engineering, to support our expansions in Asia, as well as our customers in the developed world.

Moving now to China and Southeast Asia.

We have the scale and leadership today in place in those places to address our core clients as they invest.

We think that'll represent real growth opportunities.

I've talked about pharma, but also the chemicals business in China, in particular, as well as consumer products.

All represent opportunities for us to see significant growth.

And we have a strong position now in the key investment areas in Southeast Asia.

I think there's opportunities for additional growth there from acquisition as well.

And I will talk about that in a minute.

And then finally, finishing with Australia.

Australia continues to be a huge mining and minerals market for Jacobs.

And we are doing extremely well there in terms of taking market share and positioning.

I think we'll have really good growth out of that business in mining and minerals.

There's also significant heavy process activity and we right now have a very small share of that.

So I think there's another area of seeing growth for us in that regard.

Then of course our national governments, defense, project management business in Australia also seems to have some pretty good legs and we think we'll see additional growth there as well.

So that's kind of where we are from a geographic diversity point of view.

Moving on now to slide 14.

Just a little history on our acquisitions.

As you can see we've done a lot of those.

We continue to believe we do them pretty well.

As we look forward, the areas that are getting a lot of focus for us are China, Australia, Brazil.

The markets are oil and gas, and mining.

IT, particularly things in the higher cyber side of IT.

We continue to be interested in power.

But we won't ignore niche market additions when they augment our business significantly.

And, of course, we are always interested in adding new key and core clients.

The acquisition pipeline remains very strong.

We see lots of potentials out there and it's -- sometimes there's so many good things it's hard to choose which ones to focus on.

And frankly, the other piece of good news in that regard is the pricing for acquisitions seems to be a little better than it's been in the recent past.

So that's a positive as well.

Let me finally go to slide 15 and our commercial.

Why Jacobs?

We think we have unique business model that drives client loyalty, opportunity and drives results.

We have a diversification that we think will be important today and will be even more important going forward, whether it's markets, geographies, or services.

We have a great balance sheet which lets us take advantage of all those acquisitions and fund expansion.

Our cost position is also quite good.

We continue to be in a very competitive market overall.

But we're in a position to take advantage of that and make money when money is there to be made.

So with all of that, I will turn it back to the Roka for question-and-answers.

Thank you.

We will now begin the Question-and-Answer session.

(Operator Instructions).

At this time, we will pause momentarily to assemble our roster.

Andy Kaplowitz; Barclays Capital.

Please go ahead.

Hi, guys.

Good morning.

It's [Alan Fleming] standing in for Andy this morning.

I appreciate you taking my questions.

My first question is around revenue, which ticked down sequentially a little bit in the quarter.

So seasonally 4Q doesn't look all that much different than 1Q.

So I was wondering if you can talk a little bit about what's driving that modest sequential decline.

Was it less oil sands work due to some seasonality?

Or is it Motiva winding down?

If you could just give some color there?

First, as we've cautioned people, revenues is not necessarily a good measure in our business because the variability of things like pass-through costs and construction and such like that.

Also, the fourth quarter on the professional services side has a lot of holidays around the end of year, between New Years, Christmas, and other seasonal holidays.

The way the holidays fell this year, there were a lot of vacations taken in that week as well.

So that has some impact on just the hours through the books, which drives some of the professional services revenues.

So while the mix didn't change that much, you did see a little bit of a downtick on the professional services revenue and a little bit also on the construction.

We don't think that's any kind of a trend.

It is just the quarter and the effects of some of those things.

But there's always going to be some variability from quarter to quarter.

Okay, thanks.

That's helpful.

And then second, around margins.

You had another strong quarter of margins and even with a bit of an uptick in SG&A.

So just wondering if you could comment on what kind of conviction you have about seeing some good operating leverage as you go through the year, especially if you're expecting backlog to continue to ramp.

Thanks.

Certainly, we did see a small dollar uptick in backlog in G&A and I emphasize small, but it went in line with the margins.

Yes; we are in a growing mode.

We are hiring people, and that adds a little bit to G&A.

After a number of years where we had very modest salary pressure, we are starting to see a little bit more salary pressure in some geographies.

So that adds both to the revenue and to the margin, but it also adds to the G&A.

I think when you look at the operating margins, what we've said is that through the first part of this year they are probably going to be fairly steady around where we've seen in the last couple quarters.

Then as we move into 2013 and see the construction start picking up a little bit, you'll see a little bit of downward pressure because of the mix.

But you'll still see growth on the professional services side.

Certainly you'll see growth on the total revenue side from the construction.

So probably all in all, we will see some fairly steady margins as we go forward over the next 12 months and beyond.

Yes.

I actually would argue that for the most part while we didn't quite achieve our goals in SG&A, the SG&A performance, G&A control for the quarter was really quite good.

So I think it actually bodes quite well for the out quarters as we go forward.

We did add the two acquisitions.

While they are not big in total, they bring in some G&A that it takes us a while to kind of absorb and get back on to our model.

So there's usually a little bit of an uptick.

So that had a small impact on the first quarter as well.

Okay.

That's helpful guys.

I will pass it on.

Thank you.

Michael Dudas, Sterne, Agee.

Please go ahead.

Good morning, gentlemen, Patty.

Three questions.

One, following up on the growth in professional and field service employees.

Can you characterize when Jacobs' total employment for professional services bottomed in this cycle, where you are now, and do we anticipate steady or significant growth in body count as your utilization rates, your offices, bump up towards optimal levels?

