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Aegion Banks on Strong Order Flow, Cost Concerns Remain
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Aegion Corporation’s strong order flow, demand in the North America CIPP rehabilitation business as well as strategic acquisitions and divesture initiatives are major growth drivers. However, higher labor costs and non-recurrence of the large deep-water project might prove to be major dampeners.
Factors Driving Growth
The company follows systematic strategic actions that are targeted to generate more predictable and sustainable long-term earnings growth. The plans include the divestiture of Corrosion Protection’s pipe coating and insulation businesses in Louisiana, The Bayou Companies, LLC and Bayou Wasco Insulation, LLC (Bayou). In fact, Aegion continues to expect adjusted earnings per share growth of at least 30% in 2018 on strategic actions along with market and order strength.
Aegion’s Infrastructure Solution Business is a significant contributor to growth. In the first half of 2018, the segment’s revenues increased more than 6% year over year on higher North America CIPP volumes and inflated number of staffs to serve new order growth.
The Energy Services segment has also been delivering improved year-over-year performance over the past six quarters and is anticipated to maintain the uptrend in the near term. Moreover, Aegion has long-term relationships with oil refinery and industrial customers on the West Coast and plans to leverage the same to expand the services provided in mechanical maintenance, electrical and instrumentation services, small capital construction, shutdown and turnaround maintenance activity as well as specialty services. The segment is anticipated to deliver mid-single digit revenue growth in 2018 and operating margins are expected to improve between 75 bps and 150 bps.
Restructuring efforts undertaken in the past are yielding results. In fact, the company expects restructuring and cost-saving initiatives to generate more than $20 million in 2018. The company will also benefit from the positive momentum in the United States and Canada cathodic-protection businesses.
Concerns
Rising labor costs and restructuring charges are the major factors that could affect profitability. The company is facing a tighter labor market across North America, which is expected to become more challenging in the upcoming months. In fact, in the second quarter of 2018, gross margin contracted 80 basis points (bps) due to increasing labor, fuel and chemical costs in its North American operations, and certain isolated project execution issues related to CIPP contracting installation services activity in its European and North American operations.
Also, Aegion, which shares space with Continental Building Products , PGT Innovations and Patrick Industries (PATK - Free Report) , lowered its full-year 2018 outlook in its recent earnings call. The company now expects 50-100 bps operating margin improvement from 2017 level, depicting a reduction from the previous guided range of 100-200 bps.
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Aegion Banks on Strong Order Flow, Cost Concerns Remain
Aegion Corporation’s strong order flow, demand in the North America CIPP rehabilitation business as well as strategic acquisitions and divesture initiatives are major growth drivers. However, higher labor costs and non-recurrence of the large deep-water project might prove to be major dampeners.
Factors Driving Growth
The company follows systematic strategic actions that are targeted to generate more predictable and sustainable long-term earnings growth. The plans include the divestiture of Corrosion Protection’s pipe coating and insulation businesses in Louisiana, The Bayou Companies, LLC and Bayou Wasco Insulation, LLC (Bayou). In fact, Aegion continues to expect adjusted earnings per share growth of at least 30% in 2018 on strategic actions along with market and order strength.
Aegion’s Infrastructure Solution Business is a significant contributor to growth. In the first half of 2018, the segment’s revenues increased more than 6% year over year on higher North America CIPP volumes and inflated number of staffs to serve new order growth.
The Energy Services segment has also been delivering improved year-over-year performance over the past six quarters and is anticipated to maintain the uptrend in the near term. Moreover, Aegion has long-term relationships with oil refinery and industrial customers on the West Coast and plans to leverage the same to expand the services provided in mechanical maintenance, electrical and instrumentation services, small capital construction, shutdown and turnaround maintenance activity as well as specialty services. The segment is anticipated to deliver mid-single digit revenue growth in 2018 and operating margins are expected to improve between 75 bps and 150 bps.
Restructuring efforts undertaken in the past are yielding results. In fact, the company expects restructuring and cost-saving initiatives to generate more than $20 million in 2018. The company will also benefit from the positive momentum in the United States and Canada cathodic-protection businesses.
Concerns
Rising labor costs and restructuring charges are the major factors that could affect profitability. The company is facing a tighter labor market across North America, which is expected to become more challenging in the upcoming months. In fact, in the second quarter of 2018, gross margin contracted 80 basis points (bps) due to increasing labor, fuel and chemical costs in its North American operations, and certain isolated project execution issues related to CIPP contracting installation services activity in its European and North American operations.
Also, Aegion, which shares space with Continental Building Products , PGT Innovations and Patrick Industries (PATK - Free Report) , lowered its full-year 2018 outlook in its recent earnings call. The company now expects 50-100 bps operating margin improvement from 2017 level, depicting a reduction from the previous guided range of 100-200 bps.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>