AECOM Reports Solid Start to Fiscal Year & Reaffirms Guidance
Recommended List selection AECOM Technologies (ACM, $27.47, 1.67) reported another solid quarter of growth this morning. Its results topped the Wall Street estimate by one cent a share and the company reaffirmed its upbeat outlook for 2010.
The Los Angeles-based engineering and construction company said it recorded net income of $46 million for its fiscal first quarter ended December 31st, or 40 cents per share. Its results represented an increase of 12% over the $41 million, or 38 cents per share, it earned in the year-ago period. The lower 5% increase in EPS was due to a 7% increase in the company’s share count year over year.
First-quarter revenue increased by 2% to $1.5 billion. Gross revenue includes a significant amount of pass-through costs. Revenue net of those pass-through payments grew by 8% to $1.0 billion.
“AECOM saw continued strength across its markets in the first quarter,” said John Dionisio, AECOM’s president and CEO. “Our operations in North America, Asia, Australia and the Middle East were particularly solid, as was our U.S. Federal Government business, where we are pursuing nearly $15 billion of new work.”
Operating income for the first quarter decreased by -5% year over year to $65 million due to -$8.2 million of one-time charges associated with severance costs in the United Kingdom, plus marketing and branding expenses to promote AECOM’s brand worldwide.
Though it has always operated as a single company, AECOM used different brand names for most of its companies outside the U.S. During the quarter, it changed all of those names to AECOM and spent money to promote its name overseas. It is not spending management expects to repeat going forward.
Those added costs helped to cut AECOM’s EBITDA margin by -17 basis points; without it, the EBITDA margin would have grown by 68 basis points, the company said.
The company’s backlog grew to $10.0 billion, an 11% increase year over year and 5% sequentially. Management added that the positive trends continued into the current year, with the company capturing $750 million in wins during January.
The wins year to date and the backlog growth allowed AECOM to reaffirm its EPS outlook of $1.90 to $2.00 in 2010, though it repeated its expectation that the bulk of the gains will come in the second half of its fiscal year. Wall Street’s current consensus is above the midpoint of guidance at $1.98. AECOM reported EPS of $1.71 in the fiscal year that ended September 30th, 2009.
CFO Michael Burke said AECOM’s Q1 growth was primarily driven by continued strength in the U.S. transportation market; the federal government sector; China and Hong Kong; the Middle East; and Canada. Growth was offset by a weaker performance in the company’s private-sector business and in the U.K.
Foreign currency recently turned positive for the quarter’s results. Organic net service revenue was up 4% for the quarter including an approximate 5% foreign-exchange tailwind, Burke said.
Looking at the segments, Professional Technical Services (PTS), which is the engineering, design, and construction management unit, reported gross sales of $1.20 billion and operating income of $74 million, down -2% from year-ago revenue of $1.23 billion and operating income of $76 million for the same period during fiscal year 2009. PTS revenue, net of other direct costs, increased 4% year over year to $884 million. The unit provided 81% of the company’s gross revenue.
AECOM’s Asian business, which grew by 25%, was the single biggest driver of PTS segment growth
The Management Support Services (MSS) segment, which primarily provides facilities management, logistics and other services to the U.S. government, reported revenue of $276 million and operating income of $13 million, compared to revenue of $223 million and operating income of $10 million last year. MSS net revenue leapt by 82% year over year to $78 million.
The company retains a strong balance sheet. At quarter-end, the company had $253 million of total cash and cash equivalents, $187 million of debt and $600 million in committed bank facilities with over $470 million in unused capacity.
Assessing the upcoming year, Dionisio pointed to the expectations Congress will pass a jobs-creation bill this year on top of the stimulus package approved last year as another reason for optimism. The recently proposed jobs bill would provide $25 billion in transportation spending and $5 billion for school construction on top of the $170 billion allocated in the initial stimulus bill, which are both areas of traditional strength for AECOM.
“The pace of U.S. stimulus funded projects has increased and additional funds are now being allocated to the stimulus programs, such as the high-speed rail for which AECOM has already received new work,” Dionisio said. “Since the stimulus bill was passed last February, AECOM has won over $650 million in stimulus-related projects. This is an increase of 25% from $520 million at the end of fiscal year 2009 and we expect the volume of activity will increase significantly over the next 12 to 18 months.”
State and local governments have struggled with funding, but Dionisio said AECOM continued to see infrastructure investments in key markets such as California, New York, New Jersey, and Texas. Infrastructure investment in the Middle East, Asia, Canada, and Australia are expected to be funded by ongoing government and private-sector spending.
AECOM also continued its M&A activity closing on three acquisitions during fiscal Q1 that bolstered its presence in the healthcare, sports, and U.S. federal government markets.
BMR Take: AECOM remains one of our favorite plays for the current year. The company delivered another good quarter of growth and profitability, along with a growing backlog of work It remains in good position to benefit from infrastructure spending by the federal government. We still think the company’s guidance, which represents 15% growth at the midpoint, is conservative given that last year’s stimulus money is only now starting to flow through the pipeline into businesses. The jobs bill, if passed, will add to the money flow and AECOM is well positioned to benefit from it. We continue to rate the company a “Buy.” Our Target is $34.
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