Aegion Corporation AEGN provided a preliminary update on its fourth-quarter performance. The company expects fourth-quarter 2016 revenues to be hurt by $10 million, with a corresponding impact to gross margins because of the reduction in volume to cover fixed costs. The company, however, stated that the strong North American municipal pipeline rehabilitation market will remain a positive contributor in 2017. The company will focus on expanding its presence in the market to boost its portfolio of solutions.
The negative impact on the top line in the fourth quarter is due to adverse weather conditions in the U.S. and Canada. Severe winter affected its crew scheduling and production in December, compared with the prior years, especially with respect to municipal cured-in-place pipe installations, and the unexpected customer-driven delays of several key pressure pipe projects. The company added that it will evaluate any potential impact to 2017, as the deferred activity will likely be scheduled throughout the year, while balancing other project activity and achieving optimal crew utilization.
Notably, Aegion anticipates growth in the North America midstream pipeline market, which will aid its cathodic protection services. The company also added that it has successfully renewed a large maintenance contract for a California refinery. This denotes a positive development for refinery services on the U.S. West Coast.
Moreover, the company stated that the pipe insulation coating for the large deep-water project progressed as planned and was a significant contributor to fourth-quarter earnings with expectations for continued strong earnings through 2017.
Further, Aegion settled its two long-standing lawsuits regarding the departure of several key leaders in sales and operations for Tyfo Fibrwrap technology in Dec 2012. Under the settlement, Aegion will receive $6.63 million with an initial $3.63 million cash payment made in December and the remaining amount to be paid in $750,000 installments over the next four years.
Also, contributions from the large deep-water pipe coating project, improved stability in the energy markets and a continuous focus on productivity improvements will help in delivering significant earnings growth in 2017.
Aegion’s share price performance outperformed the Zacks categorized Building & Construction Products – Miscellaneous industry over the past one year. The stock has gained 45%, more than the industry’s gain of 32% over the same time frame.
Zacks Rank & Key Picks
Aegion currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Argan, Inc. AGX, GCP Applied Technologies Inc. GCP and Gibraltar Industries, Inc. ROCK. Argan has an average earnings surprise of 25.06% for the last four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GCP Applied Technologies also boasts a Zacks Rank #1 and has an average earnings surprise of 18.00% for the trailing four quarters. Gibraltar Industries, another Zacks Rank #1 stock, has an average positive earnings surprise of 67.30% for the past four quarters.
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