11/15/2002

New Major Contracts, Q3 Results for ENGlobal (AMEX:ENG)

ENGlobal Corporation (AMEX:ENG) released their third quarter earnings yesterday, as shown on Table 1 below. Although the Company reported significant revenue and net income gains, probably the most important news was that they had begun to see a flow of new major contracts. To quote their press release:

"After a challenging third quarter, we are beginning to see an increase in project awards and believe that we are well positioned to profit from improving market conditions. As previously reported, our engineering group received a major EPC project awarded by Chevron Phillips Chemical for the expansion of a new cyclohexane production facility to be built in Port Arthur. Our Tulsa engineering office has recently benefited from the award of a $2 million clean fuels project for a large Midwest refinery. Our control systems group currently has a record backlog as a result of a major contract award by a world recognized DCS supplier."

From this it is clear that the Company's marketing and sales initiatives initiated earlier this year are beginning to produce tangible results, although it should be expected that the bottom-line impact of these new projects will not be felt until 2003. As noted in our initial Research Report, one of the major forces driving capital spending by refiners is "clean fuels compliance," which also noted the cross-sell opportunities inherent in the Company's Distributed Control Systems (DCS) capabilities.

Although Table 1 shows spectacular revenue and net income gains versus the prior year's periods, offset by major margin declines, these shifts are largely the result of the merger of between Industrial Data Systems Corporation (AMEX:IDS) and Petrocon Engineering, Inc., effective as of the end of last year.

Table 2 shows the quarter-by-quarter progression of revenues and net income during 2002, which more meaningfully reflects the impact of the "overall weak economic conditions in the third quarter," to again quote ENGlobal's earnings release. Although margins were somewhat lower in the third quarter as compared to earlier in the year, the Company has taken the appropriate steps to offset this weakness.

J.M. Dutton & Associates feels that the Company is currently on track to meet our earlier projections for 2002 and is maintaining its Buy rating on this stock.

J.M.Dutton & Associates, LLC. John M. Dutton, President and Supervisory Analyst, 1129 Manning Drive, Suite 310, El Dorado Hills, CA 95762 Phone (916) 941-4985, Fax (978) 418-6422 Email: [email protected] Web site: www.JMDutton.com

Information, opinions or recommendations contained in this Research Report or Research Note are submitted solely for advisory and information purposes. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Such information and the opinions expressed are subject to change without notice. This Research Report or Research Note is not intended as an offering or a solicitation of an offer to buy or sell the securities mentioned or discussed. Neither the Firm, its principals, nor the assigned analysts own or trade shares of any company covered. The Firm does not accept any equity compensation. Anyone may enroll a company for research coverage, which costs US $25,000 prepaid for one-year. Reports are performed on behalf of the public, and are not a service to any company. The analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests and insure independence. Please read full disclosure and other reports and notes on the Company at www.JMDutton.com.

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