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Aegion (AEGN) Misses Q2 Earnings Estimates, Reaffirms View

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Aegion Corporation (AEGN - Free Report) posted mixed results in the second quarter of 2018, wherein earnings lagged analysts’ expectation while revenues surpassed the same.

Adjusted earnings of 34 cents missed the Zacks Consensus Estimate of 39 cents by 12.8%. However, earnings increased 3% from the prior-year quarter on the back of top-line strength in North America CIPP, increased cathodic protection margins and efficient execution of the large international coating projects.   

Total revenues in the quarter declined 5.5% year over year to $335 million. Nevertheless, revenues beat the consensus mark of $329 million by 1.8%.

Operating Highlights
 
Adjusted cost of revenues declined 3.9% year over year to $264 million. Adjusted gross profit decreased 10.9% to $71.1 million in the reported quarter from $79.8 million in the year-ago quarter. Adjusted gross margin contracted 130 basis points (bps) year over year to 21.2%.

Adjusted operating expenses were down 8.6% year over year to $52.8 million. Adjusted operating income plummeted 17% year over year to $18.2 million. Adjusted operating margin in the quarter came in at 5.4%, contracting 80 bps from the year-ago quarter.

Aegion Corporation Price, Consensus and EPS Surprise

Segmental Performance
 
Infrastructure Solutions’ revenues improved 8.4% year over year to $160.7 million, benefiting from nearly 10% increase in crews in the North America CIPP business. Adjusted operating income surged 43% year over year to $12.4 million, driven by higher North America CIPP volumes, appreciative performance of North America Fyfe® operations, and improved demand and utilization in the Fusible PVC® pipe business. Adjusted operating margin in the quarter was up 190 bps to 7.7%.
 
Corrosion Protection’s revenues declined 24.5% to $96.4 million from $127.7 million recorded in the prior-year quarter. The segment posted an adjusted operating income of $3.8 million, which was down 66.2% from $11.2 million a year ago due to more than $40 million in lost revenues and related profit contribution from the large deep-water project. Adjusted operating margin in the quarter was 3.9%.
 
Energy Services revenues dipped 0.7% year over year to $77.9 million due to volume retraction, partly offset by higher maintenance and construction business. The segment’s adjusted operating income grew 0.8% year over year to $2 million. Operating margin was on par with the year-ago figure at 2.6%.
 
Financial Update

Cash and cash equivalents as of Jun 30, 2018 were $74.3 million, down from $105.7 million at the end of 2017. The company posted cash flow from operations of $10.2 million in the first six months of 2018 compared with cash usage of $483 thousand million recorded in the comparable quarter last year.
 
Aegion’s consolidated backlog came in at $738 million as of Jun 30, 2018. New orders inched up to $352 million during the reported quarter.
 
Update on Strategic Actions
 
In 2017, Aegion had embarked on a series of strategic actions targeted to generate more predictable and sustainable long-term earnings growth. In addition, the company initiated a process for the divestment of the Australia CIPP business. It is expected that the process will be completed by the end of 2018.

The company classified Australia's assets and liabilities as held for sale on June 30, 2018. Aegion plans to exit CIPP operations in Denmark due to continued underperformance of the business. The company expects to complete the activity by the end of the year.

Aegion incurred total pre-tax restructuring charges of $8 million during the first half of 2018. For 2018, total restructuring and impairment charges incurred to date are $118 million, with total cash charges of $19 million and non-cash charges of $99 million, and $86 million related to 2017. The company expects total restructuring and impairment charges from previously announced actions to be approximately $120 million. Management’s restructuring and cost-saving initiatives are anticipated to generate more than $20 million in 2018.
 
Outlook

Aegion reaffirmed its adjusted earnings per share growth outlook of at least 30% in 2018. This is backed by its focus on strategic actions, along with ongoing market and order strength. The company will also benefit from the positive momentum in U.S. and Canada cathodic-protection businesses.
 
Share Price Performance
 
Coming to price performance, Aegion has outperformed the industry it belongs to in a year’s time. The stock has gained around 4.1%, while the industry has recorded a decline of 8.6% in the said period.


 
Zacks Rank & Stocks to Consider
 
Aegion currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry include NCI Building Systems, Inc. (NCS - Free Report) , PGT Innovations, Inc. (PGTI - Free Report) , and Gibraltar Industries, Inc. (ROCK - Free Report) . While NCI Building Systems and PGT Innovations sport a Zacks Rank #1 (Strong Buy), Gibraltar Industries carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NCI Building Systems has an expected current-year earnings growth rate of 77.5%.

PGT Innovations’ expected 2018 earnings growth rate is 75.4%.

Gibraltar Industries is expected to register an EPS growth rate of 22.2% this year.

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