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AECOM (ACM) Q1 Earnings & Revenues Beat, Reiterates FY'23 View

AECOM ACM reported better-than-expected results for first-quarter fiscal 2023, where earnings and revenues surpassed the Zacks Consensus Estimate. Post the results, shares of the technical and management support services provider slipped 0.01% on Feb 6.

On a year-over-year basis, the bottom line declined despite top-line growth. The company’s strong top-line performance was backed by strong organic NSR growth.

Troy Rudd, AECOM’s CEO, stated, “Our Think and Act Globally strategy continues to result in consistently strong financial performance, highlighted by accelerating organic NSR growth, strong profitability and cash flow, and a record design backlog and pipeline of opportunities. Importantly, through the execution of our strategy, we are leveraging our competitive advantages to favorably transform the composition of our wins and backlog and to expand the long-term earnings power of the business.”

Delving Deeper

The company reported adjusted earnings per share (EPS) of 86 cents, which topped the consensus mark of 82 cents by 4.9% but declined 3% from 89 cents reported in the prior-year quarter.

AECOM Price, Consensus and EPS Surprise

AECOM Price, Consensus and EPS Surprise
AECOM Price, Consensus and EPS Surprise

AECOM price-consensus-eps-surprise-chart | AECOM Quote

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Revenues of $3.38 billion beat the consensus mark of $3.34 billion by 1.4% and rose 3.5% on a year-over-year basis. Adjusted net service revenues (NSR), moved up 8% to $1.593 billion. The design business recorded year-over-year growth of 9%, driven by accelerating growth in the Americas and continued strong growth in International markets.

Segment Details

During the reported quarter, Americas’ revenues came in at $2.58 billion, up 5% from the prior-year quarter’s levels. NSR of $924 million moved up 5% year over year, backed by 6% growth in the design business.

Adjusted operating income of $168 million was up 7% year over year. Adjusted operating margin (on an NSR basis) also expanded by 50 basis points (bps) year over year to 18.2%.

International revenues were flat year over year to $802.8 million. During the quarter, NSR increased 12% year over year to $669 million, reflecting growth across the segment.

Adjusted operating income in the segment rose 4% year over year to $55 million. Adjusted operating margin (on an NSR basis) also increased 10 bps year over year to 8.3%. This reflects continued progress toward achieving a double-digit margin in the International segment.

AECOM Capital contributed $0.25 million to the quarterly revenues versus $0.78 million a year ago.

Operating Highlights & Backlogs

Adjusted segment operating profit amounted to $194 million, up 10% from the year-ago quarter’s level. The segment’s adjusted operating margin (NSR) improved by 40 basis points to 14%. The upside reflects strong execution and accelerated investments to deliver on a growing pipeline of opportunities. Adjusted EBITDA also rose 8% year over year to $224 million, backed by strong underlying operational growth.

As of December 2022-end, the company’s total backlog came in at $40.82 billion compared with $38.8 billion reported in the prior-year quarter. The current backlog level includes 56.8% contracted backlog growth.

9% growth in the design business backlog (on a constant currency basis) reflects strong improvement in both the Americas and International markets. The book-to-burn ratio for the design business was 1.3, which reflects strong contributions from the Americas and the International markets.

Liquidity & Cash Flow

At the fiscal first quarter’s end, AECOM’s cash and cash equivalents totaled $1.16 billion compared with $1.17 billion at the fiscal 2022 end. Total debt (excluding unamortized debt issuance cost) as of Dec 31, 2022, stood at $2.23 billion compared with $2.22 million as of Sep 30, 2022.

For the reported period, operating cash flow was $120 million, down 38% from the prior-year quarter. Adjusted free cash flow in the quarter was $84 million, down 49% from the year-ago quarter’s levels.

Fiscal 2023 Guidance Reiterated

For the year, ACM anticipates generating 8% organic NSR growth (4% for actual NSR), underpinned by robust momentum in the Professional Services business.

The company expects adjusted EPS in the range of $3.55-$3.75. This indicates a 10% improvement from fiscal 2022 levels on a constant-currency basis, considering the mid-point of the guidance.

Also, it projects an adjusted operating margin of 14.6%, suggesting an increase of 40 bps on a year-over-year basis. AECOM expects adjusted EBITDA guidance in the range of $935-$975 million, indicating 10% year-over-year growth at the midpoint.

The company anticipates free cash flow in the range of $475-$675 million, an average fully diluted share count of 141 million and an effective tax rate of 24-26%.

Long-Term Views

For fiscal 2024, AECOM expects to generate adjusted EPS of more than $4.75 and segment adjusted operating margin of 15%.

Also, it maintains its long-term expectations for a segment-adjusted operating margin of 17% and a return on invested capital target of 17%. This reflects strong margin performance and working capital management.

The company remains optimistic about surpassing its long-term guidance on the back of accelerating organic NSR growth and continued margin expansion. The benefits of its “Think and Act Globally” strategy and strong business execution are helping its profitability.

Zacks Rank & Recent Construction Releases

AECOM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Otis Worldwide Corporation OTIS reported solid fourth-quarter 2022 results. Its earnings and sales surpassed the Zacks Consensus Estimate. Its quarterly results reflected strong performance, including mid-single-digit organic sales growth in New Equipment and Service and continued operating profit margin expansion in the Service business.

Otis remains focused on strong portfolio growth and generating a solid New Equipment backlog. It also intends to expand operating margins, return cash to shareholders through a capital-allocation strategy and pursue additional progress toward ESG goals.

United Rentals, Inc. URI reported fourth-quarter 2022 results. Its earnings and revenues missed the Zacks Consensus Estimate but increased on a year-over-year basis on the back of sustained demand in its end markets and the strength of its core rental business.

URI provided solid full-year 2023 guidance for total revenues and adjusted EBITDA, given broad-based end-market activity, contractor backlogs, customer sentiment and solid visibility. Also, it unveiled a quarterly dividend of $1.48 per share, with an annualized yield of approximately 1.5%. The company also plans to restart its share repurchase program, with the intention of buying back $1 billion of common stock in 2023.

Weyerhaeuser Company WY reported fourth-quarter 2022 results. Although its earnings beat the Zacks Consensus Estimate, the same declined from the year-ago period's levels.

WY’s quarterly performance reflects strong execution across the businesses, which was offset by macroeconomic headwinds, supply-chain disruptions and dynamic market conditions.

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