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Aegion (AEGN) Lags Q1 Earnings by a Penny, Tops Revenues

Zacks Equity Research

Aegion Corporation AEGN reported first-quarter 2017 adjusted earnings of 18 cents per share, up around 50% year over year. Earnings, however, missed the Zacks Consensus Estimate of 19 cents. Including one-time items, Aegion reported profit of 17 cents per share in the quarter compared to a loss of 11 cents recorded in the prior-year quarter.

Operational Update

Total revenue of $325 million in the quarter increased 10.6% year over year. Revenues beat the Zacks Consensus Estimate of $319 million.

Adjusted cost of sales increased 8% to $257.6 million from $238 million in the year-ago quarter. Adjusted gross profit improved 21% to $67.6 million from $55.7 million in the prior-year quarter. Adjusted gross margin contracted 280 basis points (bps) year over year to 26.2%.

Aegion Corp Price, Consensus and EPS Surprise

 

Aegion Corp Price, Consensus and EPS Surprise | Aegion Corp Quote

Adjusted operating expenses climbed 10% year over year to $53 million. Adjusted operating income increased nearly two-fold to $14.6 million. Operating margin in the quarter came in at 5.7%, expanding 250 bps from the year-ago quarter.

Segmental Performance

Revenues from the Infrastructure Solutions segment climbed 2.5% year over year to $128.9 million. The segment’s adjusted operating income plunged 39.5% year over year to $6.1 million due to limited activity in certain regions and planned investments for future growth.

The Corrosion Protection segment’s revenues rose 33.5% to $123.4 million from $92.4 million in the comparable quarter last year, driven by execution of the large deepwater pipe coating and insulation project. The segment reported an adjusted operating profit of $7.2 million compared to a loss of $2.9 million in the year-ago quarter.

Revenues in the Energy Services segment declined 3.7% year over year to $73 million. The segment reported an adjusted operating profit of $1.3 million compared with $0.6 million in the prior-year quarter.

Financial Update

Aegion had cash and cash equivalents of $87.6 million at the end of first-quarter 2017 compared with $129.5 million at the end of 2016. The company recorded cash used for operating activities of $26.3 million in the reported quarter compared with cash usage of $2 million recorded in the year-ago quarter.

Aegion’s consolidated backlog came in at $712 million as of Mar 31, 2017, down 6% year over year due to execution of the large deepwater pipe coating and insulation project. Excluding the deepwater project, backlog increased 6% to $661 million. New orders increased in all three segments of the company during first-quarter 2017 compared to first-quarter 2016, by a total of 29% to $333 million.

Outlook

For 2017, Aegion expects higher revenues and operating income across all three platforms to result in solid adjusted earnings per share growth. Further, investments in sales resources, market expansion and R&D will aid its long-term strategy for sustainable organic growth.

Aegion reaffirmed its segments’ guidance with the revenue growth projection for Infrastructure Solutions to exceed the low- to mid-single digit three-year target at slightly lower operating margins in 2017 compared to the 9.8% adjusted operating margin achieved in 2016.

The company guided Corrosion Protection’s revenue growth of mid-teens and mid-single digit operating margins, led by the planned contribution from the deepwater pipe coating and insulation project, and anticipated modest recovery in the energy markets. Further, the company projects Energy Services’ revenues to grow in mid-single digits, on par with the three-year growth target, with operating margins above fourth-quarter 2016 levels.

Share Price Performance

In the last one year, Aegion underperformed the Zacks classified Building & Construction Products Miscellaneous sub-industry with respect to price performance. The stock gained around 9.9%, while the industry recorded gain of 27.9% over the same time frame.



Zacks Rank & Stocks to Consider

Aegion currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same sector are Masco Corporation MAS, KB Home KBH and Louisiana-Pacific Corporation LPX. All these three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Masco has an average positive earnings surprise of 3.53% for the trailing four quarters. Louisiana-Pacific delivered an impressive average positive earnings surprise of 66.28% over the past four quarters, while KB Home has an average positive earnings surprise of 7.30% for the last four quarters.

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