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AECOM (ACM) Gains on Q2 Earnings Beat, Revenues Miss Mark
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After two back-to-back quarters of disappointing results, multinational engineering firm AECOM's (ACM - Free Report) second-quarter fiscal 2017 earnings crushed the Zacks Consensus Estimate. Investors cheered the beat, sending the stock 3.0% higher at the end of the regular trading session on May 9.
The company reported adjusted earnings per share (“EPS”) of 89 cents, which beat the Zacks Consensus Estimate of 55 cents by an impressive 61.8%. Also, the bottom line was up 2.3% from the year-ago figure of 87 cents.
On a GAAP basis, the company’s EPS came in at 65 cents, up a whopping 140.7% compared with the year-ago figure of 27 cents.
Revenue Performance
For the fiscal second quarter, revenues edged up 1.0% to $4,427.2 million on a year-over-year basis. However, revenues came below the Zacks Consensus Estimate of $4,499 million. Strong performance of Construction Business proved conducive to top-line growth. However, this was offset to a large extent due to sluggishness in Design & Consulting Services and Management Services segments.
Segment wise, Design & Consulting Services revenues fell 5.0% year over year to $1,867.6 million. On a constant currency basis, organic revenue declined 3% due to poor performance in the Americas.
Construction Services revenues were up 14.5% to $1,732.7 million on a year-over-year basis. On a constant-currency basis, organic revenue was up 12%. Stellar performance of this segment came on the back of impressive growth in Building Construction, Power and International Design business lines.
On the other hand, Management Services revenues registered year-over-year decline of 8.3% to $826.9 million. It also fell 8% on an organic basis. Absence of benefit from a cost recovery on federal contract pension entitlements, which was present in the year-ago quarter, proved to be a dampener on top-line growth of this segment.
However, AECOM’s adjusted operating income in the reported quarter was $188.5 million, down from the year-ago figure of $268.6 million. New order wins in the quarter totaled $3.4 billion, up 10% from the year ago figure.
Additionally, AECOM’s total book-to-burn ratio during the quarter was 0.7. At the end of fiscal second-quarter 2017, AECOM had a record total backlog of $42.4 billion, up 4%, thereby signaling bright prospects.
As of Mar 31, 2017, AECOM’s cash and cash equivalents summed $726.0 million compared with $699.8 million as of Mar 31, 2016. Net debt was $3,535.6 million compared with $3,802.8 million on Mar 31, 2016.
AECOM generated negative free cash flow of $63.8 million in this quarter, in stark contrast to the free cash flow of $82.9 million in the prior year quarter.
Notable Developments
During the fiscal third quarter of 2017, AECOM Capital entered into a definitive agreement to sell its equity interest in its first investment. The company believes this is the first of the many successful returns that will accrue from its AECOM Capital investments. Since its inception in 2013, AECOM Capital has committed approximately $200 million in 15 projects with total development value in excess of $3.5 billion.
Subsequent to the end of the second quarter, AECOM closed on the first monetization of an AECOM Capital property. This has contributed approximately $80 million in cash. Also, it is expected to add 17 cents to the fiscal third-quarter EPS. This apart, the company has also clinched a $3.6 billion Management Services award shortly following the close of the quarter.
2017 Guidance
AECOM reiterated its fiscal 2017 guidance. The company continues to expect earnings per share to be in the range of $2.80–$3.20. This figure includes roughly 20 cents of anticipated gains related to AECOM Capital realizations. For fiscal 2017, AECOM has revised its effective tax rate to 18% on adjusted earnings from the earlier guidance of 20%.
In terms of spending, the company expects to incur $36 million in relation to acquisition and integration, capital expenditure of $115 million, and depreciation expense of $165 million. Expenses related to amortization of intangible assets are likely to be $95 million.
Our Take
AECOM reported an impressive beat and solid bottom-line growth in the fiscal second-quarter 2017 results. The company’s diligent business development investments and efforts are supplementing growth. We believe that the global consensus toward the need for substantial infrastructure investments will continue to boost the company’s growth drive. The company’s prospects in Canada, Australia, the U.K. and Asia-Pacific region signal bright days ahead.
Going forward, the broad-based bipartisan support for infrastructure investment in the U.S., which can range from $500 billion to $1 trillion, is likely to provide the company with major growth impetus. AECOM’s contracted backlog levels underscore its bright future prospects. The company’s diversified portfolio and dominant foothold across a number of key markets mitigates operating risks.
Zacks Rank and Key Picks
AECOM currently carries a Zacks Rankl #3 (Hold). Some better-ranked stocks in the industry include Century Communities, Inc. (CCS - Free Report) , Dycom Industries, Inc (DY - Free Report) and M.D.C. Holdings, Inc. . While Louisiana-Pacific and Dycom sport a Zacks Rank #1 (Strong Buy), M.D.C. Holdings carries the same Zacks Rank as AECOM. You can see the complete list of today’s Zacks #1 Rank stocks here.
Century Communities has registered a positive average surprise of 11.2% for the four trailing quarters, beating estimates all through.
Dycom has a positive average earnings surprise of 17.30% for the last four quarters, having beaten estimates all through.
M.D.C. Holdings has a modest earnings beat history, having surpassed estimates twice over the trailing four quarters. Last quarter, it beat estimates by 14.7%.
