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Aegion (AEGN) Up 25% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Aegion (AEGN - Free Report) . Shares have added about 25% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Aegion due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Aegion Q3 Earnings Beat, Revenues Miss Estimates

Aegion reported better-than-expected earnings for third-quarter 2020. Solid contributions from the Insituform North America business offset COVID-related impacts from Energy Services and the coatings business within Corrosion Protection.

Notably, management has been evaluating strategic alternatives for the Energy Services segment. Charles R. Gordon, President and Chief Executive Officer of Aegion said, “Looking forward, we are advancing a strategy to better leverage our differentiated pipeline rehabilitation and protection technologies for the benefit of public health and the environment. A core element of the strategy is to focus on meaningful growth opportunities in the water and wastewater space to capitalize on the strength of our largest and most profitable business.”

Earnings & Revenues Discussion

Aegion reported adjusted earnings per share of 32 cents, which topped the consensus mark of 29 cents by 10.3% but declined 20% from the year-ago figure of 40 cents.

Total revenues of $275.9 million missed the consensus mark of $281 million by 1.8%. Also, the reported figure was down 10.7% on a year-over-year basis. COVID-19-related disruptions and softness across the majority of the business were partially offset by the flagship Insituform North America business’ strong revenues, new orders and backlog. The Insituform North America business was driven by its leading market position, and strength and stability of municipal water as well as wastewater markets.

Quarter-end backlog was $678 million. Excluding the impact of exited or to-be-exited businesses, backlog grew 2% year over year.

Operating Highlights

Adjusted gross margin of 22.5% expanded 90 basis points (bps) from the year-ago period. Adjusted operating margin of 6.7% also increased 30 bps from the year-ago period.

Segmental Performance

Infrastructure Solutions: Revenues in the segment declined 2.6% year over year to $152.1 million. Excluding exited or to-be-exited businesses, the same improved 6% from a year ago. This was driven by a 10% increase in Insituform North America volumes, which was partly offset by declines across smaller business units in North America, Europe and Asia.

Adjusted gross and operating margins rose 190 bps and 240 bps, respectively, backed by strong productivity in North America, and favorable fuel and material cost variances as a result of commodity price declines as well as improved international results.

The segment’s backlog (excluding the impact of exited or to-be-exited businesses) came in at $303.1 million, down 3% year over year.

Corrosion Protection: The segment’s revenues fell 19.7% year over year to $61 million. Excluding exited or to-be-exited operations, revenues were down 17% year over year due to lower Corrpro North America volumes related to downsizing of the construction business. Also, international project delays in the Coating Services business added to the woes.

Adjusted gross and operating margins surged 230 bps and 100 bps, respectively, which can be attributed to strong Corrpro U.S. business unit’s performance.

Backlog (excluding the impact of exited or to-be-exited businesses) in the segment amounted to $138.2 million, up 3.1% year over year.

Energy Services: The segment’s revenues totaled $62.8 million, down 18.2% year over year. This was primarily due to lower refinery maintenance volumes as a result of sharply reduced West Coast fuel consumption due to stay-at-home mandates and activity restrictions.

Adjusted gross margin contracted 430 bps from the year-ago level. Adjusted operating margin came in at negative 2.2% in the quarter versus positive 3.1% a year ago. Temporary price concessions granted to help refinery customers to navigate reduced demand and unfavorable fixed-cost absorption impacted margin performance.

Backlog at quarter-end grew 8.8% from the comparable year-ago period to $232.1 million.

Financial Update

Aegion’s cash and cash equivalents as of Sep 30, 2020 were $75.8 million, up from $64.9 million at 2019-end. The company paid off its revolver borrowings in the quarter, resulting in net debt levels of $150 million.

Long-term debt, less current maturities, totaled $201.6 million compared with $243.6 million at 2019-end. Net cash provided by operating activities was $79.4 million for the first nine months of 2020 compared with $31.7 million in the corresponding year-ago period.

Q4 Guidance

Aegion currently expects adjusted EPS for the quarter to be slightly below the year-ago level. This is mainly due to typical seasonal revenue reductions in Infrastructure Solutions.

In the Infrastructure Solutions unit, revenues are expected to be down 5-7% year over year. Excluding the impact of exited or to-be-exited operations, revenues are likely to be flat to slightly up from the prior year. Adjusted operating margins are projected to be up 50-100 bps from the prior-year figure.

Corrosion Protection’s revenues are expected to decline 12-17% from the prior year. This is due to reduced Corrpro volumes and lower Coating Services contributions. Adjusted operating margins are expected to increase 200-300 bps, primarily driven by improved Corrpro U.S. profitability.

Revenues in the Energy Services segment are anticipated to fall 30-40% from the last year due to persistent demand weakness. It expects adjusted operating loss for the fourth quarter to be in line with the year-ago level.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted 6.67% due to these changes.

VGM Scores

At this time, Aegion has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Aegion has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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