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AECOM (ACM) Stock Down Despite Q2 Earnings & Revenue Beat

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AECOM ACM reported second-quarter fiscal 2021 results, wherein earnings and revenues beat the respective Zacks Consensus Estimate. Furthermore, the company increased its fiscal 2021 guidance. Shares of AECOM dropped more than 3% on May 10 in the after-hours trading session.

Troy Rudd, AECOM’s chief executive officer, said, “Importantly, market conditions are improving, and our Think and Act Globally strategy is resulting in improved margin performance and earnings growth, andinspires confidence in our increased guidance for this year. As we look ahead, substantial COVID relief funding in the U.S.,increasing tax receipts and improving global economic conditions have strengthened our clients’ budgets, resulting inaccelerating award activity, strong wins in April and a growing pipeline of opportunities.”

Delving Deeper

Adjusted earnings per share of 67 cents topped the consensus mark of 63 cents by 6.4% and grew 22% year over year. Revenues of $3,266 million beat the Zacks Consensus Estimate of $3,220 million by 1.4% and grew 1% year over year.

Improved profitability reflects the company’s efforts to transform itself into a higher-margin and lower-risk Professional Services business.

AECOM Price, Consensus and EPS Surprise

AECOM Price, Consensus and EPS Surprise
AECOM Price, Consensus and EPS Surprise

AECOM price-consensus-eps-surprise-chart | AECOM Quote

Segment Details

Americas revenues of $2,468.4 million were slightly down from the year-ago level of $2,475.7 million. However, net service revenues or NSR of $924 million for the quarter dropped 1% year over year on a constant-currency organic basis. Adjusted operating income of $159 million was up 9% year over year. Adjusted operating margin (on an NSR basis) also expanded 160 basis points or bps. This upside reflected the benefits of the actions taken to boost margins, and investments in technology, shared service centers as well as design centers to improve project delivery efficiencies.

International revenues gained 3.5% on a year-over-year basis to $796.4 million. On a constant-currency organic basis, NSR increased 3% from a year ago to $645 million for the quarter. Adjusted operating income in the segment rose 26% year on year to $47 million. Adjusted operating margin (on an NSR basis) also jumped 130 bps to 7.3%. Actions taken to improve margins included consolidating real estate, implementing a streamlined G&A structure and exiting lower-returning countries.

Operating Highlights

Adjusted segment operating margin for the quarter amounted to 13.1%, up 140 bps from the year-ago level. This marked a record high fiscal second-quarter level. Adjusted EBITDA grew 11% year over year to $202 million.

At fiscal second quarter-end, the company’s total backlog was $39.4 billion, down 5% from the prior-year figure. Nonetheless, backlog in the design business grew 8% from a year ago. This was offset by a decline in backlog in the Construction Management business.

Liquidity & Cash Flow

As of Mar 31, 2021, AECOM’s cash and cash equivalents totaled $935 million, down from $1,708.3 million at fiscal 2020-end.

As of fiscal second quarter-end, total debt (excluding unamortized debt issuance cost) was $2,101.2 million, marginally up from $2,079.7 million at fiscal 2020-end.

AECOM has executed $755 million of stock repurchases since the beginning of September 2020 at an average price of $48 per share. This has reduced the share count by 10% to date. The company has $700 million of capacity remaining under the $1-billion share repurchase authorization.

Fiscal 2021 Guidance Lifted

Adjusted EPS is now expected in the range of $2.65-$2.85 versus the prior guidance of $2.60-$2.80. This indicates a 28% adjusted EPS improvement in fiscal 2021 at the mid-point of the guided range. The Zacks Consensus Estimate for fiscal 2021 earnings is currently pegged at $2.68 per share.

AECOM has reiterated its adjusted EBITDA guidance in the range of $790-$830 million, indicating 9% year-over-year growth at midpoint. The company has also reiterated free cash flow projection of $425-$625 million.

Zacks Rank

AECOM — which shares space with KBR, Inc. KBR, Quanta Services, Inc. PWR and Jacobs Engineering Group Inc. J in the Zacks Engineering - R and D Services industry — currently carries a Zacks Rank #3 (Hold).

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

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