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Factors Setting the Tone for AECOM's (ACM) Q1 Earnings

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AECOM (ACM - Free Report) is scheduled to report first-quarter fiscal 2019 results on Feb 5, before the opening bell. In the last reported quarter, earnings and revenues topped the respective Zacks Consensus Estimate by 2.5% and 0.8%. Also, the reported figures increased 12% and 9%, respectively, on a year-over-year basis. Moreover, this technical and management-support services provider delivered better-than-expected results in all the last four quarters, with the average positive earnings surprise being 2.7%.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is currently pegged at 52 cents, trending upward over the past 60 days. However, this reflects a decrease of 8.8% from the year-ago earnings of 57 cents per share. Revenues are expected to be $5.06 billion, up 3.1% year over year.

AECOM Price and EPS Surprise

 

AECOM Price and EPS Surprise | AECOM Quote

Factors at Play

AECOM’s fiscal first quarter is likely to benefit from record backlog, emanating from its diversified portfolio comprising both designing and construction services. More than 70% of AECOM’s profits are generated from infrastructure and defense markets that are poised to benefit from the favorable political climate in the United States and abroad.

Notably, the company recorded a new all-time high backlog of $54.1 billion at the end of the fiscal fourth quarter of 2018, reflecting a 14% year-over-year increase. The company’s solid backlog levels, which are a key indicator of future revenue growth, indicate significant opportunities in the forthcoming quarters. New order wins in fiscal 2018 were recorded at $28.4 billion, up 23% from the prior-year period. The company’s total book-to-burn ratio was 1.3, given higher contribution from all the segments and a significant 2.5 book-to-burn ratio in the Management Services (“MS”) segment. It expects that its impressive backlog of large commercial, stadia and power projects would drive another year of revenue growth and margins.

Meanwhile, organic revenue growth of 9% in the fiscal fourth quarter marked the seventh consecutive quarter of positive organic growth, led by higher-margin Design & Consulting Services (“DCS”) and MS segments.

On the flip side, the company has been facing execution challenges on a handful of projects in the Construction Services (“CS”) segment.

Foe the to-be-reported quarter, the Zacks Consensus Estimate for DCS revenues (comprising more than 40% of the total revenues) of $2,020 million reflects an increase from $1,942 million in the year-ago period but a decrease from $2,171 million in the fourth quarter.

The consensus estimate for fiscal first-quarter revenues for the CS segment (accounting for 40.9% of its total revenues) is pegged at $2,083 million, reflecting a decline from $2,125 million in the year-ago period and $2,118 million in the last reported quarter.

The consensus estimate for fiscal first-quarter revenues for the MS segment is pegged at $911 million, reflecting growth from $843 million in the year-ago period but a decline from $1,016 million in the last reported quarter.

AECOM has been working on strategic actions to improve profitability, de-risking business profile and prioritizing investments in its highest-growth markets. Majority of the cost reductions are expected to occur in the first half of fiscal 2019 and primarily benefit the DCS business.

Quantitative Model Prediction

Our proven model does not conclusively show that AECOM is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AECOM currently carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming quarterly release:

Installed Building Products, Inc. (IBP - Free Report) has an Earnings ESP of +0.31% and a Zacks Rank #3.  

Forterra, Inc. (FRTA - Free Report) has an Earnings ESP of +8.99% and holds a Zacks Rank #2.

Taylor Morrison Home Corporation (TMHC - Free Report) has an Earnings ESP of +25.00% and a Zacks Rank #3.

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