AECOM's (ACM) Fiscal Q1 Earnings in Line, Guidance Intact

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AECOMACM reported first-quarter fiscal 2017 adjusted earnings per share of 53 cents, in line with the Zacks Consensus Estimate. However, the bottom line plunged 22.1% from the year-ago tally of 68 cents.

Despite in-line earnings, the stock rose 2.6% following the fiscal first-quarter earnings report, probably driven by the favorable political climate which has been acting in favor of infrastructure firms.

While fall in cost of revenues aided bottom-line growth; prolonged weakness in oil and gas markets which marred the top-line performance, played a major spoilsport offsetting this improvement.

Revenue Performance

For the fiscal first quarter, revenues edged down 1.4% to $4,358.3 million on a year-over-year basis. However, revenues came ahead of the Zacks Consensus Estimate of $4,190 million. Despite growth in organic revenue across all three segments, low energy prices acted as a major dampener, leading to the overall decline.

Segment wise, Design & Consulting Services revenues fell 1.1% year over year to $1,840.8 million. However, on a constant currency basis, organic revenue inched up 1% due to strong growth in the UK as well as Australia. However, lower oil and gas prices proved to be a spoilsport, offsetting much of the organic revenue growth.

Construction Services revenues were up 4.3% to $1,750.2 million on a year-over-year basis. On a constant currency basis, organic revenue was up 2%. Stellar performance of this segment came on the back of impressive growth in Building Construction and Energy & Industrial Construction businesses.

On the other hand, Management Services revenues registered year-over-year growth of 1.4% to $767.3 million. It also grew 1% on an organic basis.

However, AECOM's adjusted operating income in the reported quarter was $188.2 million, down from the year-ago figure of $219.5 million. New order wins in the quarter totaled $5.9 billion. Notable wins during the quarter include selection of AECOM's joint venture for the SONGS decommissioning project, major wins in Management Services segment and a large gas power plant in the U.S. Additionally, AECOM's total book-to-burn ratio during the quarter was 1.3.

At the end of the fiscal first quarter, AECOM had a record total backlog of $43.8 billion, up 2%, thereby signaling bright prospects.

AECOM Price, Consensus and EPS Surprise

AECOM Price, Consensus and EPS Surprise | AECOM Quote

Liquidity & Cash Flow

As of Dec 31, 2016, AECOM's cash and cash equivalents summed $697.7 million compared with $658.0 million as of Dec 31, 2015. Total debt was $4,164.0 million compared with $4,522.9 million on Dec 31, 2015.

AECOM generated free cash flow of $56.5 million in this quarter, down 26.8% year over year.

2017 Guidance

AECOM reiterated its fiscal 2017 guidance. The company expects earnings per share to be in the range of $2.80-$3.20. This figure includes roughly 20 cents of anticipated gains related to AECOM Capital realizations. For fiscal 2017, AECOM anticipates effective tax rate of 20% on adjusted earnings.

In terms of spending, the company projects to incur $30 million in relation to acquisition and integration, capital expenditure of $115 million and depreciation expense of $165 million. Expenses related to amortization of intangible assets are likely to be $95 million.

Going Forward

Though AECOM failed to beat earnings estimates in the fiscal first quarter, the company's prospects remain bright, moving ahead. Major contract wins, record high backlog levels and improving trends across its markets signal brighter days ahead. The unexpected victory of Trump has opened a floodgate of opportunities for Tetra Tech. The broad-based bipartisan support for infrastructure investment in the U.S., which can range from $500 billion up to $1 trillion, is likely to prove extremely beneficial for AECOM.

Buoyed by the favorable political climate, the company remains confident that it will be able to achieve its five-year financial targets introduced in Dec 2016. Also, the $200-billion budget for global nuclear decommissioning market, hints of higher defense spending and emphasis on smoother business climate in the U.S., have been adding to this Zacks Rank #2 (Buy) company's bullish sentiments.

Key Picks

Other favorably placed stocks in the broader sector that are worth a look now, include II-VI Inc. IIVI , ABB Ltd. ABB and Applied Industrial Technologies Inc. AIT . While II-VI and ABB boast a Zacks Rank #1 (Strong Buy), Applied Industrial Technologies carries a Zacks Rank #2.

II-VI Incorporated has registered a remarkable positive average surprise of 59.2% for the four trailing quarters, driven by strong, consecutive earnings beats throughout. You can see the complete list of today's Zacks #1 Rank stocks here .

ABB has generated a positive average earnings surprise of 23.5% in the trailing four quarters.

Applied Industrial Technologies managed to beat estimates thrice over the trailing four quarters and has a positive earnings surprise of 6.2%.

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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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