Yahoo Finance Why Is Aecom (ACM) Up 3.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Aecom Technology (ACM). Shares have added about 3.6% 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 the most recent earnings report in order to get a better handle on the important catalysts.
AECOM Q2 Earnings & Revenues Beat, NSR Increases Y/Y
AECOM reported impressive results in second-quarter fiscal 2023, where earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, the top and bottom lines increased, backed by strong organic net service revenues (NSR) growth.
Lara Poloni, AECOM’s president, said, “With unprecedented levels of funding from the three secular megatrends – including continued investments in global infrastructure, sustainability and resilience and long-term supply chain and energy transitions – combined with our continued market share gains and expanding addressable market, we are highly confident in our ability to capitalize and outperform.”
Inside the Headline
The company reported adjusted earnings of 92 cents per share, which topped the consensus mark of 88 cents by 4.6% and increased 11% from 83 cents reported in the prior-year quarter.
Revenues of $3.49 billion beat the consensus mark of $3.31 billion by 5.4% and rose 9% on a year-over-year basis. NSR moved up 7% to $1.68 billion. The design business recorded year-over-year NSR growth of 8%, driven by accelerating growth across all major markets.
Segment Details
During the reported quarter, Americas’ revenues came in at $2.63 billion, up 10% from the prior-year quarter’s levels. NSR of $976 million moved up 3% year over year, backed by 5% growth in the design business.
Adjusted operating income of $182 million was up 9% year over year. Adjusted operating margin (on an NSR basis) also expanded by 100 basis points (bps) year over year to 18.7%. The total backlog at fiscal second-quarter end was $35.89 billion versus $35.25 billion a year ago.
International revenues were up 6% year over year to $860 million. During the quarter, NSR increased 12% year over year to $703 million, reflecting growth in the largest and most profitable markets.
Adjusted operating income in the segment rose 9% year over year to $60 million. Adjusted operating margin (on an NSR basis) also increased 30 bps year over year to 8.6%. This reflects continued progress toward achieving a double-digit margin in the International segment. The total backlog at the end of the fiscal reported quarter was $6.09 billion versus $5.55 billion from a year ago.
AECOM Capital contributed $0.18 million to the quarterly revenues versus $0.45 million a year ago.
Operating Highlights & Backlogs
Adjusted segment operating profit amounted to $212 million, up 12% from the year-ago quarter’s level. The segment’s adjusted operating margin (NSR) improved by 60 basis points to 14.5%. The upside reflects ongoing operational initiatives and a focused allocation of time and capital on high-return opportunities. Adjusted EBITDA also rose 10% year over year to $244 million (14% on a constant-currency basis), backed by strong underlying operational growth.
As of the fiscal second quarter end, total backlog came in at $41.98 billion compared with $40.8 billion reported in the prior-year period. The current backlog level includes 54.5% contracted backlog growth. A record-high 12% growth in the design business backlog (on a constant currency basis) reflects solid quarterly wins and 1.5x book-to-burn.
Liquidity & Cash Flow
At the fiscal second quarter’s end, AECOM’s cash and cash equivalents totaled $1.07 billion compared with $1.16 billion at the fiscal 2022 end. The total debt (excluding unamortized debt issuance costs) as of Mar 31, 2023, stood at $2.19 billion compared with $2.23 million as of Dec 31, 2022.
For the first six months of fiscal 2023, operating cash flow was $131.5 million, down from $193.2 million reported in the prior year. Adjusted free cash flow was $63 million, down from the year-ago quarter’s level of $145.3 million.
Fiscal 2023 Guidance Reiterated
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. On a constant-currency basis, AECOM expects adjusted EBITDA 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, a segment-adjusted operating margin of 15% and a return on invested capital of 17%.
Also, it maintains its long-term expectations for a segment-adjusted operating margin 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Aecom has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.
Performance of an Industry Player
Aecom is part of the Zacks Engineering - R and D Services industry. Over the past month, Fluor (FLR), a stock from the same industry, has gained 12.7%. The company reported its results for the quarter ended March 2023 more than a month ago.
Fluor reported revenues of $3.75 billion in the last reported quarter, representing a year-over-year change of +20.2%. EPS of $0.28 for the same period compares with $0.16 a year ago.
For the current quarter, Fluor is expected to post earnings of $0.36 per share, indicating a change of +176.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -12.8% over the last 30 days.
Fluor has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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