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AECOM (ACM) Gains on Q2 Earnings Beat, Revenues Miss Mark
After two back-to-back quarters of disappointing results, multinational engineering firm AECOM's (ACM - Free Report) second-quarter fiscal 2017 earnings crushed the Zacks Consensus Estimate. Investors cheered the beat, sending the stock 3.0% higher at the end of the regular trading session on May 9.
The company reported adjusted earnings per share (“EPS”) of 89 cents, which beat the Zacks Consensus Estimate of 55 cents by an impressive 61.8%. Also, the bottom line was up 2.3% from the year-ago figure of 87 cents.
On a GAAP basis, the company’s EPS came in at 65 cents, up a whopping 140.7% compared with the year-ago figure of 27 cents.
Revenue Performance
For the fiscal second quarter, revenues edged up 1.0% to $4,427.2 million on a year-over-year basis. However, revenues came below the Zacks Consensus Estimate of $4,499 million. Strong performance of Construction Business proved conducive to top-line growth. However, this was offset to a large extent due to sluggishness in Design & Consulting Services and Management Services segments.
Segment wise, Design & Consulting Services revenues fell 5.0% year over year to $1,867.6 million. On a constant currency basis, organic revenue declined 3% due to poor performance in the Americas.
Construction Services revenues were up 14.5% to $1,732.7 million on a year-over-year basis. On a constant-currency basis, organic revenue was up 12%. Stellar performance of this segment came on the back of impressive growth in Building Construction, Power and International Design business lines.
On the other hand, Management Services revenues registered year-over-year decline of 8.3% to $826.9 million. It also fell 8% on an organic basis. Absence of benefit from a cost recovery on federal contract pension entitlements, which was present in the year-ago quarter, proved to be a dampener on top-line growth of this segment.
However, AECOM’s adjusted operating income in the reported quarter was $188.5 million, down from the year-ago figure of $268.6 million. New order wins in the quarter totaled $3.4 billion, up 10% from the year ago figure.
Additionally, AECOM’s total book-to-burn ratio during the quarter was 0.7. At the end of fiscal second-quarter 2017, AECOM had a record total backlog of $42.4 billion, up 4%, thereby signaling bright prospects.
AECOM Price, Consensus and EPS Surprise
AECOM Price, Consensus and EPS Surprise | AECOM Quote
Liquidity & Cash Flow
As of Mar 31, 2017, AECOM’s cash and cash equivalents summed $726.0 million compared with $699.8 million as of Mar 31, 2016. Net debt was $3,535.6 million compared with $3,802.8 million on Mar 31, 2016.
AECOM generated negative free cash flow of $63.8 million in this quarter, in stark contrast to the free cash flow of $82.9 million in the prior year quarter.
Notable Developments
During the fiscal third quarter of 2017, AECOM Capital entered into a definitive agreement to sell its equity interest in its first investment. The company believes this is the first of the many successful returns that will accrue from its AECOM Capital investments. Since its inception in 2013, AECOM Capital has committed approximately $200 million in 15 projects with total development value in excess of $3.5 billion.
Subsequent to the end of the second quarter, AECOM closed on the first monetization of an AECOM Capital property. This has contributed approximately $80 million in cash. Also, it is expected to add 17 cents to the fiscal third-quarter EPS. This apart, the company has also clinched a $3.6 billion Management Services award shortly following the close of the quarter.
2017 Guidance
AECOM reiterated its fiscal 2017 guidance. The company continues to expect earnings per share to be in the range of $2.80–$3.20. This figure includes roughly 20 cents of anticipated gains related to AECOM Capital realizations. For fiscal 2017, AECOM has revised its effective tax rate to 18% on adjusted earnings from the earlier guidance of 20%.
In terms of spending, the company expects to incur $36 million in relation to acquisition and integration, capital expenditure of $115 million, and depreciation expense of $165 million. Expenses related to amortization of intangible assets are likely to be $95 million.
Our Take
AECOM reported an impressive beat and solid bottom-line growth in the fiscal second-quarter 2017 results. The company’s diligent business development investments and efforts are supplementing growth. We believe that the global consensus toward the need for substantial infrastructure investments will continue to boost the company’s growth drive. The company’s prospects in Canada, Australia, the U.K. and Asia-Pacific region signal bright days ahead.
Going forward, the broad-based bipartisan support for infrastructure investment in the U.S., which can range from $500 billion to $1 trillion, is likely to provide the company with major growth impetus. AECOM’s contracted backlog levels underscore its bright future prospects. The company’s diversified portfolio and dominant foothold across a number of key markets mitigates operating risks.
Zacks Rank and Key Picks
AECOM currently carries a Zacks Rankl #3 (Hold). Some better-ranked stocks in the industry include Century Communities, Inc. (CCS - Free Report) , Dycom Industries, Inc (DY - Free Report) and M.D.C. Holdings, Inc. . While Louisiana-Pacific and Dycom sport a Zacks Rank #1 (Strong Buy), M.D.C. Holdings carries the same Zacks Rank as AECOM. You can see the complete list of today’s Zacks #1 Rank stocks here.
Century Communities has registered a positive average surprise of 11.2% for the four trailing quarters, beating estimates all through.
Dycom has a positive average earnings surprise of 17.30% for the last four quarters, having beaten estimates all through.
M.D.C. Holdings has a modest earnings beat history, having surpassed estimates twice over the trailing four quarters. Last quarter, it beat estimates by 14.7%.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
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