Aegion Corporation (AEGN) Shares Up despite Q2 Earnings Miss - Analyst Blog

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Shares of Aegion Corporation ( AEGN ) gained around 5% and closed at $23.06 on Aug 1 after the company reported its second-quarter 2014 results on Jul 29, wherein adjusted earnings from continuing operations came in at 34 cents per share. Earnings remained flat year-over-year and were at the lower end of management's guidance range of 34 and 36 cents. The results however missed the Zacks Consensus Estimate by a penny.

Including adjustments, earnings came in at 33 cents per share in the reported quarter, down from 47 cents in the prior-year quarter.

Operational Update

Total revenue was $323 million in the quarter, which improved 33% year over year. Brinderson contributed to $72.7 million of the revenues during the quarter. Though, revenues lagged the Zacks Consensus Estimate of $328 million.

Cost of sales increased 36.7% to $251 million from $183.5 million in the year-ago quarter. Gross profit rose 22.8% year over year to $71.9 million. Gross margin contracted 190 basis points (bps) year over year to 22.3%.

Operating expenses went up 24% year over year to $50.8 million. Adjusted operating income was $21 million, up 19% year over year. Operating margin in the quarter was 6.6%, which contracted 70 bps from 7.3% in the year-ago quarter.

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Segmental Performance

Revenues from the Energy and Mining segment grew 61.7% year over year to $175.6 million. The segment's operating income went up 25.8% year over year to $7.7 million primarily driven by contribution from Brinderson.

The Water and Wastewater segment's revenues increased 12% to $129.7 million from $115.7 million in the prior-year quarter. The segment's operating income rose 40% year over year to $12.7 million. The growth was driven by higher revenues in Insituform's North American operations, as a result of increased workable backlog. In addition, strong execution and improved margins aided growth.

Revenues in the Commercial and Structural segment decreased 1.2% year over year to $17.6 million. The segment's operating income also declined 64.6% year over year to $222 million.

Backlog

Consolidated backlog in the second quarter went up 62.5% year over year to $829 million (including Brinderson backlog of $248.1 million). Contract backlog in the Water and Wastewater segment was $317.3 million in the quarter, up 19.6% from the year-ago quarter. Energy and Mining backlog grew almost an impressive 140% year over year to $463.5 million. However, backlog in the Global Commercial and Structural segment declined 7.3% year over year to $48.4 million.

Financial Update

Aegion ended the second quarter with cash and cash equivalents of $146 million, down from $158 million as of 2013-end. Cash flow from operating activities for the period of six months ended Jun 30, 2014 was $19 million compared with $16.9 million in the year-ago period.

Long-term debt was $379.7 million as of Jun 30, 2014, compared with $388.6 million as of Dec 31, 2013. Debt-to-capitalization ratio was 34.2% as of Jun 30, 2014 compared with 34.8% as of Dec 31, 2013.

Guidance

For full-year 2014, Aegion reiterates earnings per share guidance in the range of $1.50 to $1.65. The company confirmed return on invested capital in the range of 7%-8%.

The company expects the Energy and Mining segment to deliver revenues in the range of $770 million to $800 million and operating margins in the range of 8% to 9% for 2014. Its strong position in North America continues to support the Water and Wastewater segment which is expected to deliver revenues of $500 million to $525 million and operating margins in the range of 7% to 8% for the full year.

Further, Aegion reaffirmed the expectations for Commercial and Structural revenues in the range of $70 million to $85 million and operating margins ranging from negative low single digits to positive low single digits driven by improvement in the North American operations and opportunities in Asia.

Aegion remains optimistic about long-term strategic and financial objectives based on improved execution across the organization through investments in people and best-in-class operating systems, assessing businesses and engendering stronger cooperation and collaboration to leverage resources.

On the flip side, the company poses a cautious outlook with respect to the project-based businesses. Further, the international mining markets and the oil and gas market remain challenging for the industrial linings business, which is factored into the outlook for 2014.

Chesterfield, MO-based Aegion is a diversified building and construction company which provides infrastructure protection, proprietary technologies and facilities. It also offers services related to the rehabilitation and improvement of sewer, water, energy and mining piping systems.

Aegion currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the sector include PGT, Inc. ( PGTI ), Quanex Building Products Corporation ( NX ) and United Rentals, Inc. ( URI ). All these stocks carry a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: NX , URI , PGTI , AEGN

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