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Will Aegion (AEGN) Disappoint Investors in Q3 Earnings?

Zacks Equity Research

Aegion Corporation AEGN is scheduled to release third-quarter 2017 results on Nov 1, after the closing bell. In the last reported quarter, the company’s earnings had gone up 47.8% while revenues improved 19%.

In the last four reported quarters, it surpassed earnings estimates on one occasion and missed in the other three. The company recorded an average negative earnings surprise of 1.50%.

In a year, Aegion has underperformed the industry it belongs to. The company has gained around 20.1%, while the industry registered growth of 25.8%.

Let’s see how things are shaping up for this quarter.

Earnings Whispers

Our proven model does not conclusively show that Aegion is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Aegion’s Earnings ESP is -15.52% as the Most Accurate estimate of 25 cents is pegged lower than the Zacks Consensus Estimate of 29 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Aegion currently carries a Zacks Rank #5 (Strong Sell) combined with -15.52% earnings ESP makes a beat unlikely this quarter. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Recently, Aegion announced a series of strategic actions per which the company has planned to divest the Corrosion Protection’s pipe coating and insulation business in Louisiana. This decision comes due to persistence of mix issues and performance challenges on several cathodic protection system construction projects in the U.S. midstream pipeline market. Further. per the plan, Aegion has approved to exit all non-pipe-related contract applications for the Tyfo Fibrwrap system in North America, restructure Corrosion Protection’s operations in Canada and implement cost-reduction actions as well.

The company will continue to face performance issues subject to restructuring actions, which combined with the impact on operations from Hurricanes Harvey and Irma, are expected to impact third-quarter operating results by approximately $5 million, or 10 cents per share.

Nevertheless, Aegion’s strong end markets, investments in sales resources, market expansion, strong backlog and order growth will aid third-quarter results. Notably, the company’s contract backlog at Jun 30, 2017 was $774 million, a $147 million increase year over year. In the first half of 2017, Aegion noted a 35% rise in new orders to $764 million. Per the Zacks Consensus Estimates, the backlog for the Corrosion Protection, Infrastructure Solutions and Energy Services will be around $175 million, $325 million and $180 million, respectively.

Per the Zacks Consensus Estimates, all the three segments are expected to log growth in the third quarter. Revenues for the Corrosion Protection segment are projected at $108 million, a 14% year over year climb and for the Energy Services segment to rise 13% to $62 million. The Infrastructure Solutions segment’s revenues are projected to grow 9% year over year to $173 million. Total revenues per the Zacks model are $336.4 million, a 9% growth over the prior-year quarter.

The Corrosion Protection segment is expected to report operating profit of around $5 million, a substantial improvement over the $0.2 million in the prior-year quarter. The Energy Services segment’s operating income is projected at $2 million compared with $0.2 million in the prior year third quarter. However, the Infrastructure Solutions segment’s profit will dip 3% to $18 million.

Earnings per share is pegged at 29 cents, a decline of 9% year over year.

Stocks That Warrant a Look

Here are some stocks you may want to consider in the construction sector, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Louisiana-Pacific Corporation LPX, with an Earnings ESP of +3.90% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Owens Corning OC, with an Earnings ESP of +1.72% and a Zacks Rank #1.

Potlatch Corporation PCH, with an Earnings ESP of +18.37% and a Zacks Rank #1.

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