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Aegion (AEGN) to Sell Energy Services, Focus on Core Business
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Aegion Corporation intends to divest the company’s Energy Services segment after receiving the board of directors’ approval and a review of strategic alternatives for the business (that was announced on Oct 28, 2020). This move will reduce its oil & gas exposure, as well as drive greater focus on the core portfolio of pipeline rehabilitation technologies.
Charles R. Gordon, Aegion’s president and CEO, said, “Going forward, the vast majority of our business will be based on helping communities provide critical drinking water and sewer services through systems that are safer and stronger, thanks to our proprietary technologies and engineering and contracting expertise.” Notably, the company expects to launch a formal sale process in January 2021.
Aegion’s Energy Services business unit provides mission-critical maintenance, turnaround, construction and safety services at most of the oil refineries in the U.S. West Coast. The segment has been registering lower refinery maintenance volumes as a result of sharply reduced West Coast fuel consumption due to stay-at-home mandates and activity restrictions. Notably, the segment’s revenues for third-quarter 2020 declined 18.2% year over year owing to the above-mentioned headwinds.
For fourth-quarter 2020, revenues in the Energy Services segment are anticipated to fall 30-40% from the last year due to persistent demand weakness. The company also expects adjusted operating loss for the fourth quarter to be in line with the year-ago level.
Strategic Initiatives & Growth Opportunities
Earlier in 2018 and 2019, management approved additional initiatives with respect to the 2017 restructuring that included the decision to divest or otherwise exit multiple Infrastructure Solutions international CIPP contract installation operations in Australia, Denmark, England, the Netherlands, Spain and Northern Ireland. It also included plans to sell off or shed multiple Corrosion Protection international businesses.
Notably, the company completed a substantial portion of the restructuring plan in early 2020. The sale of the Northern Ireland contracting business, which was halted during the first quarter due to the coronavirus pandemic, and South America and South Africa businesses is expected to be completed by 2020-end. Meanwhile, wind-down activities in the Middle East business are likely to remain active through this year end. The realigned company is streamlined and more integrated with less exposure to international and lumpy project-based businesses.
Moving into 2020, Aegion has been transitioning into a new phase of growth for the organization that is focused on profitable expansion in core markets. Also, it continues to see strength in the municipal water and wastewater space owing to robust long-term demand.
Aegion’s shares have outperformed the industry over the past three months. Recently, it reported third-quarter 2020 results, wherein earnings surpassed the Zacks Consensus Estimate. The bottom line beat the consensus estimate for the third straight quarter. Results for the quarter were driven by solid contributions from the Insituform North America business, which mitigated COVID-related impacts from Energy Services and the coatings business within Corrosion Protection. Estimates for 2020 and 2021 have witnessed upward revisions of 2.2% and 7.9%, respectively, in the past 60 days, depicting analysts’ optimism over the company’s earnings prospects.
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Aegion (AEGN) to Sell Energy Services, Focus on Core Business
Aegion Corporation intends to divest the company’s Energy Services segment after receiving the board of directors’ approval and a review of strategic alternatives for the business (that was announced on Oct 28, 2020). This move will reduce its oil & gas exposure, as well as drive greater focus on the core portfolio of pipeline rehabilitation technologies.
Charles R. Gordon, Aegion’s president and CEO, said, “Going forward, the vast majority of our business will be based on helping communities provide critical drinking water and sewer services through systems that are safer and stronger, thanks to our proprietary technologies and engineering and contracting expertise.” Notably, the company expects to launch a formal sale process in January 2021.
Aegion’s Energy Services business unit provides mission-critical maintenance, turnaround, construction and safety services at most of the oil refineries in the U.S. West Coast. The segment has been registering lower refinery maintenance volumes as a result of sharply reduced West Coast fuel consumption due to stay-at-home mandates and activity restrictions. Notably, the segment’s revenues for third-quarter 2020 declined 18.2% year over year owing to the above-mentioned headwinds.
For fourth-quarter 2020, revenues in the Energy Services segment are anticipated to fall 30-40% from the last year due to persistent demand weakness. The company also expects adjusted operating loss for the fourth quarter to be in line with the year-ago level.
Strategic Initiatives & Growth Opportunities
Earlier in 2018 and 2019, management approved additional initiatives with respect to the 2017 restructuring that included the decision to divest or otherwise exit multiple Infrastructure Solutions international CIPP contract installation operations in Australia, Denmark, England, the Netherlands, Spain and Northern Ireland. It also included plans to sell off or shed multiple Corrosion Protection international businesses.
Notably, the company completed a substantial portion of the restructuring plan in early 2020. The sale of the Northern Ireland contracting business, which was halted during the first quarter due to the coronavirus pandemic, and South America and South Africa businesses is expected to be completed by 2020-end. Meanwhile, wind-down activities in the Middle East business are likely to remain active through this year end. The realigned company is streamlined and more integrated with less exposure to international and lumpy project-based businesses.
Moving into 2020, Aegion has been transitioning into a new phase of growth for the organization that is focused on profitable expansion in core markets. Also, it continues to see strength in the municipal water and wastewater space owing to robust long-term demand.
Aegion’s shares have outperformed the industry over the past three months. Recently, it reported third-quarter 2020 results, wherein earnings surpassed the Zacks Consensus Estimate. The bottom line beat the consensus estimate for the third straight quarter. Results for the quarter were driven by solid contributions from the Insituform North America business, which mitigated COVID-related impacts from Energy Services and the coatings business within Corrosion Protection. Estimates for 2020 and 2021 have witnessed upward revisions of 2.2% and 7.9%, respectively, in the past 60 days, depicting analysts’ optimism over the company’s earnings prospects.
Aegion currently carries a Zacks Rank #3 (Hold). The company shares space with TopBuild Corp. (BLD - Free Report) , Masco Corporation (MAS - Free Report) and Owens Corning Inc. (OC - Free Report) — each carrying a Zacks Rank #2 (Buy) — in the Zacks Building Products - Miscellaneous industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
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