Aegion (AEGN) Up 2.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Aegion (AEGN). Shares have added about 2.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aegion due for a pullback? 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 Q2 Earnings Top, Revenues Lag, Margins Rise
Aegion Corporation reported better-than-expected earnings for second-quarter 2020. Exceptional Infrastructure Solutions quarterly performance, and strong cost and cash management across the business helped it generate better-than-expected earnings despite unprecedented market disruption.
Charles R. Gordon, president and chief executive officer of Aegion said, “While the near???term outlook remains choppy, primarily in our Energy Services business, our long???term fundamentals are sound, underpinned by significant exposure to the more stable and resilient North American municipal water and wastewater markets, where we’ve seen double???digit growth year to date.”
Earnings & Revenues Discussion
Aegion reported adjusted earnings per share of 25 cents, which topped the consensus mark of 20 cents by 25% but was down 32.4% from the year-ago figure of 37 cents.
Total revenues of $245 million missed the consensus mark of $255.4 million by 4.1%. Also, the reported figure was down 23.1% on a year-over-year basis. COVID???19-related disruptions and softness across the majority of the business were partially offset by the flagship Insituform North America business’ strong revenues, new orders and backlog. The Insituform North America business was driven by its leading market position, and strength and stability of municipal water and wastewater markets.
Quarter-end backlog was $669 million. Excluding the impact of exited or to-be-exited businesses, backlog grew 4% year over year on the back of segmental growth.
Adjusted gross margin of 21.8% expanded 50 basis points (bps) from the year-ago period. Adjusted operating margin of 5.9% remained flat with the year-ago period.
Infrastructure Solutions: Revenues in the segment declined 11.6% year over year to $137.2 million. Excluding exited or to-be-exited businesses, the same fell nearly 3% from a year ago. Volumes inched up 1% from the prior year, which partially offset by declines across smaller business units in North America, Europe and Asia.
Adjusted gross and operating margins rose 100 bps and 210 bps, respectively, backed by the exit of underperforming international operations, strong productivity in North America, and favorable fuel and material cost variances as a result of commodity price declines.
The segment’s backlog (excluding the impact of exited or to-be-exited businesses) came in at $308.5 million, up 6% year over year.
Corrosion Protection: The segment’s revenues fell 28.5% year over year to $55.5 million. Excluding exited or to-be-exited operations, revenues were down 26% year over year due to lower Corrpro North America volumes related to downsizing of the construction business. Volumes at United Pipeline Systems and Coating Services declined from the prior-year quarter, primarily due to international project delays, which added to the woes.
Adjusted gross and operating margins surged 310 bps and 60 bps, respectively, which can be attributed to strong Corrpro U.S. business unit performance.
Backlog (excluding the impact of exited or to-be-exited businesses) in the segment amounted to $139.8 million, up 4% year over year.
Energy Services: The segment’s revenues totaled $52.1 million, down 39.2% year over year. This was primarily due to lower refinery maintenance volumes as a result of sharply reduced West Coast fuel consumption due to stay???at???home mandates and activity restrictions.
Adjusted gross and operating margins contracted 660 bps and 910 bps, respectively, from the year-ago level. The decline was primarily due to temporary three- to six???month price concessions granted to help refinery customers navigate the sudden decline in demand. Also, unfavorable fixed cost absorption added to the woes.
Backlog at quarter-end grew 0.8% from the comparable year-ago period to $220 million.
Aegion’s cash and cash equivalents as of Jun 30, 2020 were $95.3 million, up from $64.9 million at 2019-end. The company had $140 million borrowing capacity as of Jun 30, 2020.
Long-term debt, less current maturities, totaled $233.1 million compared with $243.6 million at 2019-end. Net cash used in operations was $6.6 million in the first half of 2020 compared with $13.6 million a year ago.
Aegion currently expects adjusted EPS in the range of 25-35 cents, indicating a decline from 40 cents reported a year ago.
In the Infrastructure Solutions unit, revenues are expected to be flat to down 5% year over year. Excluding the impact of exited or to???be???exited operations, revenues are likely to be flat to up 5% from the prior year. Adjusted operating margins are projected to remain on par with the prior-year figure.
Corrosion Protection’s revenues are expected to decline 10-15% from the prior year. Excluding exited or to???be???exited international operations, revenues will likely decline 5-10% from the prior-year quarter. Adjusted operating margins are expected to increase 50-100 bps, driven primarily by improved Corrpro U.S. profitability.
Revenues in the Energy Services segment are anticipated to fall 10-15% from the last year. It expects adjusted operating loss for the third quarter owing to continued temporary price concessions. Margins may improve in the fourth quarter and beyond.
How Have Estimates Been Moving Since Then?
Estimates revision followed an upward path over the past two months. The consensus estimate has shifted -14.47% due to these changes.
Currently, Aegion has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Aegion has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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