Mike, I can't be absolutely sure without going back and looking at the data.

I would say that the headcount bottomed something on the order of four or five quarters ago.

Maybe a little earlier than that.

Certainly since this time last year, we've had steady upward growth in headcount.

And that continues today.

When I look at -- when I model headcount, when I look at where we are going, I continue to see that the headcount and the billable hours will increase pretty steadily, at least if the market doesn't go somewhere south on us.

So we are certainly on a positive trend.

We have been now for a full year.

And I think that represents a pretty good trend going forward.

I think that answers your question.

If it doesn't, tell me what else you need

No, that's terrific.

And I assume, again, the salaries, the compensations are moving up because a little bit more demand, a little bit less supply as you are moving through the process.

It is.

It is nowhere near the salary momentum we saw say in 2007 and 2008.

But it is to the point now, where we had salary freezes in place two years ago, three years ago because of where the market was.

Today, we are getting what I would characterize as slightly above historical averages in terms of increases.

But we don't yet see the silliness that we saw, like say in 2007 and 2008.

We can only hope.

Second question is, looking at the oil sands, some thoughts on Keystone, no Keystone, what Canada's thinking about from that angle.

And the mix of investment opportunities, SAGD versus non SAGD, and how's that playing into your visibility over the next six to eight quarters.

Sure, I will ask Tom Hammond, who's responsible for that to comment as well.

Let me just start.

Keystone is one of those things where I think the actual impact on the business is going to be pretty neutral.

The presence of Keystone might actually have been a positive.

The absence of it is not a negative, if that makes any sense.

And we don't see that, at least to my knowledge, affecting the customers to some strong degree.

As to the business of SAGD versus the mining aspects, Tom, do you want to comment?

I don't think we've seen a shift, a long-term shift in the mix between SAGD and say open pit mining.

There's activity and we are involved in projects and have prospects in both areas.

So we are quite upbeat about the opportunities in Canada.

I think going back to Keystone, I think the press releases in Canada and the President's announcements all but implied, if there's a modest shift in the routing on the pipeline it's going to be approved and go forward.

And it wasn't going to be built and operational for years anyway so the impact of a six-month delay is really going to be quite negligible.

I appreciate your comments.

Just to support that, we are seeing increasingly in our customers in Canada, a little longer view of the business.

And I think that's a positive for, one, steadier work, and maybe a little less lumpy than it has been in the past.

And I think it makes things like Keystone less important, relatively speaking.

At least the immediacy of Keystone.

Does that answer your question, Mike?

Yes, certainly with fewer customers up there, I'm sure that's the case.

Final question is mining business.

Maybe you can answer.

You've had the business for about a year now, is the plan to grow the business through O&M and work your way that way?

Is it really to focus on processing versus dirt moving?

And when do you think we could see, because typically the orders can be pretty lumpy and visible into the metal mining space and will we see some of that in Jacobs' numbers as we accelerate through the cycle in the next maybe four to six quarters?

Thank you.

Yes.

Let me -- again, I will comment, and I will ask Gary Mandel, who's really got responsibility for most of that business to comment as well.

There is particularly in construction phase activity some pretty significant lumpiness in the market.

And you may well see that.

We always caution you that backlog is not a quarter over quarter conversation.

As we see that -- and we expect that we will see that -- we will try to let you know the good and the bad of that lumpiness.

Our focus continues to be on both project execution and big projects, which Aker brought a lot of strength in, and we are not going to walk away from that.

But we do bring a sustaining capital focus to the business that our competitors don't have and that our customers seem to need in that area.

So we are going to work both ends of that spectrum.

But I think, for the most part, you will see Jacobs apply its standard model, which is to get very well ingrained in a location and do bigger and bigger projects at that location forevermore.

Gary, do you want to comment?

Yes, Mike.

I think our growth is going to be fueled in a variety of ways.

One, being part of the larger Jacobs, we have access to a lot more resources.

That was kind of limiting in Aker.

While we have excellent skill sets on the minerals processing side and being part of Jacobs augments that, I think some of our growth is going to come from the sustaining capital, which is Jacobs' bread-and-butter.

We are starting to see signs where we won some frame agreements in that area.

So, I think you'll see it a mix, both on the capital projects side, as well as the sustaining capital.

In terms of the lumpiness, you know, these projects take a ways to get off the ground.

From the feasibility study to EPCM can be up to a three to four year cycle.

So there's a constant pipeline of studies in action currently.

And you will see those go to EPCM and they will just be phasing in quarter by quarter.

The other observation I'd make that we bring to the party that, frankly a number of our major competitors in the mining industry don't bring to the same degree, is our ability to support the infrastructure side of the mining business.

A lot of these big open pit mines, in particular, require tremendous investment in the infrastructure to support the whole process of excavating the overburden and recovering the materials.

And then big investments in infrastructure to get the product to the port or wherever it has to go.

A lot of rail work, in particular, as you start talking about iron ore, for example.

So Jacobs not only picked up the capability that Aker represented in a big way, but we now bring a lot of our own capability in infrastructure or even in buildings to the mining and minerals business that they traditionally haven't been able to get from a tier one supplier.

So we are pretty upbeat about that as well.

Been very helpful.

Thank you, guys.

Tahira Afzal, KeyBanc Capital Markets.

Your results seem decent, so that is a good start to the day.

I had a couple of questions.

Number one, you talked a bit about the nuclear opportunity in the UK and it seems you are getting incrementally more excited about it.

I would love to hear a little more on that.

The second question is again on mining.

