AECOM (ACM) Tops Q2 Earnings Estimates, Posts Record Backlog

AECOM ACM reported second-quarter fiscal 2020 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed the same. Notably, the company witnessed the sixth consecutive quarter of substantial margin improvement in the Professional Services business, continued double-digit adjusted EBITDA growth, a record $9 billion of wins and a new all-time high backlog level. Shares of AECOM gained 2.6% on May 5, following the earnings release.

Delving Deeper

Adjusted earnings per share of 55 cents topped the consensus mark of 53 cents by 3.8% and grew 31% year over year. However, revenues of $3,245.7 million missed the Zacks Consensus Estimate of $3,265 million by 0.6% and fell 5% year over year.

AECOM Price, Consensus and EPS Surprise

AECOM Price, Consensus and EPS Surprise

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

Improved profitability reflects the company’s efforts to transform itself into a higher-margin and lower-risk Professional Services business.

Segment Details

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, Africa and the Asia-Pacific regions; and AECOM Capital.

Americas revenues were down 3.9% year over year to $2,475.7 million. This was primarily due to reduction in disaster recovery activity in the U.S. Virgin Islands. Net service revenues or NSR of $933 million in the quarter remained unchanged year over year on a constant-currency organic basis.

Adjusted operating income of $146 million grew 10.6% year over year. Moreover, adjusted operating margin on an NSR basis expanded 160 basis points (bps) year over year on solid execution, continued favorable end-market trends and strong backlog performance.

International revenues dropped 8% on a year-over-year basis to $769.5 million. On a constant-currency organic basis, NSR decreased 2% from a year ago to 262 million in the quarter. Strong performance in the U.K., Australia and New Zealand businesses was offset by declines in Asia due to the COVID-19 outbreak. Adjusted operating income in the segment rose 60.9% year on year to $37 million. Adjusted operating margin on an NSR basis expanded a notable 240 bps year over year. This was attributed to improved profitability in the U.K., and investments to boost utilization and overhead efficiencies. Also, benefits from the actions undertaken to consolidate AECOM’s geographic and real estate footprint added to the positives.

AECOM Capital (ACAP) — which develops real estate, public private partnership and infrastructure projects — contributed $0.5 million to total revenues versus $1.5 million a year ago. The segment recorded operating income of $3.8 million.

Operating Highlights

Adjusted operating margin in the quarter amounted to 11.7%, up 200 bps from the year-ago level. Adjusted EBITDA also increased 16% year over year to $182 million. Adjusted EBITDA grew 16% year over year, marking the sixth consecutive quarter of double-digit growth.

At fiscal second quarter-end, the company’s total backlog was $41.61 billion, up 14% from the prior-year figure. This provides for all-time high levels of visibility with more than 3 years of trailing 12-month revenues in backlog.

New order wins during the fiscal second quarter were recorded at $8.6 billion. The company’s total book-to-burn ratio was 2.5, on account of solid performance across all the three segments. Wins in the first half of fiscal 2020 were $12 billion, reflecting a 1.7 book-to-burn ratio.

Liquidity & Cash Flow

As of Mar 31, 2020, AECOM’s cash and cash equivalents totaled $1,135.1 million compared with $885.6 million at fiscal 2019-end.

As of Dec 31, 2019, total debt (excluding unamortized debt issuance cost) was $2.15 billion, decreasing from $3.35 billion at fiscal 2019-end. Of the total debt, AECOM had $900 million of net debt and was undrawn under the $1.35-billion revolving credit facility.

Restructuring Update

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 Cut

AECOM lowered its fiscal 2020 guidance. Adjusted EBITDA is now projected in the range of $700-$740 million versus $720-$760 million expected earlier. This midpoint of the guided range indicates 10% 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.

Zacks Rank

AECOM — which shares space with KBR, Inc. KBR, Quanta Services, Inc. PWR and Jacobs Engineering Group Inc. J in the Zacks Engineering - R and D Services industry — currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Quanta Services Inc (PWR) : Free Stock Analysis Report
 
AECOM (ACM) : Free Stock Analysis Report
 
KBR Inc (KBR) : Free Stock Analysis Report
 
Jacobs Engineering Group Inc (J) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research