It has been about a month since the last earnings report for Aecom Technology (ACM). Shares have added about 1.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aecom 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 drivers.
AECOM’s Q3 Earnings Miss, Revenues Beat, NSR Rises Y/Y
AECOM reported mixed third-quarter fiscal 2023 results, with revenues surpassing the Zacks Consensus Estimate and earnings missing the same. On a year-over-year basis, the top and the bottom line increased, backed by double-digit organic net service revenues (NSR) growth in its design business.
Inside the Headline
The company reported adjusted earnings of 94 cents per share, which missed the consensus mark of 95 cents by 1.1% but increased 10.6% from 85 cents reported in the prior-year quarter.
Revenues of $3.66 billion beat the consensus mark of $3.49 billion by 4.9% and rose 13% on a year-over-year basis. NSR moved up 10% to $1.70 billion.
Americas’ revenues came in at $2.83 billion during the reported quarter, up 15% from the prior-year quarter’s levels. Our estimate for the metric was $2.61 billion. NSR of $1 billion moved up 10% year over year, backed by 11% growth in the design business.
Adjusted operating income of $191 million was up 11% year over year. Adjusted operating margin (on an NSR basis) also expanded by 20 basis points (bps) year over year to 18.8%.
The total backlog at the fiscal third-quarter end was $35.29 billion versus $35.73 billion a year ago.
International revenues were up 6.4% year over year to $834.3 million. Our estimate for the metric was $825.4 million. During the quarter, NSR increased 8% year over year to $688.9 million, reflecting growth in the largest and most profitable markets. Our estimate for the segment’s NSR was $675.6 million.
Adjusted operating income in the segment rose 21% year over year to $68 million. Adjusted operating margin (on an NSR basis) also increased 110 bps year over year to 9.9%. This reflects the company's continued focus on pursuing the highest-value opportunities and reaffirms its confidence in delivering continued margin expansion over time.
The total backlog at the end of the fiscal reported quarter was $6.35 billion versus $5.40 billion from a year ago.
AECOM Capital quarterly revenues stood at negative $0.23 million.
Adjusted segment operating profit amounted to $220 million, up 11% from the year-ago quarter’s level. The segment’s adjusted operating margin (NSR) improved by 60 basis points to 15.2%. The upside reflects strong execution and ongoing investments in organic growth initiatives. Adjusted EBITDA also rose 9% year over year to $247 million (10% on a constant-currency basis), backed by strong underlying operational growth.
As of the fiscal third quarter end, total backlog came in at $41.63 billion compared with $41.13 billion reported in the prior-year period. The current backlog level includes 53.5% contracted backlog growth.
A 10% growth in the design business backlog (on a constant currency basis) reflects solid quarterly wins and a pipeline of opportunities.
Liquidity & Cash Flow
At the fiscal third quarter’s end, AECOM’s cash and cash equivalents totaled $1.26 billion compared with $1.17 billion at the fiscal 2022 end. The total debt (excluding unamortized debt issuance costs) as of Jun 30, 2023, stood at $2.22 billion, in line with fiscal 2022-end.
At the fiscal third quarter’s end, operating cash flow increased 4% year over year to $411 million. Adjusted free cash flow remained on par with the year-ago level at $328 million.
Fiscal 2023 Guidance Raised
ACM anticipates generating 8% organic NSR growth (4% for actual NSR), underpinned by robust momentum in the Professional Services business.
The company now expects adjusted EPS in the range of $3.63-$3.73, up from the prior projection of $3.55-$3.75. This indicates an 11% improvement from fiscal 2022 levels on a constant-currency basis, considering the mid-point of the guidance.
Also, it projects an adjusted operating margin of 14.6%, suggesting an increase of 40 bps on a year-over-year basis.
On a constant-currency basis, AECOM expects adjusted EBITDA in the range of $950-$970 million, up from the prior projection of $935-$975 million, indicating 10% year-over-year growth at the midpoint.
The company anticipates free cash flow in the range of $475-$675 million, an average fully diluted share count of 140 million and an effective tax rate of approximately 25%.
For fiscal 2024, AECOM expects to generate adjusted EPS of more than $4.75, a segment-adjusted operating margin of 15% and a return on invested capital of 17%.
Also, it maintains its long-term expectations for a segment-adjusted operating margin of 17%. This reflects strong margin performance and working capital management. The company remains optimistic about surpassing its long-term guidance on the back of accelerating organic NSR growth and continued margin expansion. The benefits of its ‘Think and Act Globally’ strategy and strong business execution are helping its profitability.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Aecom has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions 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, Quanta Services (PWR), a stock from the same industry, has gained 3%. The company reported its results for the quarter ended June 2023 more than a month ago.
Quanta Services reported revenues of $5.05 billion in the last reported quarter, representing a year-over-year change of +19.3%. EPS of $1.65 for the same period compares with $1.54 a year ago.
For the current quarter, Quanta Services is expected to post earnings of $2.15 per share, indicating a change of +21.5% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.6% over the last 30 days.
Quanta Services 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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