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AECOM (ACM) Q3 Earnings Beat, Revenues Lag, Shares Fall

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AECOM (ACM - Free Report) reported mixed third-quarter fiscal 2022 results. Its earnings surpassed the Zacks Consensus Estimate, but revenues missed the same. On a year-over-year basis, earnings improved impressively despite a marginal fall in revenues.

Post the results, shares of the technical and management support services provider declined 3.4% on Aug 8.

Troy Rudd, AECOM’s CEO, stated, “We continue to execute well on our shared purpose of delivering a better world, which has resulted in consistent outperformance, including 31% adjusted EPS growth last year and 28% adjusted EPS growth year-to-date through the third quarter.”

Looking forward, Troy further added, “When combined with our record design backlog, we are positioned better than ever to capitalize on record infrastructure funding. The three long-term megatrends of a global infrastructure renaissance, ESG investments, and client investments to adapt to a post-pandemic world are fully intact, which underpins our confidence in the future.”

AECOM Price, Consensus and EPS Surprise

AECOM Price, Consensus and EPS Surprise

AECOM price-consensus-eps-surprise-chart | AECOM Quote

Delving Deeper

During the fiscal third quarter, the company reported adjusted earnings per share of 86 cents, which topped the consensus mark of 83 cents by 3.6%. The bottom line also improved by 18% from the prior-year quarter. The upside can be attributed to strong NSR growth, higher margins and stock repurchases under its capital allocation policy.

Revenues of $3,242 million missed the consensus mark of $3,394 million by 4.5% and declined 5% on a year-over-year basis. Meanwhile, adjusted net service revenues or NSR moved up 6% for the quarter, attributable to solid client budgets, a continued record high win rate and a record backlog in the Company’s design business.

Segment Details

During the reported quarter, Americas’ revenues came in at $2,257 million, down 6.2% from the prior-year quarter’s levels. Net service revenues or NSR of $926 million in the quarter moved up 4% year over year. The uptick was led by a high win rate, strength in market conditions, client budgets and the successful execution of backlogs and pursuits.

Adjusted operating income of $172 million was up 2% year over year. Adjusted operating margin (on an NSR basis) declined 30 basis points or bps year over year to 18.5%, reflecting ongoing reinvestment in growth and innovation.

International revenues decreased 0.7% year over year to $784.2 million. During the quarter, NSR increased 8% year over year to $638 million, reflecting growth in the company’s largest and most profitable geographies comprising the U.K., Australia and the Middle East.

Adjusted operating income in the segment rose 21% year on year to $56 million. Adjusted operating margin (on an NSR basis) also increased 150 bps year over year to 8.8%. This marks the eighth consecutive quarter of sequential margin improvement and reflects continued progress toward achieving a double-digit margin in the International segment.

AECOM Capital contributed $0.57 million to the quarterly revenues versus $0.63 million a year ago.

Operating Highlights

Adjusted segment operating profit for the quarter amounted to $200 million, up 11.9% from the year-ago quarter’s level. The segment adjusted operating margin increased 50 basis points to 14.6%, marking a record high fiscal third-quarter margin. Adjusted EBITDA also rose 7% year over year to $228 million.

As of June-end, the company’s total backlog came in at $41.1 billion (includes 10% growth in the design business) compared with $39.69 billion reported in the prior-year quarter. The current backlog level includes 17% contracted backlog growth. The book-to-burn ratio of 1.2 reflects 1.5 in the Americas.

Liquidity & Cash Flow

As of Jun 30, 2022, AECOM’s cash and cash equivalents totaled $1,010.1 million compared with $1,299.2 million at the fiscal 2021 end.

Total debt (excluding unamortized debt issuance cost) as of Jun 30, 2022, stood at $2,182.8 million compared with $2,235.7 million as of Sep 30, 2021. Free cash flow for the quarter was $182.9 million versus $295.2 million reported a year ago.

Updated Fiscal 2022 Guidance

For fiscal 2022, the company expects adjusted earnings per share (EPS) in the range of $3.35-$3.50, up from the prior estimate of $3.30-$3.50. This indicates a 21% adjusted EPS improvement at the mid-point of the guidance from fiscal 2021 levels.

AECOM expects adjusted EBITDA guidance in the range of $890-$910 million ($880-$920 million expected earlier), indicating 8% year-over-year growth at the midpoint. The company anticipates generating 6% organic NSR growth, underpinned by robust pipeline and backlog momentum and strengthening market conditions across the company’s largest markets. Also, it projects segment adjusted operating margin of 14.1%, reflecting a 30 basis points increase on a year-over-year basis.

The company anticipates free cash flow in the range of $450-$650 million.

AECOM has also reiterated its long-term financial targets (through fiscal 2024). For the long term, it expects adjusted EPS of more than $4.75 and segment adjusted operating margin of 15%.

Zacks Rank & Some Recent Construction Releases

AECOM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Jacobs Engineering Group Inc. (J - Free Report) reported third-quarter fiscal 2022 (ended Jul 1, 2022) results, with earnings and revenues surpassing their respective Zacks Consensus Estimate and rising year over year.

Jacobs, however, provided lower-than-expected fiscal fourth-quarter earnings outlook.

EMCOR Group, Inc. (EME - Free Report) reported solid results for second-quarter 2022. The top and bottom lines surpassed the Zacks Consensus Estimate and increased year over year.

EME’s management approved a 15.4% hike in its regular quarterly dividend to 15 cents, payable on Oct 31 to stockholders of record as of Oct 18, 2022. Also, it authorized a new share repurchase program to repurchase up to an additional $500 million of its outstanding common stock.

United Rentals, Inc. (URI - Free Report) posted better-than-expected second-quarter 2022 results. Better fleet productivity on broad-based rental demand in construction and industrial verticals, higher total and rental revenues along with stronger pricing helped the company to boost profit.

URI also lifted its full-year guidance for total revenues, adjusted EBITDA and free cash flow, given broad-based end-market activity, contractor backlogs, customer sentiment and our visibility through the balance of the year.


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