You know we did a few [channel] checks and it seems like underground engineers on the mining side are now running into some bottlenecks in terms of capacity available.

I would love to get your comments on utilization of these, in terms of what you see in the market and whether these bottlenecks could lead to any construction issues later on.

And number three, you talked about infrastructure in the US getting a bit better.

We've heard that from a couple of your peers, even on the private side recently.

And it seems that's being driven by maybe states taking things into their own hands.

Would love to get a little more detail into why you're more comfortable around the infrastructure outlook.

All right.

Let's start with the nuclear UK market.

And Tom Hammond also has that responsibility.

I'll let him talk to you about that.

Yes.

I think we're relatively certain, as certain as you can be in an industry like nuclear newbuild, that the UK is continuing to go forward.

The tsunami has probably delayed the whole process by six months to a year as there's a lot of reevaluation of some of the safety aspects of it.

But if you look at a nuclear reactor in the UK and, just for talking purposes, say it is a GBP5 billion investment.

Somewhere between 10% and 20% of that investment is related to things that are outside of the power island and outside of the conventional power generation part.

Everything from road, civil work, site works, jetties, ports, water treatment, industrial facilities like warehouses and the like.

And we are seeing a lot of success in aligning with the owners and developers of these projects.

In particular right now it is mostly in the study phase, but it would be moving into the detailed design phase and then the project management phase of this aspect of the power projects, which represents GBP500 million to GBP1 billion of investment per facility.

And we believe that we can leverage that relationship and have seen some incidences of leveraging the relationship and doing good work in that part of the project that the owners are inviting us to participate in further parts of their development.

Because quite frankly, resources in this area are quite limited.

I think it is another good example of where the Jacobs business model is working to our advantage.

I think the second part of your comment went to underground mining specifically.

And I'll defer to Gary on that.

But before I do, overall I think I said this already, but I will say it again.

One of the real pluses of the Aker acquisition has been our ability to bring a lot of new resources to the mining and minerals business that really weren't available.

We didn't have the credentials to supply those resources in the past.

Aker didn't have the resources to supply.

The combination has proven to be a real positive.

But Gary, you might comment about the underground side.

As you may have gathered, the underground mining as a percentage of the total mining production is quite small.

There are a few of our owners who do use underground mining techniques.

We are starting to see some of our customers who have large open pit minings that the production is starting to decline and are considering looking at some underground activities there to try to boost the production.

Historically, Aker -- we have focused on the mineral processing on the surface side.

We have done some study work on the underground side.

It is not a large portion of our business today.

But we are looking at opportunities to grow our business.

Historically, the underground has been led by the clients in some of their own technical resources with the use of some specialty engineering firms.

And we are looking at various ways to increase our portfolio with possibly some acquisitions down the road.

But right now we are focusing primarily on the surface facilities of these mines.

If I could amplify on that.

I think that's the key point that Gary made at the end.

We see that there's tremendous opportunity in the surface facilities and supporting mine development on the open pit side.

The underground mining business is a challenging one.

We don't have a lot of historic capability there.

And what we are really trying to do is respond to clients who have needs by finding ways to help them out.

That might evolve into a bigger business down the road, but I don't think we have that expectation in the near-term.

Turning to your question about why we feel better about US infrastructure.

I'm going to ask George Kunberger, who heads sales for Jacobs, to comment on why we are feeling a bit better.

George?

I think overall the infrastructure business, as I think I've commented a couple times before on these calls, we are getting more uniquely positioned around the Company.

We've focused on the big centers, the big cities around the world -- around the country where the major infrastructure is being developed and the money being spent.

And that feeds a lot to our strength.

The move towards P3s is somewhat mixed, quite frankly.

But there is, because the various states are having some difficulty in various areas in figuring out how best to do that, but they are slowly getting their arms around that, and that's going to be a source for further and further investment, of course.

That's an area that Jacobs, quite frankly, has a lot of experience in, mostly on the professional service side of that in support of our customers' projects.

That's probably the biggest reason, I'd say.

The other comment I would add to that is I don't think so much to your specific questions here about what are the states doing.

The states still suffer from budget shortfalls and we still have the problem of not been able to get a transportation bill out of the feds although I think we might this year.

But a lot of the local communities really are taking this into their own hands.

Sales tax, bond issues kinds of activities are up.

And a lot of user fee funding is driving projects as well.

So in the aggregate, I think those things add to what George has already explained in terms of why we are little more upbeat about the infrastructure market place.

Does that answer your question?

Yes, it does.

Thank you ever so much.

Joe Ritchie, Goldman Sachs.

Please go ahead.

Great.

Thank you.

Good morning, everyone.

My first question.

Craig you do a great job of going through each one of your end markets during the call.

The one I want to focus on a little bit is on the national government piece of your business.

Obviously, it is about quarter of your business and there's been a tremendous amount of scrutiny on the federal budget from Panetta's commentary to an IT services company last week announcing that revenue is going to be down 30%.

So it's kind of hard, I guess, just sitting where we're sitting to square away that that business is going to remain stable when we are hearing a lot of negative things in the marketplace.

If you can give us a little bit more detail, that would be helpful.

Sure.

I can understand why you might feel that way.

We looked at Secretary Panetta's remarks in some detail and you have to realize that, trying to speculate from what the Secretary had to say is just exactly what it sounds like, it is speculation.

But if we look at the likelihood that F-35 will continue, we look at the focus on technology based warfare capability as opposed to sort of lots of bodies out there on the front lines, as we look at more emphasis on the Air Force, those things are all positives for Jacobs because of where we are positioned.

