Aegion (AEGN) Down 17.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Aegion (AEGN). Shares have lost about 17.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aegion due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Aegion's Q4 Earnings and Revenues Miss Estimates

Aegion Corporation reported lower-than-expected fourth-quarter 2019 results, wherein the top and bottom lines missed the respective Zacks Consensus Estimate mainly due to lower revenues across segments.

Adjusted earnings per share of 39 cents lagged the consensus mark of 40 cents by 2.5% but increased 44% year over year.

Total revenues of $309.5 million lagged the consensus mark of $317 million by 2.4%. Also, the reported figure was down 7.3% on a year-over-year basis primarily owing to lower contribution from Corrosion Protection.

Operating Highlights

Overall, adjusted gross margin of 21.2% expanded 150 basis points (bps) from the year-ago period. Also, adjusted operating margin increased 230 bps year over year to 6.2%.

Segmental Performance

Infrastructure Solutions: Revenues in the segment inched up 3.6% year over year to $147.7 million. In 2019, excluding exited or to-be-exited businesses, the same remained unchanged from a year ago as growth in the North America Insituform business was largely offset by decline in the Underground Solutions Fusible PVC pipe business.

Adjusted gross and operating margins rose 540 bps and 550 bps, respectively, during the reported quarter.

The segment’s backlog (excluding the impact of exited or to-be-exited businesses) came in at $292.1 million as of Dec 31, 2019, down 0.2% from 2018. Growth in the North America Insituform business was offset by softness in the Asia-Pacific Fyfe business due to regional, economic and geopolitical challenges.

Corrosion Protection: The segment’s revenues deteriorated 17.7% year over year to $77.1 million. In 2019, excluding exited or to-be-exited operations, revenues were down 17% year over year due to the absence of contributions from large Middle East coating projects completed in the prior year.

Adjusted gross margin contracted 270 bps in the quarter, which can be attributed to top-line weakness. Adjusted operating margin also shrank a significant 330 bps year over year due to the above-mentioned headwinds.

Backlog (excluding the impact of exited or to-be-exited businesses) in the segment amounted to $124.6 million as of Dec 31, 2019, up 7.1% year over year.

Energy Services: The segment’s revenues during the reported quarter totaled $84.7 million, down 2.8% year over year. In 2019, the segment’s revenues declined 2.3%, primarily due to lower construction revenues and turnaround activities.

Adjusted gross contracted 100 bps but operating margins remained unchanged from the year-ago level.

Backlog in the said segment grew 4.5% from the year-ago quarter to $228 million as of Dec 31, 2019.

2019 Highlights

Adjusted earnings of $1.21 per share advanced 1.7% from the 2018 level despite the absence of large project contributions that benefited prior-year results. Revenues were $1.21 billion, down 9% year over year. Excluding exited or to-be-exited operations, revenues also declined from the prior year primarily due to the reduction in large coating project contributions from Corrosion Protection.

Adjusted gross margins grew 40 bps to 20.8%, driven by major productivity improvements within Infrastructure Solutions. Adjusted operating margins also advanced 40 bps, aided by restructuring activities and strong cost containment across all businesses that resulted in $18 million or 9% reduction in adjusted operating costs.

As of Dec 31, 2019, contract backlog was $658 million. Excluding the impact of exited or to-be-exited businesses, backlog grew 3% year over year in 2019, depicting its revenue growth potential for 2020.

Financial Update

Aegion’s cash and cash equivalents as of Dec 31, 2019 were $64.9 million, down from $83.5 million at the end of 2018. Net cash provided by operations was $78.8 million in 2019 compared with $39.7 million in 2018.

2020 Guidance

Aegion expects adjusted earnings per share within $1.30-$1.50 for 2020. Consolidated revenues are expected to rise 1-3%. Excluding exited or to-be-exited businesses, the said metric is likely to increase 6-8%.

In the Infrastructure Solutions business, the company predicts no change in revenue growth from a year ago. Excluding the effect of exited or to-be-exited operations, its top line is projected to grow in the high single-digit range. Adjusted gross margins in the said segment are likely to remain unchanged from 2019.

Revenues in the Corrosion Protection unit are anticipated to improve 2-4% year over year. Excluding the impact of discontinued or to-be-discontinued operations, revenues are likely to increase 7-9% from the prior-year level. The segment’s adjusted gross margins will likely expand 200-300 bps.

In the Energy Services segment, revenues are expected to increase in low-single digits. Adjusted gross margins are projected to remain on par with the 2019 level.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -77.5% due to these changes.

VGM Scores

At this time, Aegion has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 this revision indicates a downward shift. It's no surprise Aegion has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.