Jacobs Engineering: the next generation; founder Joseph Jacobs' handpicked successor, Noel Watson boosts earnings even in tough times.

Founder Joseph Jacobs' handpicked successor, Noel Watson boosts earnings even in tough times

Dr. Joseph Jacobs, the brilliant entrepreneur who founded Jacobs Engineering Group Inc., isn't going to let just anyone run his company for him.

Between 1974 and 1984, Jacobs, who was then in his 60s, hired and fired three executives he had found to lead the Pasadena-based engineering concern.

"I went outside (the company) three times for someone to become CEO," he says. In the end, Jacobs chose an engineer he hired in 1960, when the company had only 100 employees, and watched it grow as the company mushroomed to its present 13,000 workforce.

Noel Watson, who has spent almost his entire working career at Jacobs, is "smart, intelligent, aggressive, and an independent thinker, even when he was a youngster," says Jacobs.

Watson was appointed president in 1986 and chief executive officer in 1992. And this time, Jacobs says he's sure he has made the right choice. Noel Watson's office is at the top of Jacobs Engineering's modest 10-story headquarters building on Lake Street in Pasadena. In his speech and his gestures, Watson comes across as forceful, yet affable and not without charm.

Watson says, "The most important thing I've done is keep this company going and growing in difficult times."

He notes that 1993 was a year in which "our clients (which include the biggest U.S. oil and chemical companies) were not spending money at the pace I'd like them to spend it."

Still, Jacobs Engineering posted record earnings on record revenues last year.

Net income was $28.67 million, or $1.15 a share, on revenues of $1.114 billion for the fiscal year ended Sept. 30. That compares with net income of $26.6 million, or $1.11 a share, on revenues of $1.106 billion for fiscal 1992.

But Jacobs says what Watson has done for the company goes beyond last year's earnings.

"Just look at the record, my dear," Jacobs says. "Since 1984, our stock price has more than quadrupled. Look at the growth curve since 1984, when he became executive vice president and then in 1986, when he became president."

Herb Hart, an engineering industry analyst in the San Francisco office of New York-based investment firm S.G. Warburg & Co., says "It's a very top-flight company, no question about that.

"The annual growth of that company is in the 15-to-20-percent range," Hart says. "In the late 1980s and early 1990s, they were growing in the 30-percent range," he says, adding, "I'm talking about profits."

Jacobs notes that, most importantly, Watson has achieved an average 23.5-percent return on equity over the last five years, the best ROE of any publicly traded construction firm, according to Forbes magazine. "That's pretty good, huh?" Jacobs asks.

Jacobs Engineering stock, which is traded on the New York Stock Exchange, closed at $26.50 a share on Feb. 3. The stock's 52-week high is $29.87 and its 52-week low is $20 a share.

Back in 1984, the stock was trading as low as $1.25 a share.

"The growth of the company, the growth of the revenue, the growth of the stock -- that has been Noel's doing, with me cheering him on," Jacobs says.

Watson was born in Britton, S.D., the older of two sons of a farm equipment salesman. He grew up in Britton, a town with a population of 1,400, and was the quarterback of the Britton High School football team, he says. "I was no Troy Aikman," Watson jokes, referring to the Dallas Cowboys' Super Bowl-winning quarterback.

Watson went to the University of North Dakota and majored in chemical engineering, because "I was good at math and chemistry and physics," he says.

But he is admittedly not like a typical engineer. "We engineers joke about that -- we go to school, we study a lot, we are introverted," he says.

Watson is a self-described extrovert whose favorite aspect of his job is "that I get to interface with a lot of different people."

He started to work for Jacobs in 1960, when the company had just 100 employees working in a little office on Green Street in Pasadena.

Except for a three-year stint at American Metal Climax Inc., a mining company in Colorado, Watson has worked at Jacobs his entire career.

He has been married for more than 30 years to his wife, Phyllis, and has two children, Leslie, who is a chemical engineer at Atlantic Richfield Co. in Los Angeles, and Derek, who works in the corporate lending department of Bank of California in Los Angeles.

Derek Watson says his father has always been able to balance "wonderfully" his family life and professional life. Noel Watson, who was coach of Derek's Little League team for three seasons and to this day is still a "real big Dodger fan," still goes to baseball games with his son, Derek says.

"He did not sacrifice his personal life in his quest for success at Jacobs," Derek says.

Leslie echoes her brother's assessment. "He's always been a real strong family man," she says. "He was always there for me. I can't remember a dance recital or an orchestral concert that he wasn't there for."

She says she and her father are "very similar, actually." Both are strong-willed, opinionated and "fairly conservative in all aspects," Leslie says.

She adds that she and her father are good friends and they still spend a lot of time together skiing and hiking.

"He's a pretty darn good skier, snow skier, considering he started when he was about 40," says Derek.

Noel Watson also runs about 15 miles a week. "I run in the morning or else it doesn't get done," he says.

Watson also finds time to twist arms of business colleagues to raise money for the Boy Scouts of America and is a member of the California Business Roundtable, a business association comprised of the chief executives of California's major corporations.

"He's been an active and involved member of the roundtable and specifically has been very helpful on the issue of workers' compensation reform," says Mary Anderson, executive director of the California Business Roundtable.

Watson says, in order to be competitive, California must simplify its environmental permitting process.

"Nobody is objecting to environmental regulation or permits," Watson says. "What we're objecting to is the amount of time it takes" to get permits and comply with regulations.

Under Watson's leadership, Jacobs Engineering, in a partnership with Irvine-based Fluor Corp., snagged the largest environmental clean-up contract ever awarded, a $2.2 billion deal to cleanse a former U.S. uranium production facility in Fernald, Ohio.

Before he took over as president, Jacobs Engineering was mainly a construction firm. Now, environmental business accounts for about 25 percent of Jacobs Engineering's business, the rest is construction and engineering, Watson says.

"We'll continue to see the environmental business continue to have double-digit (percentage) growth at Jacobs," he says.

Watson is working to grow new businesses at Jacobs, he says.

He recently started up a transportation division that will actively pursue rail contracts in the Los Angeles area. In addition, he and Dr. Jacobs have formed a real estate investment trust which will invest in building pharmaceutical companies.

Watson said the REIT is part-owned by Jacobs Engineering and part-owned by Dr. Jacobs. It is a way for Jacobs to get into the health care business, which Watson and Dr. Jacobs view as a growing industry.

Overall, in the next five years, "we'd like to grow (the corporation's) business at 20 percent a year," Watson says.

When asked if he means a 20-percent increase in revenues or earnings, Watson replies, "Earnings. I only talk earnings. Who cares what the revenues are?"

Watson admits that when he talks about the future of Jacobs Engineering, he doesn't sound like an engineer by training.

"This comes from my father, a little businessman in South Dakota," Watson says. "He was always worried about whether his business would make money."

Snapshot

Noel G. Watson

Resident of: La Canada Native of: Britton, S.D. Age: 57 Education: B.S., chemical engineering, University of North Dakota