AECOM (ACM) Q3 Earnings Beat Estimates, Revenues Up Y/Y

AECOMACM reported third-quarter fiscal 2018 adjusted earnings per share of 62 cents, beating the Zacks Consensus Estimate of 61 cents.

However, the bottom line declined 20.5% from the year-ago figure of 78 cents.

Revenues in Detail

In the quarter under review, revenues increased 12.9% to $5,147.9 million on a year-over-year basis. Also, the top line came surpassed the Zacks Consensus Estimate of $4,883 million.

Moreover, AECOM achieved 10% organic growth in the quarter, which marked the seventh consecutive quarter of positive organic growth. Growth in all the three segments, along with higher-margin Design & Consulting Services (DCS) and Management Services (MS) segments drove the top line.

Segment-wise, Design & Consulting Services (DCS) revenues rose 13% year over year to $2,105.2 million. On a constant-currency basis, organic revenues increased 12%, backed by strong performance in the company's transportation and water markets in the Americas. This impressive performance can be attributed to improved funding and a strong backlog position.

Construction Services (CS) revenues were up 14.4% to $2,106.7 million on a year-over-year basis. On a constant-currency basis, organic revenues rose 8%. Solid performance of this segment was driven by Building Construction businesses (which registered double-digit growth).

Management Services (MS) revenues registered a year-over-year increase of 9.3% to $936 million. On an organic basis, the metric grew 9%, reflecting stellar performance across its portfolio of projects.

AECOM Price, Consensus and EPS Surprise

AECOM Price, Consensus and EPS Surprise | AECOM Quote

Operating Highlights

However, AECOM's adjusted operating income in the quarter under review amounted to $201.9 million, down from the year-ago figure of $239.3 million.

New order wins in the quarter totaled a record $9.4 billion. The company's total book-to-burn ratio was 1.7%, with significant contribution from all the three segments.

At the end of the fiscal third quarter, AECOM's total backlog of $54 billion was up 16%, reflecting a favorable mix shift to the higher-margin DCS and MS segments.

Liquidity & Cash Flow

As of Jun 30, 2018, AECOM's cash and cash equivalents totaled $801.4 million compared with $802.4 million on Sep 30, 2017.

As of Jun 30, 2018, total debt (excluding unamortized debt issuance cost) came in at $3,929.8 million compared with $3,896.4 million on Sep 30, 2017. AECOM generated free cash flow of $48.4 million in the reported quarter.

2018 Guidance

AECOM reiterated its fiscal 2018 guidance. The company continues to expect adjusted earnings per share in the range of $2.50-$2.90. Adjusted EBITDA is expected at around $880 million.

In terms of spending, the company continues to expect interest expenses (excluding amortization of deferred financing fees) of $210 million and capital expenditure at $110 million for 2018. Free cash is expected to be more than $600 million.

Our Take

An increase in the proportion of higher-margin work is benefiting AECOM's Construction Services and Management Services segments. Moreover, the Shimmick buyout is supplementing its core revenue growth. In the fiscal third quarter, revenues increased more than 40% in the Shimmick Construction business, which it acquired in the fourth quarter of fiscal 2017. Going ahead, the company remains confident that favorable political climate will continue to unlock growth opportunities in infrastructure and defense markets.

Moreover, its solid backlog levels, which are key indicators of future revenue growth, reflect significant opportunities in the forthcoming quarters. This apart, transportation investment remains healthy and the company is delivering several large projects. Overall, it can be said that the global consensus toward the need for substantial infrastructure investments might boost the company's performance.

Zacks Rank & Stocks to Consider

Currently, AECOM carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the same space include Gates Industrial Corporation plc GTES , Jacobs Engineering Group Inc. JEC and KBR, Inc. KBR . While Gates Industrial sports a Zacks Rank #1 (Strong Buy), Jacobs and KBR both carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Gates Industrial's earnings per share are expected to increase 42.2% in 2018.

Jacobs' current-year earnings are expected to grow 32.1%.

KBR has a decent earnings surprise history. The company outpaced estimates thrice in the trailing four quarters, with an average of 12.26%.

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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 Nasdaq, Inc.

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

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