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Aegion's (AEGN) Q2 Earnings & Revenues Surpass Estimates

Zacks Equity Research

Aegion Corporation AEGN reported second-quarter 2019 results, wherein earnings and revenues topped the respective Zacks Consensus Estimate, courtesy of strong performance from Infrastructure Solutions and Energy Services.

The company reported adjusted earnings per share (EPS) of 37 cents, beating the consensus estimate of 36 cents by 2.8% and increasing 9% from the year-ago profit level.

Additionally, total revenues of $318.7 million topped the consensus mark of $315.8 million by 1%. However, the reported figure was down 4.9% on a year-over-year basis. On a same-store basis, revenues fell 2% due to lower contribution from a large coating project at Corrosion Protection.

Operating Highlights

Adjusted gross margin of 21.3% improved 10 basis points (bps). This upside was backed by increased productivity in North American and international Cured-in-place pipe (“CIPP”) operations within the Infrastructure Solutions unit.

Adjusted operating margin expanded 50 bps to 5.9% year over year owing to restructuring and cost-containment efforts.

Aegion Corporation Price, Consensus and EPS Surprise

Aegion Corporation Price, Consensus and EPS Surprise

Aegion Corporation price-consensus-eps-surprise-chart | Aegion Corporation Quote

Segmental Performance

Infrastructure Solutions’ revenues slipped 3.2% year over year to $155.4 million. Excluding exited or to-be-exited businesses, revenues slipped 2% from the prior-year period, driven by heavy rains and flooding in the quarter that impacted volumes.

Adjusted gross and operating margins rose 260 and 310 bps, respectively, during the reported quarter. The upside was driven by a solid uptick in the North America CIPP business and the exit of underperforming international CIPP operations.

Segment’s backlog (excluding the impact of exited or to-be-exited businesses) came in at $291 million as of Jun 30, 2019, down 15.3% from the corresponding period of 2018.

Revenues from Corrosion Protection deteriorated 19.5% year over year to $77.6 million. Excluding exited or to-be-exited operations, revenues were down 12% due to the absence of contributions from large Middle East coating projects completed in the prior year.

Adjusted gross margin contracted 340 bps in the quarter, attributed to top-line weakness. Adjusted operating margin also shrank a significant 460 bps year over year due to the above-mentioned headwinds.

Backlog (excluding the impact of exited or to-be-exited businesses) in the segment came in at $134.4 million as of Jun 30, 2019, up 2% year over year.

Energy Services segment revenues totaled $85.7 million, up 10% year over year. The improvement was driven by higher maintenance contributions and increased volumes related to emergency refinery repair work executed in the quarter.

The segment’s adjusted gross and operating margin improved 30 bps and 160 bps, respectively, from the year-ago level, owing to improved utilization and favorable mix from higher-margin safety service offerings.

Backlog in the said segment grew 9.3% from the year-ago quarter to $218.5 million as of Jun 30, 2019.

Financial Update

Aegion’s cash and cash equivalents as of Jun 30, 2019 were $51.3 million, down from $83.5 million at the end of 2018. Net cash used in operations was $14.2 million in first-half 2019 compared with net cash of $10.2 million provided by operations in the comparable period of 2018.

Update on Strategic Actions

In 2017, Aegion had embarked on a series of strategic actions targeted to generate more predictable and sustainable long-term earnings growth. The company expects planned divestitures and its exit from the remaining international businesses to be completed by the end of 2019.

2019 Guidance Maintained

Aegion, which currently carries a Zacks Rank #2 (Buy), expects a modest improvement in 2019 adjusted EPS on the back of a strong backlog position and market outlook in core businesses. You can the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company predicts revenue growth to be flat to slightly up in the Infrastructure Solutions business. Minus the effect of exited or to-be-exited operations, its top line is projected to grow 2-4% from a year ago, supported by estimated improvements in crew productivity and the project mix within North America CIPP. Adjusted gross margins in the said segment are likely to improve 150-250 bps.

Revenues in the Corrosion Protection unit are anticipated to decline 15-20% year over year. Exclusive of the impact of discontinued or to-be-discontinued operations, revenues might decline 5-10% from the prior-year level. The reported segment’s adjusted gross margins will probably decline 150-250 bps due to the loss of substantial coating services projects.

In the Energy Services segment, revenues will possibly fall year over year in the 2-4% range, thanks to lower turnaround activities. Adjusted gross margins are projected to expand in the band of 50-100 bps.

Peer Releases

United Rentals URI reported better-than-expected second-quarter 2019 earnings and revenues. However, the company trimmed its full-year guidance to reflect "a slightly slower than expected pace for the BlueLine integration, as well as historically bad weather in several key regions this past quarter."

Masco Corporation MAS reported mixed second-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Also, on a year-over-year basis, the company’s bottom line improved owing to significant pricing actions and cost-control measures. However, its top line slipped marginally from the prior-year quarter due to lower volumes across the board.

Owens Corning’s OC second-quarter 2019 earnings and net sales not only topped the respective Zacks Consensus Estimate but also improved on a year-over-year basis, buoyed by increased organic growth, improved operating efficiencies and higher contribution from the Roofing business.

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