AECOM Beats Q1 Earnings Estimates, Reiterates Guidance

AECOM'sACM adjusted earnings per share for first-quarter fiscal 2016 came in at 68 cents, which surpassed the Zacks Consensus Estimate of 61 cents by 11.5%. Nevertheless, the bottom line fell 15% short of the year-ago tally of 80 cents.

Aecom (ACM) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Adjusted earnings were boosted by top-line growth, solid execution on projects and diversified operations. Also, lower-than-expected expenses from acquisitions and legal matters supported earnings performance. However, a rise in cost of revenues as well as significant acquisition & integration-related expenses led to the year-over-year decline in earnings.

Also, the company reported a net loss of $20 million, significantly narrower than the net loss of $139 million reported in the year-ago quarter.

Inside the Headlines

For first-quarter fiscal 2016, revenues increased 2% year over year to $4,298 million. However, this missed the Zacks Consensus Estimate of $4,396 million.

The top-line performance largely benefited from modest growth in the Construction Services, which was, however, offset by decline in other two segments, namely, Design & Consulting services and Management Services. The company's strong footprint across diverse geographies and healthy position in end markets also supported year-over-year growth.

Segment wise, in the quarter, Design & Consulting Services revenues inched down 1.6% year over year to $1,862.1 million. Also, on a constant currency basis, revenues declined 5%. Slower project ramps on order wins and dismal performance in Americas hurt the top-line growth of this segment.

Construction Services revenues grew 11.6% to $1,711.8 million on a year-over-year basis. Stellar performance in building construction (up 42%) and rebound in energy & industrial construction business aided year-over-year growth.

On the other hand, Management Services revenues registered a 7.8% decline to $723.7 million on a year-over-year basis. Slowdown in the Middle East defense support services activities and reduced chemical demilitarization revenues resulted in the decline.

However, AECOM's operating income for first-quarter fiscal 2016 surged to $96 million, a remarkable turnaround from a loss of $14 million recorded a year ago. Improvement in operating income across all three segments, driven by cost synergies and strong execution, contributed to this improvement.

New order wins in the quarter totaled $4.4 billion, mainly driven by healthy gains from building construction business in the Construction Services segment. Also, AECOM's total book-to-burn ratio during the quarter stood at 1.0, aiding growth in new orders. At the end of first-quarter fiscal 2016, AECOM's total backlog was $40,180 million, down 1.3% on a year-over-year basis due to currency fluctuations.

Liquidity and Cash Flow

As of Dec 31, 2015, AECOM's cash and cash equivalents totaled $658 million compared with $683.9 million as of Sep 30, 2015. Total debt was $4,366.4 million versus $4,446.5 million on Sep 30, 2015.

In first quarter of fiscal 2016, AECOM generated free cash flow of $77 million, in sync with its free cash flow target of $600-$800 million for fiscal years 2016 and 2017.

2016 Guidance Reiterated

Concurrent with first-quarter fiscal 2016 earnings release, AECOM reiterated its full-year fiscal 2016 guidance for adjusted earnings in a range of $3.00-$3.40 per share.

In addition, AECOM expects to exit the fiscal year with a synergy savings run-rate of $275 million and expenses of $200 million from acquisition and integration activities. Additionally, for full-year fiscal 2016, interest expense, excluding acquisition-related amortization, is predicted at around $210 million. Despite these expenditures, AECOM remains well on track to achieve its $325-million run-rate synergy savings target by the end of fiscal 2017.

Our Take

AECOM's diversified portfolio, comprising both designing & construction services, and strong foothold across a number of key markets, mitigate most of its operating risks. Going forward, we believe the company stands to gain significantly from the global non-residential construction market. Of late, the company has witnessed a surge in foreign direct investment in the U.S., Europe and Asia, which is expected to drive growth in AECOM's construction business in the coming quarters. This apart, improvement in the company's contracted backlog will likely fuel further revenue growth in the near term.

AECOM currently has a Zacks Rank #3 (Hold). Better-ranked stocks include Ericsson ERIC , Chicago Bridge & Iron Company N.V. CBI and Fluor Corporation FLR . While Ericsson sports a Zacks Rank #1 (Strong Buy), both Chicago Bridge & Iron Company N.V. and Fluor Corporation hold 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 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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