We certainly do a chunk of business for the Army and we think that's going to be more problematic.

But even there, the kinds of activities that it appears the government is going to continue to support are the kinds of activities that we are good at supporting.

And do support today.

So whether it is the RDT&E space, in terms of sustainment or supporting the technology investments, or it is the scientific technical engineering space, the SET space, in terms of helping to define the technology that the Air Force and the Navy are going to tend to use going forward.

I think those things are positives for us.

Remember that the services business which is pretty much where we are positioned, for the federal government is about $300 billion.

And so our $2 billion or so, that's not all US obviously, but our 25% or so of our total is still a minuscule amount of the total budget.

And if the budget goes down 10%, $30 billion, it is still a minuscule part of $2.7 billion.

We are doing I think really well at taking share in that marketplace.

If you look at this, the stuff we were able to press release in this last quarter, we took on $775 million worth of new work in the first quarter of the year.

That certainly is sort of the track that will sustain our business going forward, maybe even cause it to grow.

I'm not predicting it will grow, but I don't think we are going to see much in the way of shrinkage because I think we're well positioned to leverage what's going on in the marketplace.

Add to that what's happening in things like cyber security, the IT space, and again our ability to take what we've traditionally done for the government, add what we are capable of doing in the buildings and infrastructure space, that whole world of what are we going to do to prevent electronic terrorism, so to speak, is going to be a very strong area for Jacobs and I'm pretty optimistic about that going forward.

I hope that gives you some comfort.

I understand how difficult it is to get your arms around what's going on.

Does that help?

No, that's helpful.

I guess just to square it, it sounds like your commentary really hasn't changed from the last time we met in November despite all the news that's been out there.

And if you were expecting, and I know you guys typically don't give guidance within guidance, you are still expecting this business to be flat to maybe just down slightly in 2012?

Yes.

Okay.

I guess moving on to my second question, which is really about the timing and the pace of acceleration in the contracts that you are seeing, particularly in your process business.

It looks like those markets are heating up, but is it fair to say that 2012 is going to be more another year of FEED before we start to see EPC contracts in 2013?

I think we will continue to see FEEDs throughout the year.

But I think we will start to see EPC, EPCM delivery, also some EP work.

All of which will add to our field services backlog.

So I'm expecting to start to see movement in the backlog and even some activity directly in the field during fiscal 2012.

So it isn't like we think those things have moved away from us a year, it is right out there in front of us.

It is just not right yet to go into backlog and prosecute in the field.

That's kind of the trajectory that we've been talking about for the last couple of quarters.

This is not really a change.

It really is just we are kind of continuing to look at it that it is kind of on track with what we've expected over the last couple quarters.

Okay, that's fair enough.

I guess just really my last question is on the refinery opportunity in South America.

Some your competitors are already doing some work in the region, can you just talk about your capabilities to potentially seize some of that opportunity?

And what's your timing in terms of when some of these big refinery projects get let out?

Our focus like always will not be on big grassroots refinery projects, although we may have some opportunities to participate in some cases.

Our focus is going to continue to be on sustaining capital, small project, sort of developing the relationships with the refiners in Latin America.

And the investment, all this big refinery investment, really represents for us much more of a long-term relationships and the small project aspects than it does the idea that we're going to go out win some big refinery.

We don't expect that all.

So the outlook in Latin America for us is longer term.

It's certainly not going to have any big impact on 2012.

Okay, great.

Thank you very much.

Scott Levine, JPMorgan.

Please go ahead.

Hi, good morning, guys.

So your gross margins here were higher than we were expecting and are frankly, high relative to recent history.

And I'm wondering whether that was in line with your expectations and I'm guessing obviously the strength in TPS is driving part of that.

And as maybe a follow-on thought, it sounds like naturally as you book more fieldwork that will dampen the effect here in 2013 perhaps.

But is it conceivable that your margins kind of -- assuming pricing continues its recent trends in the marketplace -- that 2014 is maybe up from 2013?

I know we are getting a little ahead of ourselves but I'm really just trying to get a sense of how surprising the strength in gross margin is to you guys and what we might expect over the next few years there.

When we start talking about the conversion and the pickup in field services as we get into later in 2012 and into 2013, that will have a much bigger impact on the gross margins than it has on the operating margins.

You will see we would not expect to see -- to be able to maintain that level of gross margin when we are seeing a mix shift back closer to say 50/50 mix between professional services and field services.

Then we will come back down to where we were say when that mix was closer back in 2005, 2006, 2007.

But I think we will see the pieces improve, but the mix will drive it down.

And I think it will have a little impact on the operating margin but not nearly the same impact on the operating margin that it has on the gross margins.

Got it.

So focusing then on the EBIT margin, stability really with those changes in mix is what you guys are talking to for the balance of 2012 and into 2013?

Yes.

Okay.

And then not to nitpick here, you know you cited that chemicals, upstream and mining are all characterized as very strong.

Is there any notable difference?

How would you rank order the three in terms of strength, or is that nitpicking really?

I'd have to tell you I think it is in the nitpicking category.

But certainly mining and minerals and chemicals are both very strong.

Mining and minerals, probably a little more exciting for us because it is like the new toy.

But both those businesses are pretty strong and I think they are both going to contribute significantly going forward.

And certainly oil sands is a traditional area for us.

I think its contribution will be particularly significant on the field services side.

Got it.

And one last one on gas.

