A month has gone by since the last earnings report for Aecom Technology (ACM). Shares have added about 8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aecom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
AECOM's (ACM) Q3 Earnings Beat, Revenues Miss Estimates
AECOM reported third-quarter fiscal 2019 results, wherein earnings topped the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings per share (EPS) of 72 cents topped the consensus mark of 71 cents by 1.4% and increased 16% year over year, backed by solid EBITDA growth and continued near record backlog across the business.
Revenues of $4,980.2 million missed the consensus estimate of $5,170 million by 3.7% and decreased 3.3% year over year, mainly due to expected lower levels of storm recovery work in the U.S. Virgin Islands. Nonetheless, AECOM achieved 10% organic growth in the Management Services or MS business and underlying growth in the Americas design business in the quarter.
Design & Consulting Services (DCS) revenues were down 2% year over year to $2,055.3 million. On a constant-currency basis, organic revenues remained flat year over year. Excluding the negative impact of reduction in storm recovery activity in the U.S. Virgin Islands, the said metric grew marginally from the year-ago level. The increase was attributable to continued improvement in the Americas and varied growth in international design markets. Adjusted operating income of $151 million grew 18% year over year.
Construction Services (CS) revenues were down 10% on a year-over-year basis to $1,898.2 million. On a constant-currency basis, organic revenues decreased 9% from the prior-year quarter. The downside was due to lower contribution from Building Construction and Power businesses. Adjusted operating income in the segment was down 44.1% from a year ago to $49 million.
Management Services (MS) revenues recorded a year-over-year increase of 10% to $1,025.3 million. Also, on an organic basis, revenues recorded growth of 10% from the prior-year quarter, reflecting stellar improvement in backlog, and strong funding for the U.S. Departments of Defense and Energy clients. Adjusted operating income, however, decreased 19.7% from a year ago to $61 million in the reported quarter.
AECOM Capital (ACAP), which develops real estate, public private partnership and infrastructure projects, contributed $1.5 million to its total revenues. The segment recorded operating income of $0.7 million.
AECOM’s gross margin expanded 60 basis points (bps) from the prior-year figure to 4.2%. Adjusted operating income in the quarter under review amounted to $226.4 million, up 12.1% from the year-ago level. Adjusted EBITDA also increased 10% year over year to $244 million.
At the end of the fiscal third quarter, the company’s total backlog was $58.9 billion, up 10% from a year ago.
New order wins during the quarter were recorded at $3.4 billion. The company’s total book-to-burn ratio was 0.6, with 1 book-to-burn ratio in DCS, 0.5 in CS and 0.4 in the MS segment.
Liquidity & Cash Flow
As of Jun 30, 2019, AECOM’s cash and cash equivalents totaled $794 million compared with $886.7 million on Sep 30, 2018.
As of Jun 30, 2019, total debt (excluding unamortized debt issuance cost) was $3.93 billion, increasing from $3.67 billion on Sep 30, 2018. AECOM provided $71.9 million cash from operating activities in the quarter versus $76.9 million a year ago. It had $48.4 million of free cash flow in the quarter versus $52.2 million a year ago.
Fiscal 2019 Guidance Reaffirmed
AECOM reaffirmed its fiscal 2019 guidance, with adjusted EBITDA in the range of $920-$960 million. Adjusted EPS is expected within $2.60-$2.90.
For fiscal 2019, the company’s adjusted interest expenses (excluding amortization of deferred financing fees) are expected to be nearly $200 million and capital expenditure is projected at about $120 million. Free cash flow is likely to be at the lower end of its prior guided range of $600-$800 million. AECOM is expected to incur $79 million of restructuring costs in fiscal 2019.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
Currently, Aecom has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Aecom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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