It has been about a month since the last earnings report for Aegion . Shares have lost about 0.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Aegion due for a breakout? 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 Lags on Q3 Earnings & Revenues, Trims ’18 View
Aegion Corporation reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate.
Adjusted earnings of 45 cents missed the consensus estimate of 47 cents by 4.3%. Nevertheless, earnings increased significantly by 43% from the prior-year figure of 32 cents. The uptrend was primarily backed by improvement in restructured businesses and better-than-expected execution of the coating services business within the Corrosion Protection segment.
However, total revenues of $340 million missed the consensus mark of $344 million by 1.2%. Also, the reported figure declined 0.6% on year-over-year basis, mainly due to an unfavorable project mix in North America CIPP operations along with top-line weakness in cathodic protection business.
Operating Highlights
Adjusted cost of revenues decreased 0.8% to $266.3 million from $268.4 recorded a year ago. Also, adjusted gross profit declined slightly by 0.1% to $73.4 million in the reported quarter. Adjusted gross margin contracted 10 bps year over year to 21.6%.
Adjusted operating expenses were down 9.8% year over year to $48.4 million. However, adjusted operating income increased 26.1% year over year to $25 million. Adjusted operating margin in the quarter came in at 7.4%, improving 160 bps from the year-ago quarter.
Segmental Performance
Infrastructure Solutions’ revenues decreased 10.6% year over year to $155.7 million, mainly due to an unfavorable mix in the North America CIPP business. Adjusted gross margins and adjusted operating margins grew 100 bps and 90 bps, respectively, backed by improvements from restructured Fyfe North America, Europe and Australia business.
However, adjusted operating income was down 2.3% year over year to $16.7 million, while adjusted operating margin in the quarter expanded 90 bps to 10.7%.
Corrosion Protection’s revenues were up 3.3% to $105.6 million in the reported quarter. Notably, the segment posted significant growth of 518.8% in adjusted operating income. The positive results were stemmed from strong work execution in large Middle East coating projects. Also, adjusted operating margin surged 650 bps in the quarter.
Revenues of Energy Services segment grew 19.8% year over year to $78.4 million, backed by higher maintenance and construction activities. However, the segment’s adjusted operating income fell more than 88.8% year over year to $0.2 million. Adjusted operating margin contracted 200 bps from the year-ago level. The downturn was due to isolated challenges in large construction projects.
Financial Update
Cash and cash equivalents as of Sep 30, 2018 were $67.4 million, down from $105.7 million at the end of 2017. Net cash provided by operations was $14 million in the first nine months of 2018 compared with $32.5 million recorded in the comparable period last year.
Aegion’s consolidated backlog came in at $671 million as of Sep 30, 2018. New orders came in at $298 million during the reported quarter. Ending backlog declined 12% from the prior-year 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. The company completed the divestment of Bayou toward the end of August 2018 for $46 million. However, the divesture resulted in a pre-tax loss of $8.7 million.
Along with Bayou, the company initiated the divestment of CIPP business in both Denmark and Australia. The deal in Denmark was completed by the end of September, however, that of Australia is expected to close in the first quarter of 2019.
The company classified Denmark and Australia's assets and liabilities held for sale on Sep 30, 2018.
During the first nine months of 2018, Aegion incurred total pre-tax restructuring charges of $16 million. Total restructuring and impairment charges incurred to date amounted to $126 million, with total cash charges of $21 million and non-cash charges of $105 million, along with $86 million related to 2017 impairment charge. The company expects total restructuring and impairment charges from previously announced actions to be approximately $130 million.
2018 Guidance
Aegion trimmed its 2018 adjusted earnings per share growth guidance to 15-20% from previous expectation of at least 30%. The reduction was mainly due to unfavorable project mix and weaker-than-expected revenue growth in the cathodic protection business.
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 -44.58% due to these changes.