You talk about onshore gas's strength.

Obviously, I think Chesapeake's made some headlines here this week.

How much sensitivity do you really see in terms of investment in infrastructure to drilling activity?

And is that something that should be closely monitored?

Or do you see that as not being much of a game changer in all likelihood going forward for you guys there?

I think the gas prices and how many holes are getting punched is going to have an impact on the overall size of the market.

But again, I think I mentioned last time the overall expectation for investment, 90 days ago at least, was something on the order of $30 billion.

And if that pulls back by half, it's $15 billion.

We still have an insignificant share of that from a market share point of view.

So I'm still pretty positive about our ability to leverage that business for additional growth for us as a Company.

Understood.

Thanks.

Steven Fisher, UBS.

Please go ahead.

Hi, good morning.

Just thinking about how backlog might develop.

Back in the last cycle, you had some $1 billion plus type bookings.

I know your customers are doing more phasing of work now.

And you are generally focused on small to midsize projects anyway.

But can you comment on the potential for larger individual bookings?

When we hear you talk about EPC and EPCM and EP, what kind of ranges should we be thinking about as we see these press releases?

And in terms of the bigger ones, what areas might we see them?

Well, I think you'll see some bookings over the next few quarters that are big enough to be considered lumpy.

But I don't think you're going to see us booking plus billion dollar numbers.

If anything, I think we were a little too aggressive in our booking practices on some of those really big jobs in the past.

I think our customers, as you described, are already a little more conservative about how they are going to release these projects.

So I think the projects are going to be eight, nine figures maybe, but not 10.

So $100 million to $500 million, $700 million will be those sort of big bookings that happen.

And I don't really expect to see a $1.1 billion, or $2 billion or $5 billion or any big numbers like that.

Does that answer your question, Steven?

No, that's exactly what I was looking for.

And then I guess somewhat related to that, can you remind us what your approach to booking IDIQ type contracts is?

And whether you've recently changed that at all to the extent of the maximum potential you put into backlog?

I know you mentioned $775 million.

Can you just talk about how you approach that in terms of bookings?

Our booking rules for those kinds of contracts are that we book what we think the activity within that contract, if it has a finite life and a finite scope of what the services are, what we believe will be the outcome of that contract, and then we monitor that and adjust it.

Basically, we look at it every quarter as to how that's trending against the actual IDIQ or the multiple award kinds of activities that are going on.

For the most part, those seem to work out pretty well.

In the past we've had some that have grown over that life and others that have not met the expectation.

We pretty well have been able to track it over the life of the contract.

I guess the fundamental thing.

We really are not changing our booking practices.

What we've been doing for the last decade we are going to continue to do.

As you know, there aren't any rules about how backlog gets booked.

So what we think is important is to be consistent.

And we are trying to do that.

Okay.

Great.

Thanks a lot.

Brian Konigsberg; Vertical Research.

Please go ahead.

Hi, good morning.

Most of my questions have been answered.

I was curious, you talked about GES Plus contracting in the Middle East.

It still only remains two of you.

I know there have been an extension for applications for others to get in the mix, but it doesn't seem to have happened.

I'm just curious, is there going to be kind of a pause in awards associated with that project as they try to get other contractors in place?

Do you think that you will still see projects forthcoming from there?

Let me comment on that quickly, then I will pass on to Greg Landry who is our EVP with that responsibility.

I generally don't think that we will see much of a pause, simply because the work that gets done under GES for the most part is work that has to be done to keep the asset base running.

That kind of work we like a lot.

There's also some bigger project work, but let me ask Greg Landry to comment.

Greg?

Good morning.

Yes, in fact there is another organization that we were expecting to be approved here by the end of year, but it hadn't.

So it may occur this quarter.

And there will be three of us in the GES Plus game.

But the work we have now is a big clean fuel program but now we're beginning to see a lot of small, medium capital type projects coming out of the facilities.

So we are pretty -- in fact we are very optimistic on the work that's going to be funneled through GES Plus.

And as more companies qualify and can determine whether it is going to be three or five, that's going to put a baseline of work, but what we've done in the last six months is that has been a learning curve for the owner.

On how to manage this work.

They are getting better at it so we are seeing more were coming out of it.

I think the pause question, we don't expect to see a pause.

We expect GES Plus to continue to drive business.

The work that was traditionally done under the old GES contract was work that had be done on an ongoing basis and that's what we are really seeing now.

To Greg's point, I don't expect that we will see anything but steady flow of work.

And as additional competitors come in, and there may ultimately be only three, that's kind of where we think we are, there'll be plenty of work for all of us.

Does that answer your question, Brian?

Yes, exactly.

And just more housekeeping, so your share count has continued to kind of tick up modestly from here but how should we be thinking about that going forward?

Are you planning to keep that steady or should we anticipate some creep there?

There's two things that affect that.

One is we do have modest stock purchase plans so the shares go up that way and we have options and such to exercise and all.

But it is also impacted by the stock prices.

You do the calculation for the fully diluted earnings, the value of the options outstanding or the dilution effect of the options outstanding go up a little bit as the stock price goes up.

So good news is that when the stock price goes up, there will be a little bit of bad news which is the share denominator goes up a little bit.

But the actual shares going out tend to be fairly modest.

There is a little bit of a flow.

It is through the stock purchase plan and options.

Some of our activity in acquisitions we do put a piece of the purchase price in stock, particularly where the sellers are the ongoing management and we want to keep them tied to the Company and interested in the overall outcome of Jacobs.

