A month has gone by since the last earnings report for Aecom Technology (ACM). Shares have added about 1.7% in that time frame, underperforming 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 drivers.
AECOM (ACM) Tops Q3 Earnings & Revenue Estimates, Ups View
AECOM reported third-quarter fiscal 2020 results, wherein earnings and revenues beat the respective Zacks Consensus Estimate. Notably, the company witnessed the seventh consecutive quarter of double-digit adjusted EBITDA growth, a near-record level of backlog and a strong balance sheet. It also raised its adjusted EBITDA guidance.
Adjusted earnings per share of 55 cents topped the consensus mark of 46 cents by 19.6% and grew 28% year over year. Revenues of $3,189.7 million beat the Zacks Consensus Estimate of $3,265 million by 2.1% but fell 5.1% year over year. Improved profitability reflects the company’s efforts to transform itself into a higher-margin and lower-risk Professional Services business.
AECOM reports through three segments — Americas, which consists of the company’s business in the United States, Canada and Latin America; International, which includes the businesses in Europe, the Middle East and Africa (EMEA), along with the Asia-Pacific regions; and AECOM Capital.
Americas revenues were down 4% year over year to $2,471.5 million. Nonetheless, net service revenues or NSR of $923 million for the quarter grew 2% year over year on a constant-currency organic basis, backed by double-digit growth in the Construction Management business. Adjusted operating income of $165 million grew 25% year over year. Moreover, adjusted operating margin on an NSR basis expanded 340 basis points (bps) year over year, given solid execution, actions taken to boost margins and a strong backlog performance.
International revenues dropped 10% on a year-over-year basis to $717.9 million. On a constant-currency organic basis, NSR decreased 3% from a year ago to $590 million for the quarter. Growth in the Asia-Pacific region was offset by a decline in the EMEA region, thanks to the COVID-19 pandemic. Adjusted operating income in the segment rose 3% year on year to $34 million. Adjusted operating margin on an NSR basis expanded 50 bps year over year. This was attributed to the benefits of real estate restructuring, a streamlined G&A structure and the ongoing exit from more than 30 countries, despite a decline in revenues.
AECOM Capital (ACAP) — which develops real estate, public private partnership and infrastructure projects — contributed $0.2 million to total revenues versus $1.4 million a year ago. The segment recorded operating loss of $0.6 million.
Adjusted operating margin for the quarter amounted to 13.2%, up 250 bps from the year-ago level. Adjusted EBITDA also increased 18% year over year to $187 million. This marks the seventh consecutive quarter of double-digit growth.
At fiscal third quarter-end, the company’s total backlog was $41.5 billion, up 16% from the prior-year figure. New order wins during the fiscal third quarter were recorded at $3.2 billion. Its total book-to-burn ratio was more than 1, on account of solid performance in design businesses.
Liquidity & Cash Flow
As of Jun 30, 2020, AECOM’s cash and cash equivalents totaled $1,331.3 million, up from $1,135.1 million in the fiscal second quarter and $885.6 million at fiscal 2019-end. As of Jun 30, 2020, total debt (excluding unamortized debt issuance cost) was $2.09 billion, down from $2.15 billion at fiscal second quarter-end and $3.35 billion at fiscal 2019-end. Of the total debt, it had $654 million of net debt and was undrawn under the $1.35-billion revolving credit facility.
AECOM is focused on the ongoing restructuring initiatives and expects to boost margins substantially, going forward. Its restructuring expenses are expected in the range of $160-$190 million. Total cash restructuring costs are projected within $185-$205 million.
Fiscal 2020 Guidance Raised
AECOM boosted its fiscal 2020 guidance. Adjusted EBITDA is now projected in the range of $720-$740 million versus $700-$740 million expected earlier. The midpoint of the guided range indicates 11% year-over-year growth. Also, it would mark the second consecutive year of double-digit adjusted EBITDA growth. The company reiterated its free cash flow projection of $100-$300 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.38% due to these changes.
Currently, Aecom has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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