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Aegion (AEGN) Misses Q2 Earnings, Sales; 2H16 View Good
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Aegion Corporation reported second-quarter 2016 adjusted earnings of 23 cents per share, which plunged around 34.3% year over year. Earnings also missed the Zacks Consensus Estimate of 25 cents.
Including restructuring, impairment and acquisition-related items, Aegion reported a profit of 10 cents per share in the quarter compared to 24 cents in the prior-year quarter.
Operational Update
Total revenue of $297.7 million in the quarter declined 11.7% year over year. Revenues also fell short of the Zacks Consensus Estimate of $309.4 million.
Adjusted cost of sales decreased 10.8% to $236.5 million from $265 million in the year-ago quarter. Adjusted gross profit declined 12.9% to $63.6 million from $73 million in the prior-year quarter. Adjusted gross margin contracted 30 basis points (bps) year over year to 21.4%.
Adjusted operating expenses went down 7.7% year over year to $48.8 million. Adjusted operating income was $14.8 million, down 26.8% year over year. Operating margin in the quarter was 5%, contracting 100 bps from the year-ago quarter.
Segmental Performance
Revenues from the Infrastructure Solutions segment inched up 0.7% year over year to $150.2 million. The segment’s adjusted operating income decreased 3.5% year over year to $17.2 million.
The Corrosion Protection segment’s revenues fell 11% to $94.4 million from $106 million in the prior-year quarter. The segment reported an adjusted operating loss of $1.5 million against an income of $0.9 million in the year-ago quarter.
Revenues in the Energy Services segment plummeted 35% year over year to $53.1 million. The segment reported an adjusted operating loss of $0.9 million, against an income of $1.5 million in the year-ago quarter.
Financial Update
Aegion had cash and cash equivalents of $110.8 million at the end of second-quarter 2016 compared with $209 million at 2015 end. The company posted $9.9 million of cash in operations for the six-month period ending Jun 30, 2016 compared with $58.4 million in the comparable year-ago period. As of quarter end, Aegion’s long-term debt increased to $361.2 million from $333.5 million as of Dec 31, 2015.
Aegion’s consolidated backlog was $752 million as of June 30, 2016, including record backlog for cathodic protection services.
In January, Aegion announced the 2016 restructuring actions to downsize its exposure in the upstream oil markets and reduce consolidated costs. As part of management's ongoing assessment of its energy-related businesses, the company determined that the persistent low price of oil is expected to create market challenges in the foreseeable future, including reduced customer spending this year.
2016 restructuring was substantially completed in second-quarter 2016 with expected pre-tax annual cost reductions of $17 million, more than the previous expectation of $15–$16 million. Most of the cost reductions expected to be realized in 2016, primarily through headcount reductions and office closures.
As of June 30, 2016, the company had substantially completed its efforts to reposition Energy Services’ upstream operations in California, right-size the Corrosion Protection platform and reduce corporate and other operating expenses to combat persistent low energy price environment.
Aegion recorded pre-tax charges, mostly cash, of $13.5 million during 1H’16. This is greater than the previously-announced range of $11– $13 million due to more time required to downsize Energy Services’ upstream operations along with additional actions to reduce costs within Corrosion Protection. The company expects approximately $1.5 million of additional pre-tax charges during 2H16.
Outlook
Aegion remains confident that the tailwinds in the N.A. municipal pipe rehabilitation market, an improving U.S. midstream market and execution of the Appomattox contract will build positive momentum in 2016 and 2017. The company expects improved earnings in 2H16 despite ongoing challenges in the energy markets.
Aegion believes that the Infrastructure Solutions segment is well-positioned for 2H16 given a strong outlook in the N.A. wastewater cured-in-place pipe, or CIPP market, expected contributions from Underground Solutions and cost reductions from the 2016 restructuring actions. For 2016, revenues and operating income for the segment are expected to increase modestly. Moreover, product development and recent acquisitions will drive growth in the pressure pipe rehabilitation markets in the years to come.
For the full year, Corrosion Protection expects modest revenue growth, but a modest decline in operating income, excluding the contribution in 2015 from the Canadian pipe coating JV sold in early 2016. The anticipated stronger 2H16 will not offset the expected upstream challenges and the likelihood for additional project delays and pricing pressures in the Canadian energy market.
Further, the projected outlook for Corrosion Protection in 2H16 calls for improved performance, especially in Q416, due to record backlog for cathodic protection services (primarily in the U.S.mid-stream market), the anticipated start of the Shell Appomattox project and the realization of a significant portion of the total annual cost reductions.
Finally, Aegion’s Energy Services business substantially completed the downsizing of its upstream operations in Central California during 1H16. The outlook for 2H16 is more favorable because of the planned downstream maintenance schedule, a modest level of turnaround activity and realization of the cost reductions from the 2016 restructuring.
For full-year 2016, revenues are expected to be approximately $250 million for a platform now focused on the downstream market. There are efforts underway to further optimize business processes to help improve operating margins during 2H16.
Moreover, Aegion continue to pursue opportunities for future sustainable growth by aligning its diversified portfolio including the municipal water and wastewater pipeline rehabilitation and midstream pipeline corrosion prevention and monitoring end market.
Zacks Rank
Aegion currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same industry include Gibraltar Industries, Inc. (ROCK - Free Report) , NCI Building Systems Inc. and United Rentals, Inc. (URI - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).