So if we are buying from an independent owner like an acquisition with [Formaker] there wasn't the opportunity or the real desire to put stock into the purchase price.

But when we're buying an individual company where the shareholders that we were selling are also the management that we want to keep in place.

We want to put some stock in their hands so that they keep a long-term focus on Jacobs.

Thank you very much.

And Brian, to address a hidden question there.

We still think we have plenty uses for our cash in the world of acquisitions so we don't have any plans to use it otherwise.

All right.

Thank you very much.

Jamie Cook; Credit Suisse.

This is Andrew Buscaglia on behalf of Jamie Cook.

You guys touched a little on your competition in your mining segment earlier, I was just wondering in terms of some of the other markets that are improving such as infrastructure you sited buildings and also just relative strength in oil and gas and chemicals.

Just curious what else you are seeing in terms of competition heating up and what's the environment right now and how you see that trending throughout the year?

Let me see if I can tackle that one.

In the heavy process business, so chemicals, refining, upstream oil and gas, pretty much the same competitors set globally.

Again, most of our competitors in that arena tend to focus on bigger projects.

So our competition with those bigger players tends to start as the projects get bigger say $200 million and north.

And then on the smaller stuff, competition continues to be for the most part, the smaller local players or regional players, so it is a mixed bag of competition there.

The bigger players are starting to get more business and so we are seeing a little bit of a softening in competition.

Not a lot, but a little tiny bit.

The smaller local guys are still pretty fierce.

So that arena is not quite as strong although even it is improving a little bit.

So overall, the competitive slate in the heavy process business is one that it is the majors, it is the folks that most of you follow.

And while the market in the competition levels are little better, it is still pretty competitive.

If you move around to the industrial markets, we've already talked about mining and minerals in that context.

When you think about the other businesses that we are in, frankly, the competition in those business is relatively unique and almost none of it is in the public space.

So the folks that you know best as our competitors we really don't see in those markets.

On the infrastructure public and institutional work side, not just specifically infrastructure, but the whole public and institutional work, it's a mixed bag.

The national governments programs business is major competitors.

It's the URSs of the world, and Bechtel all those folks who are on there, Fluor.

We saw all those folks in those big national governments programs.

When you move into infrastructure and buildings, those markets are hugely fragmented.

Way more fragmented frankly than any of the rest of the industries we are in.

So while we see folks like AECOM and URS as competitors, we see literally dozens of other competitors who are local or regional in nature.

And that business is not particularly price competitive.

Although as I mentioned I think in my prepared remarks, it is becoming a little more price competitive as governments realize they don't have the money to do all the things they need to do and they start looking for ways to leverage their dollar.

We are actually pretty excited about that.

We think in the long-run price competition and the public-sector will be a big benny for Jacobs.

Because we built our business to be cost competitive in that area.

And some of our competitors are not yet there.

Does that answer your question?

Yes.

That's great color.

Thanks.

All right.

Andrew Wittmann; Robert W Baird.

Please go ahead.

Hi, guys.

Thanks for taking my question.

Craig, I just wanted to get your view a little bit.

It sounds like your outlook for the construction opportunities has been pushed out maybe a little bit.

Maybe a quarter or two.

I'm kind of curious as to what you think needs to happen for the construction aspect of this cycle to come through.

Is it just time?

Is there some skittishness on the part of project sponsors that they are a little gun shy here?

What needs to happen to get to the construction cycle?

I'm not sure that my outlook about the construction cycle has actually changed that much.

I think I said as early as two quarters ago, that it was sort of a second half of 2012 conversation.

I still think the second half of 2012 will start to show some good strong movement.

But certainly our customers are being in general, and this is globally so, a little more conservative about when they commit the big dollars than they were in that 2005 to 2008 cycle.

I mean, you are looking at a time when people couldn't get on the bandwagon fast enough.

Now you are looking at a time where people want to be sure before they commit.

But I really don't think it is changed the tenor of where we see the business going forward.

It may shift a project or two from quarter to quarter or there may be one or two big events that get shifted more than that.

But overall, I don't think it has changed our outlook very much.

Okay.

That makes sense.

And then I guess for John, the guidance range totally understand not adjusting it this early in the fiscal year.

John, can you give us a picture of what it looks like for the Company to maybe achieve the higher end of that range?

Is that margin as well as a material uptick in the booking rate?

Or what's it take to get us to that level?

Again, I will caution we don't really give guidance within guidance, but we talked about a number of things, Craig's comment about construction.

If that moves forward, getting closer that would obviously be an upside.

But I think it is just timing and markets and we are still in a very volatile and uncertain economic market that could impact timing of events and activities in certain regions and such.

It is just a whole lot of things that would be both on the plus and minus side.

And I'm not going to go through an itemized item by item -- what would get us to the 320 and what would take us down to the 280.

Got you.

Maybe a way I think about it, when we look at our customers and their CapEx plans, there's a good steady growth future out there.

And if they get a little aggressive about that, we will have a better outcome than say the midpoint of the guidance, and as they get less aggressive about that we will have a poorer outcome.

But we are not withstanding our customers' view of their CapEx cycle, if you look at the overall economic climate there is an awful lot of uncertainty.

What does this all mean?

What's going to happen in China?

What is the federal government going to be?

How are the states going to deal with their tax short falls?

What's going to happen in Europe?

Pick up any magazine and you can get 10 pages worth of uncertainty.

So I think that's the bigger issue that you have to think about in terms of the guidance range.

