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Aegion (AEGN) Q3 Earnings & Revenues Beat on Strong Orders

Zacks Equity Research

Aegion Corporation AEGN reported third-quarter 2017 adjusted earnings of 32 cents per share, in line with the year-ago quarter. However, earnings beat the Zacks Consensus Estimate of 26 cents. Continued momentum across key markets for all three segments translated to strong orders and revenues in the quarter. However, this was offset by the impact of restructuring activity in the Infrastructure Solutions segment.

Including one-time items such as after-tax charges for restructuring and divestiture activities along with impairment of intangibles, Aegion reported loss of $2.23 per share in the quarter compared with earnings per share of 34 cents recorded in the prior-year quarter.

Operational Update

Total revenues of $342 million in the quarter increased 11% year over year. Revenues fell short of the Zacks Consensus Estimate of $336 million.

Adjusted cost of sales increased 11% to $268 million from $242 million in the year-ago quarter. Adjusted gross profit improved 11% to $73.4 million from $66.4 million in the prior-year quarter. Adjusted gross margin remained flat at 21.5%.

Aegion Corp Price, Consensus and EPS Surprise
 

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

Adjusted operating expenses went up 13% year over year to $53.4 million. Adjusted operating income improved 3% year over year to $20.1 million. Operating margin in the quarter came in at 5.9%, contracting 40 basis points (bps) from the year-ago quarter.

Segmental Performance

Revenues from the Infrastructure Solutions segment improved 10%, year over year, to $174 million. The segment’s adjusted operating income dipped 7% year over year to $17.3 million.

The Corrosion Protection segment’s revenues increased 7.6% to $102.3 million from $95.1 million recorded in the comparable quarter last year. The segment reported an adjusted operating profit of $1.4 million, double the $0.7 million reported in the year-ago quarter driven by improved performance from international activity.

Revenues in the Energy Services segment surged 19% year over year to $65.4 million. The segment reported an adjusted operating profit of $1.4 million, which improved substantially from operating profit of $0.2 million recorded in the prior-year quarter on the back of growth in maintenance and turnaround services.

Financial Update

Cash flow from operations came in at $34 million during the third quarter, compared with $27 million in the year-ago quarter.

Aegion’s consolidated backlog came in at $756 million as of Sep 30, 2017, up by $141 million year over year. New orders increased 26.2% to $1.1 billion during the nine-month period ended Sep 30, 2017 compared with $867 million in the prior-year comparable period.

Aegion’s Board of Directors approved a $40 million share repurchase program for 2018.

Strategic Actions

In August 2017, Aegion announced a series of strategic actions targeted to generate more predictable and sustainable long-term earnings growth. Among others, the company has made progress on restructuring activities associated with the decision to exit the Infrastructure Solutions’ North American activity for non-pressure pipe contracting applications of the Tyfo Fibrwrap system. It has also made a detailed assessment of the CIPP contracting operations in Australia and Denmark that resulted in added restructuring actions. Activities will include consolidation of regional offices and realignment of management and support staff to match anticipated market activity.

The company was also involved in restructuring activities associated with Corrosion Protection’s operations in Canada, which also included downsizing activities reflecting current and anticipated market conditions as well as implementation of other cost savings initiatives across the company.

Aegion incurred total restructuring charges of $6.7 million in the reported quarter. Total costs are expected to be between $12 million and $15 million, most of which are expected to be cash charges, to be incurred till first-quarter 2018. Aegion’s restructuring and cost savings initiatives are anticipated to generate cost savings over $17 million in 2018.

Outlook

Aegion expects adjusted EPS in 2017 to be in line with last year results. The company had reported adjusted earnings per share of $1.28 in fiscal 2016. Its strong end markets, investments in sales resources, backlog position and the planned benefits from restructuring activity will enhance profitability in 2018.

Share Price Performance

In a year, Aegion has underperformed the industry with respect to price performance. The stock gained around 22.4%, while the industry recorded growth of 31.5%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the same sector are United Rentals, Inc. URI, NVR, Inc. NVR and Universal Forest Products, Inc. UFPI. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

United Rentals has expected long-term growth rate of 15.6%.

NVR has expected long-term growth rate of 14.9%.

Universal Forest Products has expected long-term growth rate of 10.0%.

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