Aecom (ACM) Down 8.6% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Aecom Technology (ACM). Shares have lost about 8.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Aecom due for a breakout? 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 drivers.
AECOM Q2 Earnings Miss, Revenues Top, Backlog Up Y/Y
AECOM reported mixed results for second-quarter fiscal 2024, wherein earnings missed the Zacks Consensus Estimate but the revenues topped the same. On a year-over-year basis, the top and bottom lines increased, backed by solid organic growth in net service revenues (NSR) in its reportable segments.
Delving Deeper
The company reported adjusted earnings per share (EPS) of $1.04, which missed the Zacks Consensus Estimate of $1.05 by 1% but increased 13% from 92 cents reported in the prior-year quarter. The strong improvement was backed by benefits from high-returning organic growth initiatives.
Revenues of $3.94 billion remarkably topped the consensus mark of $1.81 billion by 118.4% and grew 13% on a year-over-year basis. Adjusted NSR moved up 8% year over year to $1.82 billion led by the strengths in water, transportation and environment end markets, with growth trajectory witnessed in the Americas and the International segments.
Segment Details
Americas’ revenues were $3.04 billion, up 16% from the prior-year quarter’s levels. NSR of $1.1 billion moved up 10% year over year driven by solid end-market performances mainly in water, transportation and environment. Adjusted operating income of $194 million was up 6% year over year. Adjusted operating margin (on an NSR basis) contracted 70 basis points (bps) year over year to 18%.
The total backlog at the fiscal second-quarter end was $17.38 billion compared with $16.89 billion a year ago.
International revenues were up 5% year over year to $905 million. NSR increased 6% year over year to $746 million, suggesting growth across the largest markets. Adjusted operating income in the segment rose 35% year over year to $82 million. Adjusted operating margin (on an NSR basis) also moved up 240 bps year over year to 10.9%. This reflects the International segment’s growth trajectory as the company executes its continuous margin improvement initiatives.
The total backlog at the end of the quarter was $6.37 billion compared with $6.09 billion from a year ago.
AECOM Capital's quarterly revenues were $0.5 million.
Operating Highlights
Adjusted segment operating profit amounted to $240 million, up 13% from the year-ago quarter’s level. The segment’s adjusted operating margin (NSR) improved 70 bps to 15.1% year over year. The upside was driven by high-returning organic growth. Adjusted EBITDA also rose 10% year over year to $268 million.
Backlog
As of the fiscal second quarter’s end, the total backlog was $23.74 billion compared with $22.98 billion reported in the prior-year period. The current backlog level includes 54.8% contracted backlog growth. The design business backlog grew 6.3% to $22.29 billion. The metric was driven by a near-record win rate and continued strong end-market trends.
Liquidity & Cash Flow
At the fiscal second-quarter end, AECOM’s cash and cash equivalents totaled $1.19 billion compared with $1.26 billion at the end of Sep 30, 2023. The total debt (excluding unamortized debt issuance costs) as of Mar 31, 2024, was $2.21 billion, down from $2.23 billion at the fiscal 2023-end.
Operating cash flow increased year over year by a whopping 725% $94 million. Free cash flow also increased to $74 million from $20.8 million reported a year ago.
Fiscal 2024 Guidance
The company still anticipates to generate organic NSR growth in the range of 8-10% in fiscal 2024. It expects adjusted EPS in the range of $4.35-$4.55. This indicates a 20% improvement from the fiscal 2023 levels on a constant-currency basis, considering the mid-point of the guidance.
Also, it projects an adjusted operating margin of 15.6%, suggesting 90 bps increase on a year-over-year basis. AECOM now expects adjusted EBITDA guidance in the range of $1,070-$1,105 million compared with the prior expectation of $1.065-$1.105 million.
The company anticipates more than 100% adjusted net income to free cash flow conversion, an average fully diluted share count of 137 million and an effective tax rate of 24-26%. Also, it projects to deliver a return on invested capital of approximately 20% in fiscal 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
Currently, Aecom has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Aecom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Aecom is part of the Zacks Engineering - R and D Services industry. Over the past month, Fluor (FLR), a stock from the same industry, has gained 11.3%. The company reported its results for the quarter ended March 2024 more than a month ago.
Fluor reported revenues of $3.73 billion in the last reported quarter, representing a year-over-year change of -0.5%. EPS of $0.47 for the same period compares with $0.28 a year ago.
Fluor is expected to post earnings of $0.73 per share for the current quarter, representing a year-over-year change of -4%. Over the last 30 days, the Zacks Consensus Estimate has changed -4%.
Fluor has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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