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AECOM (ACM) Q3 Earnings In Line, Revenues Beat Estimates


AECOM ACM reported third-quarter fiscal 2017 results, with adjusted earnings per share of 78 cents, which came in line with the Zacks Consensus Estimate. However, the bottom line came in 3.7% lower than the year-ago tally of 81 cents. The decline was primarily attributable to high operating expenses.

On a GAAP basis, the company’s EPS came in at 64 cents, down 1.5% from the year-ago figure of 65 cents.

Revenue Performance

For the fiscal third quarter, revenues increased 3.5% to $4,561.5 million on a year-over-year basis. The figure also surpassed the Zacks Consensus Estimate of $4,545 million. The strong performance of Building Construction, Power and Management Services proved favorable to the top-line improvement. However, the favorable impacts were partially offset by low oil prices which had an adverse impact on the company’s markets.

AECOM Price, Consensus and EPS Surprise

AECOM Price, Consensus and EPS Surprise | AECOM Quote

Segment Performance

Revenue at the Design & Consulting Services revenues fell 3.0% year over year to $1,863.4 million. On a constant currency basis, organic revenues declined 1%. Low oil prices which had an adverse impact on the company’s markets, more than offset the favorable impact of strong performance in the Asia-Pacific region.

Construction Servicesrevenues were up 11% to $1,841.6 million on a year-over-year basis. On a constant-currency basis, organic revenues were up 8%. Impressive growth in the Building Construction and Power business proved favorable to the top line.

On the other hand, Management Services revenues registered a year-over-year increase of 2.3% to $856.4 million. Additionally, organic revenues recorded an increase of 2%. The top line improvement was primarily attributable to strong business momentum as well as conversion of AECOM’s pipeline to wins.

Moreover, AECOM’s adjusted operating income in the reported quarter was $ 239.3 million, up from the year-ago figure of $219.2 million. New order wins in the quarter totaled $9 billion, reflecting a whooping increase of 164% from the last quarter.

Additionally, AECOM’s total book-to-burn ratio during the quarter was 1.8. At the end of the reported quarter, the company had a total backlog of $46.4 billion, up 13%, thereby signaling strong prospects.

Balance Sheet

Cash and cash equivalents totaled $812 million as of Jun 30, 2017 compared with $692.1 million on Sep 30, 2016. Net debt was $3,153.8 million compared with $3,667.2 million on Jun 30, 2016.

The company generated free cash flow of $394.1 million in the reported quarter, in stark contrast to free cash flow of $191.3 million in the year-ago quarter.

Recent Developments

The company continues to make strategic investments to strengthen its prospects. The recent addition of Shimmick Construction’s leading heavy civil infrastructure construction capabilities are expected to allow the company to capitalize on growth opportunities across its markets.

During the quarter, AECOM Capital sold its equity interest in its first investment, marking the first monetization of an AECOM Capital property. This has generated nearly 30% Internal Rate of Return on equity investment.

2017 Guidance

AECOM reiterated its fiscal 2017 guidance. The company continues to expect earnings per share in the range of $2.80–$3.20. This figure includes roughly 20 cents of anticipated gains related to AECOM Capital realizations. For fiscal 2017, AECOM has revised its effective tax rate to 16% on adjusted earnings from the previous guidance of 18%.

In terms of spending, the company expects to incur $36 million in relation to acquisition and integration, capital expenditure of $115 million. The company expects depreciation expense of $165 million.

Our Take

Positive organic growth for the third consecutive quarter along with record wins and backlog, and strong implementation on its priorities has led to better-than-expected revenues.

AECOM’s solid backlog levels, which are key indicators of future revenue growth, indicate significant opportunities in the coming quarters. Further, the company submitted another $6 billion of bids in the second quarter, and remains hopeful of favorable decisions on nearly $20 billion of pursuits by the end of the year. We believe that such robust contract levels signal bright days for the company.

Moreover, international design markets are reaping the benefits of higher infrastructure funding in the U.K. AECOM already clinched several substantial transportation projects in the quarter.

However, on the flip side, continued volatility in the oil and gas market, with declining prices and contracting spending levels, could hurt the company’s projects and orders. As a portion of the Zacks Rank #3 (Hold) company’s revenues are directly exposed to the oil and gas sector, persistence of these issues may pose serious threats to AECOM’s top-line growth.

Stocks to Consider

Some better-ranked stocks sharing the same space are:

EMCOR Group, Inc. EME, which delivered an average positive earnings surprise of 11.69% in the last four quarters. It has Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Owens Corning Inc. OC, sports a Zacks Rank #1. It delivered an average positive earnings surprise of 20.17% in the last four quarters.

NVR, Inc. NVR, sporting a Zacks Rank #1, came up with an average positive earnings surprise of 14.19% in the last four quarters.

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