Is there's a lot going on that's really external to the CapEx cycle that could affect it either very positively or very negatively.

And three quarters out is a long way to predict.

That all makes sense.

Just one technical question here.

John, is the run rate for G&A, you think, here in the first quarter, is that about right for the balance for the year or how do see the G&A unfolding?

Obviously, if we're going to move up outside or even at the midpoint of the range there's some growth involved in that, and with salary pressures, with that growth comes a little bit of uptick in G&A.

But it certainly should grow at a much lower rate than what we would see our professional services or our margin line growing at.

So pressure on G&A is increasing slightly.

But certainly not above the trendline of our margins.

Thank you very much.

John Rogers; DA Davidson.

Please go ahead.

Hi, good morning.

Just a couple of follow-ups.

First of all, Craig, can you go back to Europe for just a second?

A lot of headlines about obviously the problems over there and what you are seeing in terms of customer reaction.

Sure.

I think first off you have to think a little bit about how our business is positioned.

In mainland Europe, the vast majority of our business is related to the process industries.

And there the customers are very focused on sort of continuing CapEx and keeping their assets functional and safe and driving the projects that will improve the profitability of those assets.

That's where the majority of our businesses is, whether the assets are onshore or offshore.

And so well I don't expect to see big project activity -- there will be a few big projects, but I don't expect to see big project activity in Europe.

I think the segment of the business we are in and the customers that we are working for are not particularly sensitive to the uncertainty in Europe.

When you move over to the UK, it is a little different sense.

Our UK customers are insulated a bit from the continent not being on the euro, and oil has had impact.

I think the UK government has responded well to the economic crisis and has taken a step up and done a lot of the things it needed to do to address the economic challenges of the country.

And our guys I think have been pretty adroit in positioning us for the places where the money will go.

So absence some sort of bank contagion that just drives across global banking, I think our UK position is really pretty solid.

And I think we will continue to battle with the other big players in the UK for market share, but we positioned ourselves well and I think we are in a position to take that share.

So I'm not feeling terribly sensitive to the economic situation in the euro.

Unless it develops into a more for global crisis than I think most people expect.

Our businesses in southern Europe are going to struggle.

And that's going to be a challenge for us.

But it is, from an impact on the overall business, those are not big numbers.

Can you give us an indication of the size of the market for Jacobs in Europe?

Not total people, but maybe people that are focused on European projects?

That's hard to do.

We have a substantial complement of people in Europe.

Probably in terms of the aggregate heads, we're pushing close to 10,000 people.

I'm counting both the UK, Ireland, and mainland Europe.

The vast majority of those people are focused on the projects of the type I just described.

Either the buildings and infrastructure business in the UK, or the process business in UK, Ireland, and northern Europe.

As a percentage of the total, we still don't have something like a 25% market share or anything silly like that.

I think in the UK, we are maybe number five, and in Europe we're probably number seven or eight or nine.

I don't know, something in that range.

So there's still plenty of market share to be had.

The other aspect of that you can't ignore is we're moving a fair amount of work when we do out of kingdom work in Saudi Arabia or in the Middle East, we are able to move a chunk of that work to places like Leyden and Manchester and Reading and so those businesses are not entirely dependent on the local marketplace.

Even though we are emphasizing always the local presence, we do have a good ability to move work around the system and leverage capabilities in places like Europe where there's a lot of capability for these bigger projects that are going in the Middle East and other places.

Long-winded answer to say we have a strong position.

We're not dominant.

We should be able to sustain those businesses by continuing to take share in the local market places.

And we have the ability to drive work into those countries from outside those countries.

Keeps us pretty comfortable with our European business.

Okay.

Does that answer your question, John?

I appreciate the color.

It helps.

One other thing if I could, you talked about acquisitions and maybe a little bit better pricing out there.

Is this kind of a market where we are likely to see larger deals more along the lines of Aker versus what you've done most recently?

I think there are both kinds of deals out there.

The relatively smaller niche deals.

Midsize deals, but I think there's also a few deals that would be in the $250 million north kinds of prices.

It wouldn't surprise me at all if we find one or two of those kind of deals to do in the next 18 months.

I don't see some sort of giant mergers of equals or any of those kinds of things.

Certainly that's not something that Jacobs has any interest in.

Okay.

Thank you.

Appreciate it very much.

Robert Connors; Stifel Nicolaus.

Please go ahead.

I have a couple quick questions.

Within the oil sands has it been more of return of old projects from pre-financial crisis that have been driving the awards or is it more new projects?

And if it is old projects, is it just updating of old feeds and that might carry a somewhat lower margin?

It is both.

We are seeing projects that were shelved.

Shelved when the crisis broke that are coming back.

Most of those are coming back in a different form.

And so you are seeing some differences.

Petro Canada had some big projects they are going to do prior to their acquisition by Suncor.

Some of those projects may come back.

But if they do they will come back with the Suncor spin on them not a Petro Canada spin.

That would change the nature of those jobs and may well change the approach to some of the fees.

I would tell you that there's lots of ore body yet to be developed.

Lots of exploration going on in Canada in the ore bodies or reservoirs, depending on what word you want to use for them.

So you wouldn't say that the preponderance of business was old projects coming back.

If anything the preponderance of business is new projects.

Even on some of those older projects, the clients up there are really looking for better ways to do the projects.

In the last cycle there was maybe a propensity to just throw money at it to get it done and get it going.

Where today they are much more conscious of what does it cost to process a barrel of bitumen to actually get the economics of the crude better.

