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AECOM's (ACM) Solid Restructuring Plan to Aid Q1 Earnings

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AECOM ACM is scheduled to report first-quarter fiscal 2020 (ended Dec 31, 2019) results on Feb 3, before the opening bell.

In the last reported quarter, its earnings and revenues missed the Zacks Consensus Estimate by 2.5% and 1.7%, respectively. Also, the metrics decreased 4.8% and 3.6%, respectively, on a year-over-year basis. The downside was primarily attributable to lower contributions from Design and Consulting Services (DCS), and Construction Services (CS).

Trend in Estimate Revision

The Zacks Consensus Estimate for earnings for the quarter to be reported has been unchanged at 67 cents per share over the past 60 days. The said figure indicates a 19.6% increase from the year-ago earnings of 56 cents per share. The consensus mark for revenues is $5.1 billion, suggesting a 1.3% year-over-year improvement.

AECOM Price and EPS Surprise

Factors to Note

Over the last few quarters, AECOM’s business has been experiencing certain challenges in a few of the end markets served by the company, particularly China and the Middle East. Lower storm recovery works in the DCS segment and completion of large fixed-priced power projects in the CS unit have been significantly affecting its results. Defying the odds, the company’s first-quarter fiscal 2020 results are expected to reflect solid backlog level in DCS, as the segment has been pursuing a multi-billion-dollar pipeline of opportunities.

The Zacks Consensus Estimate for DCS revenues is currently pegged at $2,078 million, implying 2.4% year-over-year growth. Backlog for the segment is expected to rise 2.3% from the year-ago period.

The company’s diversified portfolio, comprising designing and construction services, is expected to have aided the bottom line in the quarter to be reported, given favorable political climate in the United States.

The consensus estimate for CS revenues is currently pegged at $2,186 million, implying a 8.5% increase from the year-ago reported figure. However, backlog is likely to decline 3% year over year to $23,242 million.

Strong execution across the Management Services portfolio of projects and operating efficiencies are expected to have boosted its bottom-line performance during the quarter. Fiscal first-quarter revenues from the segment are projected at $1,061 million, indicating a 7.3% year-over-year improvement. However, backlog for the to-be-reported quarter is expected to drop 1% year over year to $19,026 million.

Nevertheless, the company’s endeavor to improve profitability and de-risk the business profile through the General and Administrative reduction plan might have aided earnings growth in the fiscal first quarter. In short, its fiscal first-quarter top and bottom lines are expected to have been aided by solid DCS backlog and restructuring initiatives, offsetting headwinds.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for AECOM this time around. A combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here as you will see below.

Earnings ESP: AECOM has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some stocks in the Zacks Construction sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases.

Boise Cascade Company BCC has an Earnings ESP of +56.52%, and a Zacks Rank #2.

Installed Building Products, Inc. IBP has an Earnings ESP of +3.09%, and a Zacks Rank #2.

Lennox International Inc. (LII - Free Report) has an Earnings ESP of +1.39% and a Zacks Rank #3.

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