VGM Scores
Currently, Aegion has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Aegion has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Aegion (AEGN) Down 0.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Aegion . Shares have lost about 0.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Aegion due for a breakout? 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 Lags on Q3 Earnings & Revenues, Trims ’18 View
Aegion Corporation reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate.
Adjusted earnings of 45 cents missed the consensus estimate of 47 cents by 4.3%. Nevertheless, earnings increased significantly by 43% from the prior-year figure of 32 cents. The uptrend was primarily backed by improvement in restructured businesses and better-than-expected execution of the coating services business within the Corrosion Protection segment.
However, total revenues of $340 million missed the consensus mark of $344 million by 1.2%. Also, the reported figure declined 0.6% on year-over-year basis, mainly due to an unfavorable project mix in North America CIPP operations along with top-line weakness in cathodic protection business.
Operating Highlights
Adjusted cost of revenues decreased 0.8% to $266.3 million from $268.4 recorded a year ago. Also, adjusted gross profit declined slightly by 0.1% to $73.4 million in the reported quarter. Adjusted gross margin contracted 10 bps year over year to 21.6%.
Adjusted operating expenses were down 9.8% year over year to $48.4 million. However, adjusted operating income increased 26.1% year over year to $25 million. Adjusted operating margin in the quarter came in at 7.4%, improving 160 bps from the year-ago quarter.
Segmental Performance
Infrastructure Solutions’ revenues decreased 10.6% year over year to $155.7 million, mainly due to an unfavorable mix in the North America CIPP business. Adjusted gross margins and adjusted operating margins grew 100 bps and 90 bps, respectively, backed by improvements from restructured Fyfe North America, Europe and Australia business.
However, adjusted operating income was down 2.3% year over year to $16.7 million, while adjusted operating margin in the quarter expanded 90 bps to 10.7%.
Corrosion Protection’s revenues were up 3.3% to $105.6 million in the reported quarter. Notably, the segment posted significant growth of 518.8% in adjusted operating income. The positive results were stemmed from strong work execution in large Middle East coating projects. Also, adjusted operating margin surged 650 bps in the quarter.
Revenues of Energy Services segment grew 19.8% year over year to $78.4 million, backed by higher maintenance and construction activities. However, the segment’s adjusted operating income fell more than 88.8% year over year to $0.2 million. Adjusted operating margin contracted 200 bps from the year-ago level. The downturn was due to isolated challenges in large construction projects.
Financial Update
Cash and cash equivalents as of Sep 30, 2018 were $67.4 million, down from $105.7 million at the end of 2017. Net cash provided by operations was $14 million in the first nine months of 2018 compared with $32.5 million recorded in the comparable period last year.
Aegion’s consolidated backlog came in at $671 million as of Sep 30, 2018. New orders came in at $298 million during the reported quarter. Ending backlog declined 12% from the prior-year 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. The company completed the divestment of Bayou toward the end of August 2018 for $46 million. However, the divesture resulted in a pre-tax loss of $8.7 million.
Along with Bayou, the company initiated the divestment of CIPP business in both Denmark and Australia. The deal in Denmark was completed by the end of September, however, that of Australia is expected to close in the first quarter of 2019.
The company classified Denmark and Australia's assets and liabilities held for sale on Sep 30, 2018.
During the first nine months of 2018, Aegion incurred total pre-tax restructuring charges of $16 million. Total restructuring and impairment charges incurred to date amounted to $126 million, with total cash charges of $21 million and non-cash charges of $105 million, along with $86 million related to 2017 impairment charge. The company expects total restructuring and impairment charges from previously announced actions to be approximately $130 million.
2018 Guidance
Aegion trimmed its 2018 adjusted earnings per share growth guidance to 15-20% from previous expectation of at least 30%. The reduction was mainly due to unfavorable project mix and weaker-than-expected revenue growth in the cathodic protection business.
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 -44.58% due to these changes.
VGM Scores
Currently, Aegion has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Aegion has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.