So there's a lot more focus on doing things better, doing things more efficiently, and that drives reengineering and relooking at even if engineering was done in the past before it goes out in the field and figure out a better way to build it.

That's great.

And one last question, going back to the gross profit margins.

They were highest this quarter since fiscal 2Q 2008 and the way I've remembered you guys talking about it is at that the gross line, public-sector end markets carry a higher margin than the private.

But it seems to me that private sector has been a stronger market so over the past year just wondering if you can comment on that?

On that trend?

The public sector market still is a pretty good share of the professional services and all.

And I think on the professional services side we are seeing improvement and some margins with salary increases.

We are seeing a pickup and the multiple players may stay the same at the lower level, but the salary, the short-term salary increases do improve that gross margin activity.

Some of its offset by higher salaries in the G&A, but you get a little bit of a kick up at the gross margin.

So there's a number of things that are adding to it.

While the traditional government sector has a higher multiple but less items that are directly billable, they do tend to have a higher gross margin.

We are seeing a pickup in the salaries and multipliers that are improving the professional service and we are just seeing a little bit better pricing.

I say a little bit.

But it is stabilizing it in some areas, moving up because of some of these markets where the salary increases are a little stronger; Australia, Canada, and regions like that.

Great.

Appreciate the time, guys.

I will pass it on.

Min Tang-Varner; MorningStar.

Please go ahead.

I actually have a quick question about what Aker project mix you're going after.

I remember we talked about it before that Jacobs likes small to medium-sized projects.

And they're very good at doing projects that are more in the sustaining capital category.

And today you talked about because of the Aker acquisition you are actually can have the capability of going after large capital projects in the gold and copper field.

So I'm curious if Aker is materially changing at least in the metals and mining space, your project mix going forward?

Aker is certainly contributing more to the bid project aspects of our business than at the time of the acquisition then it did to the small projects business.

So we expect to continue to grow that existing Aker business, the big projects business.

But we expect to supplement that fairly rapidly with more of our traditional small cap alliance relationships that we think provide better long-term continuity to the customers.

Remember that our business model is always to do the small project work as a base for also doing the large project work.

So I don't expect that the Aker acquisition will have any meaningful impact on the amount of big project work that Jacobs does globally, but I do think that in -- particularly in mining and minerals space, we'll be in the big project work sooner perhaps then we worked into those things in the refining business where we kind of worked our way up from underneath.

Does that make sense?

Yes, most definitely.

I'm just curious because you also mentioned before that metals and mining projects tend to carry a smaller margin compared to oil and gas projects.

So is that still the case?

Or do you actually think because of the industry is enjoying a pretty reasonable pricing environment they are actually getting more aggressive in terms of hanging out additional projects?

My original comments if you remember when I suggested that mining minerals was probably going to be softer than our historic businesses.

A lot of that was based on comments from our competitors who in public forums like this one have said that the mining and minerals business was less profitable.

I think today what we are finding is that in places where there is a lot of activity, like Australia, the margins on these projects are at least as good as our process businesses generally.

So there isn't a particular deficit in that area.

Of course, obviously in markets where it is truly white-hot, like maybe around Perth in Australia, you may even see higher margins than our traditional across the business, a bit like what we saw in Canada and the big boom there.

Okay.

So, in essence, you're probably thinking that the margins that you had originally anticipated actually are going to be a little better than your peers had indicated before?

That's exactly right.

Okay, that's some good news.

I think you had alluded to it before, you said that competition is actually getting -- environment is actually getting a little better so I'm curious if you could elaborate a little more about the Middle East which you consider to be your growth engine in the future?

The Middle East is still very competitive.

There's no question about that.

When you are the source of an awful lot of this big project work in particular, there's a lot of attention on that.

But I would say even in the Middle East the pricing pressures have come off just a little bit.

I remind people on calls like this all the time that the people with whom we do business, whether it is Saudi Aramco or Exxon or BP or Shell or BHP Billiton, are very sophisticated buyers.

And they really good at getting the best possible price out of their suppliers.

So we are talking about nuances when we talk about better pricing or worse pricing.

We are certainly not talking about order of magnitude kinds of better or worse.

Okay.

And if let me ask the last question, I remembered you guys talked about last year or even the last quarter you were talking about you are still looking at a recovery that's similar to the (inaudible).

Do you actually think 2012 is going to be similar to 2011 in terms of the recovery?

As slow steady recovery?

Or do actually think towards the second half of the year you are actually going to be able to see some bigger bumps because the EPC and EPCM contracts are going to start working on those once more?

I think we are still in the slow steady.

I think the slope of the curve might be a little better today than it was twelve months ago.

In fact I'm convinced it is a little better today.

But I don't think we're at the point where we would expect to see any sort of dramatic improvement.

All right.

Thank you.

Thank you.

Rob Norfleet; BB&T Capital Markets.

Please go ahead.

My questions have been answered but congratulations on the great quarter.

Thank you, Robert.

This concludes today's Question-and-Answer session.

I would like to turn the conference back over to Craig Martin and the Management Team for any final remarks they may have.

Well, thank you all for your interest in the Company.

We appreciate it very much.

We're pretty pleased actually with the way that the first quarter went.

And we continue to have a pretty positive outlook as we go forward.

So, we will be back together and have this conversation here in about 90 days and we will see how it's going.

But the markets and the Company's position in those markets, I think is pretty good.

And we look forward to continue to demonstrate that.

Thank you all very much.

This conference is now concluded and we thank you for attending today's presentation.

You may now disconnect your lines.