It has been about a month since the last earnings report for Aegion (AEGN - Free Report) . Shares have added about 3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aegion due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Aegion (AEGN - Free Report) Misses Q2 Earnings Estimates, Reaffirms View
Aegion Corporation 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%.
Adjusted cost of revenues declined 3.9% year over year to $264 million. Adjusted gross profit decreased10.9% 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 down8.6% 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.
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 was3.9%.
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 incomegrew0.8% year over year to $2 million. Operating margin was on par with the year-ago figure at 2.6%.
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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.93% due to these changes.
Currently, Aegion has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Aegion has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.