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Aecom (ACM) Up 1.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Aecom Technology (ACM). Shares have added about 1.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Aecom 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 drivers.

AECOM's (ACM) Earnings and Revenues Miss Estimates in Q4

AECOM reported fourth-quarter fiscal 2019 results, wherein earnings and revenues missed the respective Zacks Consensus Estimate.

Delving Deeper

Adjusted earnings per share of 79 cents lagged the consensus mark of 81 cents by 2.5% and decreased 4.8% year over year. Moreover, revenues of $5,115.6 million missed the consensus estimate of $5,203 million by 1.7% and decreased 3.6% year over year.

Segment Details

Design & Consulting Services (DCS) revenues were down 4.1% year over year to $2,082.5 million. On a constant-currency basis, organic revenues declined 2% year over year. Continued underlying growth in the Americas design business and positive growth in international design markets were offset by an approximately 500-basis point negative impact from lower U.S. Virgin Island storm recovery work. Adjusted operating income of $166.3 million grew 24.9% year over year. However, adjusted operating margin expanded 190 basis points (bps) year over year, mainly attributable to the successful completion of $225 million of G&A reductions, additional restructuring actions, solid execution, continued favorable end-market trends and strong backlog performance.

Construction Services (CS) revenues were down 8% on a year-over-year basis to $1,948.3 million. On a constant-currency basis, organic revenues decreased 6% from the prior-year quarter. The downside was due to the completion of large fixed-priced power projects. Adjusted operating income in the segment was down 20.8% from a year ago to $36.1 million.

Management Services (MS) revenues recorded a year-over-year increase of 6% to $1,083.5 million. Also, on an organic basis, revenues recorded growth of 8% from the prior-year quarter, reflecting its strong execution across the portfolio of projects. Adjusted operating income increased 17.6% from a year ago to $70.3 million in the reported quarter.

AECOM Capital (ACAP) — which develops real estate, public private partnership and infrastructure projects — contributed $1.3 million to its total revenues. The segment recorded operating income of $11 million.

Operating Highlights

AECOM’s gross margin expanded 120 bps from the prior-year figure to 4.7%. Adjusted operating income in the quarter under review amounted to $246.5 million, up 13.1% from the year-ago level. Adjusted EBITDA also increased 12% year over year to $261 million.

At the end of fiscal 2019, the company’s total backlog was $59.7 billion, up 11% from a year ago. New order wins during the fiscal fourth quarter were recorded at $6.3 billion. The company’s total book-to-burn ratio was 1.2, with greater than 1 book-to-burn ratio in all the three segments. Notably, AECOM’s backlog in the Pro Forma Professional Services business — which comprises DCS and Construction Management businesses — was more than $36 billion, reflecting a 19% increase from the prior year.

Fiscal 2019 Highlights

AECOM generated revenues of $20.2 billion (up 0.1% from fiscal 2018). Organically, revenues increased 2% owing to consistent growth in the Americas design and Management Services businesses. Adjusted earnings came in at $2.75 per share, up 3% year over year. Adjusted EBITDA increased 13% to $948 million primarily on the back of higher margins and profitability in the DCS segment as well as higher profitability in the MS segment.

Liquidity & Cash Flow

As of Sep 30, 2019, AECOM’s cash and cash equivalents totaled $1,080.4 million compared with $886.7 million in the corresponding period of 2018. As of Sep 30, 2019, total debt (excluding unamortized debt issuance cost) was $3.44 billion, decreasing from $3.67 billion in the comparable year-ago period. AECOM provided $777.6 million cash from operating activities in the fiscal year versus $774.6 million a year ago. It had $694.2 million of free cash flow in the quarter versus $687.7 million a year ago.

Fiscal 2020 Guidance Reaffirmed

AECOM reaffirmed its fiscal 2020 guidance, with adjusted EBITDA in the range of $1,040-$1,080 million. It expects free cash flow (excluding cash uses for restructuring and timing impacts related to the sale of the Management Services business) within $600-$800 million. AECOM also expects Pro Forma Professional Services’ (including DCS, Construction Management and AECOM Capital businesses, and excluding the Management Services business) adjusted EBITDA between $720 million and $760 million, representing 12% year-over-year growth at the mid-point. On Oct 14, 2019, AECOM announced an agreement to offload the Management Services business for $2.405 billion. The company expects the transaction to close in second-quarter fiscal 2020, subject to regulatory approvals and other customary closing conditions.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -6.94% due to these changes.

VGM Scores

Currently, Aecom has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Aecom has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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