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Aegion (AEGN) Misses Q2 Earnings, Sales; 2H16 View Good
Aegion Corporation reported second-quarter 2016 adjusted earnings of 23 cents per share, which plunged around 34.3% year over year. Earnings also missed the Zacks Consensus Estimate of 25 cents.
Including restructuring, impairment and acquisition-related items, Aegion reported a profit of 10 cents per share in the quarter compared to 24 cents in the prior-year quarter.
Operational Update
Total revenue of $297.7 million in the quarter declined 11.7% year over year. Revenues also fell short of the Zacks Consensus Estimate of $309.4 million.
Adjusted cost of sales decreased 10.8% to $236.5 million from $265 million in the year-ago quarter. Adjusted gross profit declined 12.9% to $63.6 million from $73 million in the prior-year quarter. Adjusted gross margin contracted 30 basis points (bps) year over year to 21.4%.
Adjusted operating expenses went down 7.7% year over year to $48.8 million. Adjusted operating income was $14.8 million, down 26.8% year over year. Operating margin in the quarter was 5%, contracting 100 bps from the year-ago quarter.
Segmental Performance
Revenues from the Infrastructure Solutions segment inched up 0.7% year over year to $150.2 million. The segment’s adjusted operating income decreased 3.5% year over year to $17.2 million.
The Corrosion Protection segment’s revenues fell 11% to $94.4 million from $106 million in the prior-year quarter. The segment reported an adjusted operating loss of $1.5 million against an income of $0.9 million in the year-ago quarter.
Revenues in the Energy Services segment plummeted 35% year over year to $53.1 million. The segment reported an adjusted operating loss of $0.9 million, against an income of $1.5 million in the year-ago quarter.
Financial Update
Aegion had cash and cash equivalents of $110.8 million at the end of second-quarter 2016 compared with $209 million at 2015 end. The company posted $9.9 million of cash in operations for the six-month period ending Jun 30, 2016 compared with $58.4 million in the comparable year-ago period. As of quarter end, Aegion’s long-term debt increased to $361.2 million from $333.5 million as of Dec 31, 2015.
Aegion’s consolidated backlog was $752 million as of June 30, 2016, including record backlog for cathodic protection services.
AEGION CORP Price, Consensus and EPS Surprise
AEGION CORP Price, Consensus and EPS Surprise | AEGION CORP Quote
Realignment and Restructuring Plan
In January, Aegion announced the 2016 restructuring actions to downsize its exposure in the upstream oil markets and reduce consolidated costs. As part of management's ongoing assessment of its energy-related businesses, the company determined that the persistent low price of oil is expected to create market challenges in the foreseeable future, including reduced customer spending this year.
2016 restructuring was substantially completed in second-quarter 2016 with expected pre-tax annual cost reductions of $17 million, more than the previous expectation of $15–$16 million. Most of the cost reductions expected to be realized in 2016, primarily through headcount reductions and office closures.
As of June 30, 2016, the company had substantially completed its efforts to reposition Energy Services’ upstream operations in California, right-size the Corrosion Protection platform and reduce corporate and other operating expenses to combat persistent low energy price environment.
Aegion recorded pre-tax charges, mostly cash, of $13.5 million during 1H’16. This is greater than the previously-announced range of $11– $13 million due to more time required to downsize Energy Services’ upstream operations along with additional actions to reduce costs within Corrosion Protection. The company expects approximately $1.5 million of additional pre-tax charges during 2H16.
Outlook
Aegion remains confident that the tailwinds in the N.A. municipal pipe rehabilitation market, an improving U.S. midstream market and execution of the Appomattox contract will build positive momentum in 2016 and 2017. The company expects improved earnings in 2H16 despite ongoing challenges in the energy markets.
Aegion believes that the Infrastructure Solutions segment is well-positioned for 2H16 given a strong outlook in the N.A. wastewater cured-in-place pipe, or CIPP market, expected contributions from Underground Solutions and cost reductions from the 2016 restructuring actions. For 2016, revenues and operating income for the segment are expected to increase modestly. Moreover, product development and recent acquisitions will drive growth in the pressure pipe rehabilitation markets in the years to come.
For the full year, Corrosion Protection expects modest revenue growth, but a modest decline in operating income, excluding the contribution in 2015 from the Canadian pipe coating JV sold in early 2016. The anticipated stronger 2H16 will not offset the expected upstream challenges and the likelihood for additional project delays and pricing pressures in the Canadian energy market.
Further, the projected outlook for Corrosion Protection in 2H16 calls for improved performance, especially in Q416, due to record backlog for cathodic protection services (primarily in the U.S.mid-stream market), the anticipated start of the Shell Appomattox project and the realization of a significant portion of the total annual cost reductions.
Finally, Aegion’s Energy Services business substantially completed the downsizing of its upstream operations in Central California during 1H16. The outlook for 2H16 is more favorable because of the planned downstream maintenance schedule, a modest level of turnaround activity and realization of the cost reductions from the 2016 restructuring.
For full-year 2016, revenues are expected to be approximately $250 million for a platform now focused on the downstream market. There are efforts underway to further optimize business processes to help improve operating margins during 2H16.
Moreover, Aegion continue to pursue opportunities for future sustainable growth by aligning its diversified portfolio including the municipal water and wastewater pipeline rehabilitation and midstream pipeline corrosion prevention and monitoring end market.
Zacks Rank
Aegion currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same industry include Gibraltar Industries, Inc. (ROCK - Free Report) , NCI Building Systems Inc. and United Rentals, Inc. (URI - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>