It has been about a month since the last earnings report for Aegion Corp . Shares have added about 10.2% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Aegion Misses on Q2 Earnings, Beats Revenue Estimates
Aegion reported second-quarter 2017 adjusted earnings of 34 cents per share, up around 47.8% year over year. Earnings, however, missed the Zacks Consensus Estimate of 42 cents. Including one-time items, Aegion reported profit of 33 cents per share in the quarter compared to 10 cents recorded in the prior-year quarter.
Operational Update
Total revenue of $354 million in the quarter increased 19% year over year. Revenues also beat the Zacks Consensus Estimate of $349 million.
Adjusted cost of sales increased 17% to $274.7 million from $234 million in the year-ago quarter. Adjusted gross profit improved 25% to $79.8 million from $63.6 million in the prior-year quarter. Adjusted gross margin expanded 110 basis points (bps) year over year to 22.5%.
Adjusted operating expenses climbed 18.5% year over year to $57.8 million. Adjusted operating income surged 48% year over year to $21.9 million. Operating margin in the quarter came in at 6.2%, expanding 120 bps from the year-ago quarter.
Segmental Performance
Revenues from the Infrastructure Solutions segment edged down 1.3%, year over year, to $148.3 million. The segment’s adjusted operating income plummeted nearly 50% year over year to $8.4 million.
The Corrosion Protection segment’s revenues jumped 35% to $127.7 million from $94.4 million recorded in the comparable quarter last year. The segment reported an adjusted operating profit of $11.2 million compared to a loss of $1.5 million in the year-ago quarter.
Revenues in the Energy Services segment surged 47.8% year over year to $78.4 million. The segment reported an adjusted operating profit of $2 million compared to a loss of $0.9 million witnessed in the prior-year quarter.
Financial Update
Aegion had cash and cash equivalents of $105.3 million at the end of second-quarter 2017 compared with $129.5 million at the end of 2016. Cash flow from operations came in at $27 million during the second quarter, compared with $12 million in the year ago quarter.
Aegion’s consolidated backlog came in at $774 million as of Jun 30, 2017, up 23% year over year. New orders increased during second-quarter 2017 compared to first-quarter 2016, by a total of 35% to $764 million.
Strategic Actions
Aegion’s market-leading technologies in growing and predictable end markets will drive its long-term organic growth strategy. The company continuously reviews its portfolio and end markets. In line with this, the company made some strategic actions in Jul 2017. Per the plan, Aegion approved to divest its pipe coating and insulation business in Louisiana, exit all non-pipe related contract applications for the Tyfo Fibrwrap system in North America, restructure Corrosion Protection’s operations in Canada and implement cost-reduction actions. These restructuring initiatives are anticipated to generate annualized savings in excess of $15 million in 2018.
To date, Aegion has recognized approximately $9 million of annualized savings. The company estimated pre-tax, cash charges of $9–$11 million, with the majority of the charges planned for the second half of 2017. The anticipated charges consist primarily of employee severance, retention, extension of benefits, employment assistance programs, early lease termination and other restructuring related costs.
Outlook
Aegion forecasts solid second-half 2017 performance, driven by increased backlog. It remains committed to achieve three-year financial targets. The company’s strong end markets, investments in sales resources, market expansion and R&D will significantly enhance profitability in 2018.
Aegion will continue to participate in the North American civil structures market through third-party product sales and engineering support. The company has been awarded two related contracts, valued at approximately $35 million, in the Middle East for robotic interior pipe weld coatings. Over 75% of the value is for offshore activity planned in 2018 at margins in line with prior offshore projects. This reflects Aegion’s focus on strategic end markets for municipal and midstream oil & gas pipelines and West Coast refinery services to deliver sustainable organic revenue and earnings growth.
However, Aegion expects 2017 adjusted EPS to moderately exceed the 2016 results due to execution issues in Australia, cathodic protection services in the U.S., as well as limited backlog in Denmark and the Tyfo Fibrwrap system in North America.
Aegion’s Infrastructure Solutions segment’s results will be backed by strong second-half 2017 orders for projects in the North American market for Insituform CIPP rehabilitation resulted in record backlog and a continued favorable outlook for full-year 2017 profit growth. Corrosion Protection segment’s growth in 2018 will be supported by key project awards in the Middle East, Central America and South America. A favorable market for day-to-day refinery maintenance and turnaround services on the U.S. will drive revenues and operating margin expansion in its Energy Services segment in the second half of 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 6.9% due to these changes.
VGM Scores
At this time, Aegion's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We expect below average returns from the stock in the next few months.
