URS Q2 Earnings Beat, Revenues Down on Weak Market Sectors

Zacks

URS Corporation (URS) reported second-quarter fiscal 2014 adjusted earnings of $1.37 per share excluding a 10 cent impact from the one-time costs due to the acquisition deal with AECOM Corporation (ACM). The earnings came well ahead of the Zacks Consensus Estimate of 76 cents and also increased 40% from 91 cents delivered in the prior-year quarter.

 

 

Total revenue came in at $2,555 million, down 8.5% from $2,792 million in the prior-year quarter and it also lagged the Zacks Consensus Estimate of $2,705 million. At the end of the quarter, the company had a backlog of $10.6 billion, down 6.2% from $11.3 billion at the end of last year. It reported book of business worth $22.4 billion as against $22.8 billion as of Jan 3, 2014.

The decline in revenues was owing to the weakness in key market sectors including Federal, Oil & Gas and Power, which reported a year-over-year decline in revenues. However, revenues from sectors like Infrastructure and Industrial remained flat year over year. Also, despite the favorable Department of Defense budget, the sector continues to be impacted by the chemical demilitarization contracts, which reported a year-over-year revenue decline of 20.4% to $117 million.

URS Corp. reported cash earnings per share (Cash EPS), which denotes operating cash flow/number of shares. Cash EPS for the quarter stood at $1.50 a share, up 29% from $1.16 a share in the prior-year quarter. Operating income in the quarter decreased 5% to $138 million. 

Segment Result

The Infrastructure and Environment segment reported revenues of $824 million, down 13.0% year over year. The segment operating income was $52 million, down 13.3% from $60 million recorded in the prior-year quarter.

The Federal Services segment reported a revenue decline of 7.8% year over year to $728 million. On the other hand, the segment operating income increased 6.7% to $95 million in the quarter.

The Energy and Construction segment revenues came in at $562 million, a decline of 12.3% from the prior-year quarter.   The operating income came in at $16 million, down 23.8% compared with $21 million in the prior-year quarter.

The Oil & gas segment registered revenues of $463 million, up 0.9% year over year, while the operating income improved to $2 million, compared with the operating loss of $2 million in the year-ago quarter.

Other Financial Details

URS ended the quarter with cash and cash equivalents of $283 million, long-term debt of $1,779 million and shareholders’ equity of $4,088 million.

The company’s operating cash flow in the quarter was $394 million, versus $40 million in the prior-year quarter. The upside was driven by efficient working capital management.

Last week, the company declared a cash dividend of 22 cents a share that will be paid on Oct 10, 2014 to stockholders of record on Sep 19, 2014.

Business Update

In July, the company announced its acquisition by AECOM for about $4 billion. The transaction, likely to close in Oct 2014, has a total enterprise value of about $6 billion. Per the terms of the deal, URS shareholders will receive per share consideration of $33.00 in cash and 0.734 shares of AECOM common stock.

Post merger, the combined entity is likely to become one of the largest companies in the engineering and construction industry, in terms of revenues.

Zacks Rank

URS Corp. currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the engineering and diversified sector worth considering at the moment include Willdan Group Inc.(WLDN) and VSE Corp. (VSEC). While Willdan sports a Zacks Rank #1 (Strong Buy), VSE carries a Zacks Rank #2 (Buy).

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