Aegion Corporation AEGN has divested its wholly-owned subsidiary, The Bayou Companies, LLC, to Altamont Capital Partners. The asset sale is in line with Aegion’s strategic initiatives that are targeted to generate more predictable and sustainable long-term earnings growth.
Meanwhile, Aegion also sold its 51% membership interest in Bayou Wasco Insulation, LLC, as part of the transaction. Bayou is considered as a market leader in onshore pipe coatings and offshore coatings and insulation, including highly-specialized insulation for the oil & gas industry.
Per the deal, Aegion is entitled to receive $46 million, including $38 million to be paid in cash at closing and $8 million in a fully secured two-year loan. Additionally, based on performance of the divested businesses, Aegion is expected to receive $4 million in total earn-out payments in 2019 and 2020.
The company expects the cash proceeds from the sale of Aegion’s Corrosion Protection’s pipe coating and insulation businesses in Louisiana to be used to repay its outstanding debts. The sale is estimated to result in a pre-tax loss of approximately $8-$10 million,
The divesture has primarily stemmed from the uncertainty around large project timing, which resulted in volatility in revenues, earnings and backlog. Bayou Companies and Bayou Wasco generated strong income for Aegion back in 2016 and 2017, given the large deep-water insulation project that was substantially completed during the first half of 2017. The market for these businesses is susceptible to uncertainty around large project timing, which created volatility in Aegion’s revenues, earnings and backlog.
In the second quarter of 2018, Aegion’s Corrosion Protection segment revenues declined 24.5% year over year, with operating income down 66.2%. The downturn was due to more than $40 million lost revenues and related profit contribution from the large deep-water project.
In 2017, Aegion had embarked on a series of strategic actions to generate more sustainable earnings growth. Apart from the latest Bayou divestiture, the company also initiated a process for the divestment of the Australia CIPP business. It classified Australia's assets and liabilities as held for sale on Jun 30, 2018. Aegion plans to exit CIPP operations in Denmark due to continued underperformance of the business. The company expects to complete the activity by the end of the year.
The company’s focus on strategic actions, along with ongoing market and order strength are expected to aid the bottom line. Aegion expects adjusted earnings per share growth of at least 30% in 2018.
During the past six months, Aegion’s shares have gained 6.3% against its industry’s fall of 7%.
Zacks Rank & Key Picks
Currently, Aegion carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Continental Building Products, Inc. CBPX, PGT Innovations, Inc. PGTI and Patrick Industries, Inc. PATK, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Continental Building’s earnings for 2018 are expected to increase 50.4%.
PGT Innovations’ 2018 earnings are expected to grow 78.7%.
Patrick Industries is expected to record 49.4% earnings growth in fiscal 2018.
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