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Aegion (AEGN) Up 10.2% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Aegion Corp . Shares have added about 10.2% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Aegion Misses on Q2 Earnings, Beats Revenue Estimates
Aegion reported second-quarter 2017 adjusted earnings of 34 cents per share, up around 47.8% year over year. Earnings, however, missed the Zacks Consensus Estimate of 42 cents. Including one-time items, Aegion reported profit of 33 cents per share in the quarter compared to 10 cents recorded in the prior-year quarter.
Operational Update
Total revenue of $354 million in the quarter increased 19% year over year. Revenues also beat the Zacks Consensus Estimate of $349 million.
Adjusted cost of sales increased 17% to $274.7 million from $234 million in the year-ago quarter. Adjusted gross profit improved 25% to $79.8 million from $63.6 million in the prior-year quarter. Adjusted gross margin expanded 110 basis points (bps) year over year to 22.5%.
Adjusted operating expenses climbed 18.5% year over year to $57.8 million. Adjusted operating income surged 48% year over year to $21.9 million. Operating margin in the quarter came in at 6.2%, expanding 120 bps from the year-ago quarter.
Segmental Performance
Revenues from the Infrastructure Solutions segment edged down 1.3%, year over year, to $148.3 million. The segment’s adjusted operating income plummeted nearly 50% year over year to $8.4 million.
The Corrosion Protection segment’s revenues jumped 35% to $127.7 million from $94.4 million recorded in the comparable quarter last year. The segment reported an adjusted operating profit of $11.2 million compared to a loss of $1.5 million in the year-ago quarter.
Revenues in the Energy Services segment surged 47.8% year over year to $78.4 million. The segment reported an adjusted operating profit of $2 million compared to a loss of $0.9 million witnessed in the prior-year quarter.
Financial Update
Aegion had cash and cash equivalents of $105.3 million at the end of second-quarter 2017 compared with $129.5 million at the end of 2016. Cash flow from operations came in at $27 million during the second quarter, compared with $12 million in the year ago quarter.
Aegion’s consolidated backlog came in at $774 million as of Jun 30, 2017, up 23% year over year. New orders increased during second-quarter 2017 compared to first-quarter 2016, by a total of 35% to $764 million.
Strategic Actions
Aegion’s market-leading technologies in growing and predictable end markets will drive its long-term organic growth strategy. The company continuously reviews its portfolio and end markets. In line with this, the company made some strategic actions in Jul 2017. Per the plan, Aegion approved to divest its pipe coating and insulation business in Louisiana, exit all non-pipe related contract applications for the Tyfo Fibrwrap system in North America, restructure Corrosion Protection’s operations in Canada and implement cost-reduction actions. These restructuring initiatives are anticipated to generate annualized savings in excess of $15 million in 2018.
To date, Aegion has recognized approximately $9 million of annualized savings. The company estimated pre-tax, cash charges of $9–$11 million, with the majority of the charges planned for the second half of 2017. The anticipated charges consist primarily of employee severance, retention, extension of benefits, employment assistance programs, early lease termination and other restructuring related costs.
Outlook
Aegion forecasts solid second-half 2017 performance, driven by increased backlog. It remains committed to achieve three-year financial targets. The company’s strong end markets, investments in sales resources, market expansion and R&D will significantly enhance profitability in 2018.
Aegion will continue to participate in the North American civil structures market through third-party product sales and engineering support. The company has been awarded two related contracts, valued at approximately $35 million, in the Middle East for robotic interior pipe weld coatings. Over 75% of the value is for offshore activity planned in 2018 at margins in line with prior offshore projects. This reflects Aegion’s focus on strategic end markets for municipal and midstream oil & gas pipelines and West Coast refinery services to deliver sustainable organic revenue and earnings growth.
However, Aegion expects 2017 adjusted EPS to moderately exceed the 2016 results due to execution issues in Australia, cathodic protection services in the U.S., as well as limited backlog in Denmark and the Tyfo Fibrwrap system in North America.
Aegion’s Infrastructure Solutions segment’s results will be backed by strong second-half 2017 orders for projects in the North American market for Insituform CIPP rehabilitation resulted in record backlog and a continued favorable outlook for full-year 2017 profit growth. Corrosion Protection segment’s growth in 2018 will be supported by key project awards in the Middle East, Central America and South America. A favorable market for day-to-day refinery maintenance and turnaround services on the U.S. will drive revenues and operating margin expansion in its Energy Services segment in the second half of 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 6.9% due to these changes.
Aegion Corp Price and Consensus
Aegion Corp Price and Consensus | Aegion Corp Quote
VGM Scores
At this time, Aegion's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We expect below average returns from the stock in the next few months.