J Q2 Deep Dive: Backlog Expansion and Strategic Sector Growth Support Positive Outlook

Global professional services company Jacobs Solutions (NYSE:J) missed Wall Street’s revenue expectations in Q2 CY2025, but sales rose 5.1% year on year to $3.03 billion. Its non-GAAP profit of $1.60 per share was 4.4% above analysts’ consensus estimates.

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StockStory’s Take

Jacobs Solutions’ second quarter results were well received by the market, as the company delivered higher non-GAAP earnings per share despite missing Wall Street’s revenue expectations. Management attributed the quarter’s performance to robust growth across advanced facilities and water sectors, as well as an expanding backlog fueled by strong demand in life sciences and data centers. CEO Robert Pragada highlighted the company’s ability to secure large, multi-year projects and noted the successful application of digital twin technologies, especially in collaboration with partners like NVIDIA, as key drivers of operational efficiency and client wins.

Looking ahead, Jacobs Solutions’ guidance is underpinned by continued momentum in high-growth sectors and a record backlog position. Management identified secular drivers in energy, water, and data centers as supporting ongoing demand, with projects in advanced manufacturing and critical infrastructure expected to accelerate into next year. CFO Venk Nathamuni stated, “We expect revenue growth to be ahead of this year with continued margin improvement as our gross margin initiatives begin to phase in.” Management also pointed to margin expansion through operational efficiencies and a shift towards higher-value, digitally enabled solutions.

Key Insights from Management’s Remarks

Management credited the quarter's margin gains and backlog growth to strong execution in advanced facilities, water, and data centers, as well as early results from its strategy to expand lifecycle client engagement.

• Data center demand accelerates: Jacobs saw a notable increase in data center opportunities, particularly as clients expanded project scopes to include design, power engineering, and water infrastructure. Pragada emphasized the transformative effect of its partnership with NVIDIA, enabling reference designs for global customers and expanding Jacobs’ role from engineering to full project delivery.
• Backlog composition shifts: The company’s backlog growth was led by advanced facilities and water projects, which tend to have longer-term, multi-quarter revenue realization. Management noted that life sciences and advanced manufacturing sectors also contributed, with faster project cycles supporting near-term growth.
• Lifecycle strategy gains traction: Jacobs’ approach of engaging clients early in the capital planning process—especially through PA Consulting—has resulted in multi-phase project wins, particularly in life sciences, water, and data centers. This strategy is expected to support future revenue resilience and margin improvement.
• PA Consulting momentum: PA Consulting delivered double-digit revenue and profit growth, driven by increased public sector spending in the U.K. and private sector gains in the U.S. Backlog and pipeline growth in this division were highlighted as leading indicators for continued strong performance.
• Operational leverage and cost discipline: Margin expansion in the quarter was primarily attributed to disciplined cost management and ongoing efficiency initiatives. Management suggested that further improvements are expected as commercial models evolve and global delivery capabilities mature.

Drivers of Future Performance

Management’s outlook for the remainder of the year and beyond is anchored in sustained demand across water, energy, and data center sectors, with a focus on margin expansion through efficiency and digital solutions.

• Secular growth in key markets: Jacobs expects continued robust demand in water infrastructure, energy and power, and data centers. These sectors are benefiting from global trends such as infrastructure modernization, energy transition, and AI-driven technology expansion. Management believes these trends will drive both backlog and revenue growth.
• Margin improvement strategies: The company plans to enhance margins through a combination of operational efficiencies, adoption of digital tools, and a greater focus on higher-value, integrated solutions. Nathamuni pointed to early stages of using AI and automation internally, with expectations for these efforts to provide substantial operating leverage in the coming years.
• Balanced project mix and funding flows: While the company is less dependent on any one funding source, management noted that the diversity in its portfolio—across private and public sectors—allows Jacobs to weather varying paces of government infrastructure spending, including the ongoing allocation of IIJA funds in the U.S.

Catalysts in Upcoming Quarters

In upcoming quarters, our team will be watching (1) the conversion of record backlog into revenue, especially in advanced facilities and water, (2) further margin improvement through operational efficiencies and digital initiatives, and (3) continued momentum in PA Consulting and data center project awards. Progress in deploying digital twin technologies and the impact of government infrastructure funding will also be important indicators.

Jacobs Solutions currently trades at $151.37, up from $140.05 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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