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Aecom (ACM) Down 1.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Aecom Technology (ACM). Shares have lost about 1.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aecom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AECOM (ACM) Q3 Earnings Beat, Revenues Lag

AECOM reported mixed third-quarter fiscal 2022 results. Its earnings surpassed the Zacks Consensus Estimate, but revenues missed the same. On a year-over-year basis, earnings improved impressively despite a marginal fall in revenues.

Troy Rudd, AECOM’s CEO, stated, “We continue to execute well on our shared purpose of delivering a better world, which has resulted in consistent outperformance, including 31% adjusted EPS growth last year and 28% adjusted EPS growth year-to-date through the third quarter.”

Looking forward, Troy further added, “When combined with our record design backlog, we are positioned better than ever to capitalize on record infrastructure funding. The three long-term megatrends of a global infrastructure renaissance, ESG investments, and client investments to adapt to a post-pandemic world are fully intact, which underpins our confidence in the future.”

Delving Deeper

During the fiscal third quarter, the company reported adjusted earnings per share of 86 cents, which topped the consensus mark of 83 cents by 3.6%. The bottom line also improved by 18% from the prior-year quarter. The upside can be attributed to strong NSR growth, higher margins and stock repurchases under its capital allocation policy.

Revenues of $3,242 million missed the consensus mark of $3,394 million by 4.5% and declined 5% on a year-over-year basis. Meanwhile, adjusted net service revenues or NSR moved up 6% for the quarter, attributable to solid client budgets, a continued record high win rate and a record backlog in the Company’s design business.

Segment Details

During the reported quarter, Americas’ revenues came in at $2,257 million, down 6.2% from the prior-year quarter’s levels. Net service revenues or NSR of $926 million in the quarter moved up 4% year over year. The uptick was led by a high win rate, strength in market conditions, client budgets and the successful execution of backlogs and pursuits.

Adjusted operating income of $172 million was up 2% year over year. Adjusted operating margin (on an NSR basis) declined 30 basis points or bps year over year to 18.5%, reflecting ongoing reinvestment in growth and innovation.

International revenues decreased 0.7% year over year to $784.2 million. During the quarter, NSR increased 8% year over year to $638 million, reflecting growth in the company’s largest and most profitable geographies comprising the U.K., Australia and the Middle East.

Adjusted operating income in the segment rose 21% year on year to $56 million. Adjusted operating margin (on an NSR basis) also increased 150 bps year over year to 8.8%. This marks the eighth consecutive quarter of sequential margin improvement and reflects continued progress toward achieving a double-digit margin in the International segment.

AECOM Capital contributed $0.57 million to the quarterly revenues versus $0.63 million a year ago.

Operating Highlights

Adjusted segment operating profit for the quarter amounted to $200 million, up 11.9% from the year-ago quarter’s level. The segment adjusted operating margin increased 50 basis points to 14.6%, marking a record high fiscal third-quarter margin. Adjusted EBITDA also rose 7% year over year to $228 million.

As of June-end, the company’s total backlog came in at $41.1 billion (includes 10% growth in the design business) compared with $39.69 billion reported in the prior-year quarter. The current backlog level includes 17% contracted backlog growth. The book-to-burn ratio of 1.2 reflects 1.5 in the Americas.

Liquidity & Cash Flow

As of Jun 30, 2022, AECOM’s cash and cash equivalents totaled $1,010.1 million compared with $1,299.2 million at the fiscal 2021 end.

Total debt (excluding unamortized debt issuance cost) as of Jun 30, 2022, stood at $2,182.8 million compared with $2,235.7 million as of Sep 30, 2021. Free cash flow for the quarter was $182.9 million versus $295.2 million reported a year ago.

Updated Fiscal 2022 Guidance

For fiscal 2022, the company expects adjusted earnings per share (EPS) in the range of $3.35-$3.50, up from the prior estimate of $3.30-$3.50. This indicates a 21% adjusted EPS improvement at the mid-point of the guidance from fiscal 2021 levels.

AECOM expects adjusted EBITDA guidance in the range of $890-$910 million ($880-$920 million expected earlier), indicating 8% year-over-year growth at the midpoint. The company anticipates generating 6% organic NSR growth, underpinned by robust pipeline and backlog momentum and strengthening market conditions across the company’s largest markets. Also, it projects segment adjusted operating margin of 14.1%, reflecting a 30 basis points increase on a year-over-year basis.

The company anticipates free cash flow in the range of $450-$650 million.

AECOM has also reiterated its long-term financial targets (through fiscal 2024). For the long term, it expects adjusted EPS of more than $4.75 and segment adjusted operating margin of 15%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Aecom has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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. Notably, Aecom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Aecom belongs to the Zacks Engineering - R and D Services industry. Another stock from the same industry, Fluor (FLR), has gained 4.5% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Fluor reported revenues of $3.3 billion in the last reported quarter, representing a year-over-year change of +1.9%. EPS of $0.13 for the same period compares with $0.32 a year ago.

For the current quarter, Fluor is expected to post earnings of $0.43 per share, indicating a change of +87% from the year-ago quarter. The Zacks Consensus Estimate has changed +11.8% over the last 30 days.

Fluor has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.


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