Aecom (ACM) Down 2% Since Last Earnings Report: Could There Be a Rebound?

It’s been a month since Aecom Technology’s (ACM) last reported earnings, with the stock down about 2% in that time, underperforming the S&P 500.

Will the recent negative trend continue into its next earnings release, or is Aecom due for a breakout? Before we delve into the latest investor and analyst reaction, let’s take a look at the latest earnings report to better understand the important catalysts.

AECOM’s third quarter earnings exceed estimates, revenues grow y/y

AECOM reported third-quarter fiscal 2018 adjusted earnings per share of 62 cents, beating the Zacks Consensus Estimate of 61 cents.

However, the bottom line was down 20.5% from last year’s figure of 78 cents.

Revenues in detail

In the quarter, revenues increased 12.9% to $5,147.9 million year-over-year. Additionally, revenue surpassed the Zacks Consensus Estimate of $4,883 million.

Additionally, AECOM achieved 10% organic growth in the quarter, marking its seventh consecutive quarter of positive organic growth. Growth in all three segments, along with the higher-margin Design & Consulting Services (DCS) and Management Services (MS) segments, drove the top line.

Segmentally, Design and consulting services (DCS) revenues increased 13% year-over-year to $2,105.2 million. On a constant basis, organic revenues increased 12%, supported by strong performance in the company’s transportation and water markets in the Americas. These impressive results can be attributed to improved financing and a strong backlog position.

Construction services Revenue (CS) increased 14.4% to $2,106.7 million year-over-year. At constant currency, organic revenue increased 8%. The segment’s solid performance was driven by Construction businesses (which recorded double-digit growth).

Management services (MS) revenue increased 9.3% year over year to $936 million. Organic revenue increased 9%, reflecting strong performance across the portfolio.

Operational highlights

AECOM’s adjusted operating income for the quarter was $201.9 million, compared with $239.3 million a year ago.

The value of new orders this quarter was a record $9.4 billion. The total book-to-use ratio was 1.7%, with significant contributions from all three segments.

At the end of the fiscal third quarter, AECOM’s total order book of $54 billion increased 16%, reflecting a favorable order mix shift toward higher-margin DCS and MS segments.

Liquidity and cash flow

As of June 30, 2018, AECOM had cash and cash equivalents of $801.4 million, compared to $802.4 million at September 30, 2017.

As of June 30, 2018, total debt (excluding unamortized debt issuance costs) was $3,929.8 million, compared to $3,896.4 million at September 30, 2017. During the reported quarter, AECOM generated free cash flow of $48.4 million.

Guidelines 2018

AECOM reiterated its guidance for fiscal 2018. The company still expects adjusted earnings per share in the range of $2.50 to $2.90. Adjusted EBITDA is expected to be approximately $880 million.

On the expense side, the company continues to expect interest expense (excluding amortization of deferred finance charges) of $210 million and capital expenditures of $110 million in 2018. Free cash flow is expected to be more than $600 million.

How have estimates changed since then?

Over the past month, investors have witnessed an increase in new estimates.

VGM Results

At this point, Aecom has a weak Growth Score of D, but its Momentum Score is performing slightly better at C. Plotting a somewhat similar path, the stock was rated a B on the Value side, putting it in the second quintile for this investment strategy.

Overall, the stock has a composite VGM score of B. If you’re not focused on a single strategy, this score should interest you.

Perspectives

Estimates for this company are generally in an upward trend, and the magnitude of these revisions indicates a downward shift. It is worth noting that Aecom has a Zacks Rank #3 (Hold). We expect a linear return on the stock over the next few months.

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