Aecom (ACM) Up 0.4% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Aecom Technology (ACM). Shares have added about 0.4% in that time frame, outperforming 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's (ACM) Earnings and Revenues Miss Estimates in Q1

AECOM reported first-quarter fiscal 2020 results, with earnings and revenues missing the respective Zacks Consensus Estimate.

Delving Deeper

Adjusted earnings per share of 46 cents lagged the consensus mark of 67 cents. However, earnings increased 27.8% year over year. Revenues of $3,235.6 million missed the Zacks Consensus Estimate of $5,102 million by 36.6% and fell 3.6% year over year.

Segment Details

Americas revenues were down 4.2% year over year to $2,452 million. This was primarily due to reduction in disaster recovery activity in the U.S. Virgin Islands. On a constant-currency basis, organic revenues increased 2% year over year. Consistent underlying growth in the transportation, water and environment markets, along with double-digit improvement in Construction Management led to the upside. Adjusted operating income of $150.6 million grew 17.9% year over year. Moreover, adjusted operating margin expanded 220 basis points (bps) year over year on solid execution, continued favorable end-market trends and strong backlog performance.

International revenues dropped 1.1% on a year-over-year basis to $783.1 million. On a constant-currency basis, organic revenues were flat year over year. Strong performance in the U.K. and Australia business was offset by weakness in Hong Kong. Adjusted operating income in the segment rose 80.7% year on year to $30 million. Adjusted operating margin expanded by a notable 210 bps year over year.

AECOM Capital (ACAP) — which develops real estate, public private partnership and infrastructure projects — contributed $0.5 million to total revenues. The segment recorded operating loss of $1.2 million.

Operating Highlights

AECOM’s gross margin expanded 140 bps from the prior-year figure to 5.1%. Adjusted operating income in the quarter under review amounted to $143.8 million, up 31% from the year-ago level. Adjusted EBITDA also increased 26.6% year over year to $173.4 million.

At the end of the fiscal first quarter, the company’s total backlog was $36.5 billion, up 2% from prior-year figure.

New order wins during fiscal first quarter were recorded at $3.3 billion. The company’s total book-to-burn ratio was 1.0, including solid performance across all the three segments.

Liquidity & Cash Flow

As of Dec 31, 2019, AECOM’s cash and cash equivalents totaled $725.4 million compared with $885.6 million at fiscal 2019-end.

As of Dec 31, 2019, total debt (excluding unamortized debt issuance cost) was $3.5 billion, increasing from $3.35 billion in the comparable year-ago period. AECOM used $206.9 million cash from operating activities in the fiscal first quarter versus $200.4 million in the year-ago quarter. It generated negative $238 million of free cash flow compared with $222.3 million in the prior-year quarter.

Restructuring Update

AECOM is focused on restructuring initiatives and expects to boost margin substantially, going forward.

It expects to incur restructuring expenses in the range of $160-$190 million, including costs associated with the recent executive transitions.

The company expects cash restructuring costs within $185-$205 million, including capital expenditures associated with real estate restructuring of $40 million.

Fiscal 2020 Guidance Reaffirmed

AECOM reaffirmed its fiscal 2020 guidance, with adjusted EBITDA in the range of $720-$760 million. It expects free cash flow within $100-$300 million.

The company expects to utilize proceeds from the MS sale to reduce debt in the second quarter, including the immediate repayment of substantially all its pre-payable debt. Also, it will repurchase shares, while maintaining the long-term net leverage target of 2.0-2.5x.

How Have Estimates Been Moving Since Then?

Estimates revision followed a flat path over the past two months. The consensus estimate has shifted -28.21% due to these changes.

VGM Scores

At this time, Aecom has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Aecom has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.