After Eight-Month Search, Jacobs Taps Manufacturing Executive as its Next CEO
After a nearly eight-month search inside and outside the company, Jacobs Engineering Group went outside the construction industry to name a veteran manufacturing executive as its next president and CEO.
The California design-build and technology firm said July 13 that Steven J. Demetriou, chairman and CEO of Cleveland-based downstream aluminum producer Aleris Corp. will be its new chief, effective on Aug. 17. He has been in his current positions since 2004.
In his new roles, Demetriou will succeed interim CEO Noel Watson, who is nearly 80 and himself a former CEO of Jacobs and long time veteran who returns to his current role as executive chairman; the new chief replaces Craig Martin, who retired in December for unspecified medical reasons.
Jacobs ranks second on ENR's list of The Top 500 Design Firms, with nearly $6 billion in 2014 revenue, nearly half in industrial and petroleum sectors. The firm also ranks at No. 10 on ENR's list of The Top 400 Contractors, with $5.1 billion in 2014 construction revenue. Total corporate revenue is nearly $13 billion, the firm notes on its website.
Demetriou also formerly led a specialty chemicals firm Noveon Inc. His construction industry experience relates to board service from 2008 to 2014 for Foster Wheeler Corp. He was non-executive chairman from 2011 until that firm was merged into AMEC last year.
The search was "longer than many investors expected and wanted," says Andrew Wittmann, Baird Equity Research head analyst for the engineering and construction sector, in a July 13 research note. Demetriou's hiring "removes a barrier for an investment case on the shares, though we expect a methodical approach from the new leader, with any material changes in strategy still months away."
The company is expected to announce next-quarter results on July 27, with analysts estimating per-share earnings of $0.75. In its previous quarterly announcement on April 28, the firm's $0.72 share earnings missed Wall Street's consensus estimate by $0.07, and was down $0.03 compared to the same quarter a year ago, said a Zack's analysis.
But total backlog of $18.9 billion, including a technical professional services component of $12.6 billion, rose about 2.5% from the same quarter in 2014, the firm said in April.
"Steve has a proven track record for driving growth and creating shareholder value, as well as a clear appreciation of our values and culture,” said Watson in a statement.
Noting recent departures of long-time top executives Martin, as well as CFO John Prosser, and Executive Vice President of Global Sales George Kunberger, Wittman said "the stage could be set for a revamped and refocused strategy." He adds that "operations likely matter more in the immediate term."
At a June Credit Suisse-sponsored investors' meeting in New York, the firm said it would take a "pause" on new acquisitions and focus on "realignment" of units and staff.
According to Wittmann, "with another large restructuring underway at the company and the O&G complex likely still delivering a choppy end market, investors will be focused on margins and the company's ability to win work until a new vision is formulated."
Firm executives told the Credit Suisse investors that it anticipates more front-end design work in process markets moving to finalized stages. "The stability in commodity prices also provides confidence that recent cancellations are behind" the firm, said the investment firm in a conference note, adding that up to $500 million in projects were halted in each quarter so far this year.
Jacobs also said last month it won the second phase of InoChem’s project management consultant services contract for development of its soda ash and calcium chloride manufacturing complex in Yanbu Industrial City, Saudi Arabia.
Jacobs says InoChem is the biggest manufacturer of calcium chloride in the Middle East-North Africa region. Contract value also was not disclosed.
The firm also predicted strength in public and institutional markets, "although it is seeing slower burn rates" due to lengthier contract protests, according to Credit Suisse.
Jacobs announced on June 30 that its joint venture with Australia's Aurecon and Mott MacDonald was named as "technical, planning and engagement advisor" for the Melbourne Metro Rail Project in Australia, an estimated $11-billion rail tunnel project, but it did not disclose the contract value.
Credit Suisse added that while Jacobs is getting involved in more public-private partnership work, "it will be mindful of the risk profile of these projects given [the firm's] focus on reimbursable work."
