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On Sept 14, 2016, we issued an updated research report on Aegion Corporation , the global leader in infrastructure protection and maintenance.
Looking back at Aegion’s second-quarter results, the company reported adjusted earnings of 23 cents per share, which plunged 34% year over year. Aegion’s second quarter was more challenging than expected because of several short-term factors, that will potentially affect in the second half as well.
The company does not expect additional project activity to make up for the short-term second-quarter issues, which means adjusted 2016 EPS will likely fall below the projected 2015 results. The two biggest changes that led to revised full-year outlook were, first, a dramatic slowdown of work releases from oil and gas customers since the wildfires in Western Canada. While the customers may increase the rate of these work releases in the coming months, Aegion remains conservative based on the increased uncertainty in the market.
Second, the winding down of the energy services upstream work, part of the downsizing in central California and the decision to exit the Permian Basin, given difficult market conditions, negatively impacted second-quarter margins more than anticipated. It is likely to hurt margins in the near future again.
Nevertheless, Aegion remains confident that the tailwinds in the N.A. municipal pipe rehabilitation market, an improving U.S. midstream market and execution of the Appomattox contract will build positive momentum in 2016 and 2017. The company expects improved earnings in second-half 2016 despite ongoing challenges in the energy markets.
Aegion recently completed three small international acquisitions – two of which were in the second quarter. First, the company invested approximately $3 million to acquire the remaining international legal rights not covered when it purchased the Latin America operations back in 2012. Aegion now has access to an additional 72 countries in Europe, Africa and the Middle East.
Second, it invested $3 million to obtain the CIP business of LMJ, a long-term licensee in Denmark, for the in situ form CIPP products. Denmark is an attractive market for contract activity with steady investment by local municipalities and a favorable outlook. The company plans to leverage its expertise and scale in the Netherlands to compete more effectively and grow in the Danish market.
Finally, Aegion acquired Concrete Solutions in July for $6 million, a long time New Zealand certified applicator of the Tyfo Fibrwrap technology. These acquisitions will bolster Aegion’s results.
Aegion is poised to benefit from rising order pattern and new contract wins. Recently, it announced a $12 million multi-year CIPP project award in Chicago. On the pressure pipe side, the company continues to market its broad portfolio of solutions to rehabilitate aging and deteriorating pipelines. The company is actively working on the large pressure pipe projects announced last quarter in West Palm Beach, FL, using in situ main CIPP and in Valley Forge, PA, with Tite Liner.
In January, Aegion announced the 2016 restructuring actions to downsize its exposure in the upstream oil markets and reduce consolidated costs. The company estimates approximately $1.5 million of additional pre-tax charges during second-half 2016.
Backlog in Aegion’s Energy Services plummeted 33.8% year over year to $178 million during second-quarter 2016 mainly resulted from the downsizing of its upstream operations. Backlog in the upstream market went from $68 million at Jun 30, 2015, to $31 million at Jun 30, 2016.
As anticipated, a portion of the backlog decline was also in the West Coast downstream market, reflecting a slowdown in turn around activity in second-half 2016 and the absence of additional work. The company expects that backlog comparison for the remainder of the year will also be affected by the upstream downsizing.
Aegion Corporation carries a Zacks Rank #3 (Hold).
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Aegion (AEGN) Expects Improved 2H16 Despite Headwinds
On Sept 14, 2016, we issued an updated research report on Aegion Corporation , the global leader in infrastructure protection and maintenance.
Looking back at Aegion’s second-quarter results, the company reported adjusted earnings of 23 cents per share, which plunged 34% year over year. Aegion’s second quarter was more challenging than expected because of several short-term factors, that will potentially affect in the second half as well.
The company does not expect additional project activity to make up for the short-term second-quarter issues, which means adjusted 2016 EPS will likely fall below the projected 2015 results. The two biggest changes that led to revised full-year outlook were, first, a dramatic slowdown of work releases from oil and gas customers since the wildfires in Western Canada. While the customers may increase the rate of these work releases in the coming months, Aegion remains conservative based on the increased uncertainty in the market.
Second, the winding down of the energy services upstream work, part of the downsizing in central California and the decision to exit the Permian Basin, given difficult market conditions, negatively impacted second-quarter margins more than anticipated. It is likely to hurt margins in the near future again.
Nevertheless, Aegion remains confident that the tailwinds in the N.A. municipal pipe rehabilitation market, an improving U.S. midstream market and execution of the Appomattox contract will build positive momentum in 2016 and 2017. The company expects improved earnings in second-half 2016 despite ongoing challenges in the energy markets.
Aegion recently completed three small international acquisitions – two of which were in the second quarter. First, the company invested approximately $3 million to acquire the remaining international legal rights not covered when it purchased the Latin America operations back in 2012. Aegion now has access to an additional 72 countries in Europe, Africa and the Middle East.
Second, it invested $3 million to obtain the CIP business of LMJ, a long-term licensee in Denmark, for the in situ form CIPP products. Denmark is an attractive market for contract activity with steady investment by local municipalities and a favorable outlook. The company plans to leverage its expertise and scale in the Netherlands to compete more effectively and grow in the Danish market.
Finally, Aegion acquired Concrete Solutions in July for $6 million, a long time New Zealand certified applicator of the Tyfo Fibrwrap technology. These acquisitions will bolster Aegion’s results.
Aegion is poised to benefit from rising order pattern and new contract wins. Recently, it announced a $12 million multi-year CIPP project award in Chicago. On the pressure pipe side, the company continues to market its broad portfolio of solutions to rehabilitate aging and deteriorating pipelines. The company is actively working on the large pressure pipe projects announced last quarter in West Palm Beach, FL, using in situ main CIPP and in Valley Forge, PA, with Tite Liner.
In January, Aegion announced the 2016 restructuring actions to downsize its exposure in the upstream oil markets and reduce consolidated costs. The company estimates approximately $1.5 million of additional pre-tax charges during second-half 2016.
Backlog in Aegion’s Energy Services plummeted 33.8% year over year to $178 million during second-quarter 2016 mainly resulted from the downsizing of its upstream operations. Backlog in the upstream market went from $68 million at Jun 30, 2015, to $31 million at Jun 30, 2016.
As anticipated, a portion of the backlog decline was also in the West Coast downstream market, reflecting a slowdown in turn around activity in second-half 2016 and the absence of additional work. The company expects that backlog comparison for the remainder of the year will also be affected by the upstream downsizing.
Aegion Corporation carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry include Argan, Inc. (AGX - Free Report) , Gibraltar Industries, Inc. (ROCK - Free Report) and United Rentals, Inc. (URI - Free Report) . These three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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