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AECOM (ACM) Down 2.9% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for AECOM (ACM - Free Report) . Shares have lost about 2.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 catalysts.

AECOM Gains on Q2 Earnings Beat, Revenues Miss Mark

After two back-to-back quarters of disappointing results, multinational engineering firm AECOM's second-quarter fiscal 2017 earnings crushed the Zacks Consensus Estimate. The company reported adjusted earnings per share (“EPS”) of $0.89, which beat the Zacks Consensus Estimate of $0.55 by an impressive 61.8%. Also, the bottom line was up 2.3% from the year-ago figure of $0.87.

On a GAAP basis, the company’s EPS came in at $0.65, up a whopping 140.7% compared with the year-ago figure of $0.27.

Revenue Performance

For the fiscal second quarter, revenues edged up 1.0% to $4,427.2 million on a year-over-year basis. However, revenues came below the Zacks Consensus Estimate of $4,499 million. Strong performance of Construction Business proved conducive to top-line growth. However, this was offset to a large extent due to sluggishness in Design & Consulting Services and Management Services segments.

Segment wise, Design & Consulting Services revenues fell 5.0% year over year to $1,867.6 million. On a constant currency basis, organic revenue declined 3% due to poor performance in the Americas.

Construction Services revenues were up 14.5% to $1,732.7 million on a year-over-year basis. On a constant-currency basis, organic revenue was up 12%. Stellar performance of this segment came on the back of impressive growth in Building Construction, Power and International Design business lines.

On the other hand, Management Services revenues registered year-over-year decline of 8.3% to $826.9 million. It also fell 8% on an organic basis. Absence of benefit from a cost recovery on federal contract pension entitlements, which was present in the year-ago quarter, proved to be a dampener on top-line growth of this segment.

However, AECOM’s adjusted operating income in the reported quarter was $188.5 million, down from the year-ago figure of $268.6 million. New order wins in the quarter totaled $3.4 billion, up 10% from the year ago figure.

Additionally, AECOM’s total book-to-burn ratio during the quarter was 0.7. At the end of fiscal second-quarter 2017, AECOM had a record total backlog of $42.4 billion, up 4%, thereby signaling bright prospects.

Liquidity & Cash Flow

As of Mar 31, 2017, AECOM’s cash and cash equivalents summed $726.0 million compared with $699.8 million as of Mar 31, 2016. Net debt was $3,535.6 million compared with $3,802.8 million on Mar 31, 2016.

AECOM generated negative free cash flow of $63.8 million in this quarter, in stark contrast to the free cash flow of $82.9 million in the prior year quarter.

Notable Developments

During the fiscal third quarter of 2017, AECOM Capital entered into a definitive agreement to sell its equity interest in its first investment. The company believes this is the first of the many successful returns that will accrue from its AECOM Capital investments. Since its inception in 2013, AECOM Capital has committed approximately $200 million in 15 projects with total development value in excess of $3.5 billion.

Subsequent to the end of the second quarter, AECOM closed on the first monetization of an AECOM Capital property. This has contributed approximately $80 million in cash. Also, it is expected to add $0.17 to the fiscal third-quarter EPS. This apart, the company has also clinched a $3.6 billion Management Services award shortly following the close of the quarter.

2017 Guidance

AECOM reiterated its fiscal 2017 guidance. The company continues to expect earnings per share to be in the range of $2.80–$3.20. This figure includes roughly $0.20 of anticipated gains related to AECOM Capital realizations. For fiscal 2017, AECOM has revised its effective tax rate to 18% on adjusted earnings from the earlier guidance of 20%.

In terms of spending, the company expects to incur $36 million in relation to acquisition and integration, capital expenditure of $115 million, and depreciation expense of $165 million. Expenses related to amortization of intangible assets are likely to be $95 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

AECOM Price and Consensus

 

AECOM Price and Consensus | AECOM Quote

VGM Scores

At this time, AECOM's stock has a subpar Growth Score of 'D' while it is lagging a bit on the momentum front with 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile 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.

The company's stock is suitable solely for value based on our styles scores.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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