Aegion Q1 Earnings Beat Ests - Analyst Blog

Shares of Aegion Corporation AEGN gained as much as around 8.6% in the trading session and closed at $25.49 after it reported its first-quarter 2014 adjusted earnings from continuing operations at 13 cents per share, marking a year-over-year rise of 44% on Apr 29. The results also surpassed the Zacks Consensus Estimate of 10 cents.

Including loss on sale of Bayou Coating of 1 cent per share, earnings came in at 12 cents per share in the reported quarter, up from 9 cents in the prior-year quarter. Earnings in the year-ago quarter had no adjustments.

Aegion reached a new 52-week high of $25.64 on Apr 30, up from its previous high of $25.46 on Apr 1.

Aegion shares fell around 2.6% yesterday and closed at $24.33 after the company announced the change of its Chief Executive Officer CEO. Mr. Gordon has been appointed to serve as Interim CEO following the resignation of Mr. Burgess. The Board of Directors will continue to search for a permanent CEO.

Operational Update

Total revenue was $306 million in the quarter, improved 35.5% year over year. Brinderson contributed $75.9 million in revenues during the quarter. Revenues beat the Zacks Consensus Estimate of $269 million.

Cost of sales increased 37.9% to $245.2 million from $177.8 million in the year-ago quarter. Gross profit rose 26.9% year over year to $61.1 million. Gross margin contracted 140 basis points (bps) year over year to 19.9%.

Operating expenses went up 25.7% year over year to $51.9 million. Operating income was $9.1 million, up 33.9% year over year. Operating margin in the quarter remained flat at 3%

Segmental Performance

Revenues from the Energy and Mining segment grew 69% year over year to $183.9 million. The segment's operating income went up 40.8% year over year to $7.7 million primarily driven by contribution from Brinderson. In addition, profits from the Wasit gas field project in Saudi Arabia also added to growth.
 
The Water and Wastewater segment's revenues increased 2.3% to $106 million from $103.8 million in the prior-year quarter. The segment's operating income rose 17.8% year over year to $3 million. The growth was driven by increased volumes in North American operations.

Revenues in the Commercial and Structural segment increased 20% year over year to $16.2 million. The segment reported an operating loss of $1.6 million versus an operating loss of $1.2 million in the year-ago quarter.

Backlog

Consolidated backlog in the first quarter went up 56% year over year to $748.7 million (including Brinderson backlog of $255.8 million). Contract backlog in the Water and Wastewater segment was $285.5 million in the quarter, up 28.8% from the year-ago quarter. Energy and Mining backlog grew an impressive about 100% year over year to $416.8 million. However, backlog in the Global Commercial and Structural segment declined 6.1% year over year to $46.4 million.

Financial Update

As of Mar 31, 2014, Aegion reported cash and cash equivalents of $143.7 million versus $158 million as of Dec 31, 2013. Cash used in operating activities was $8.9 million in the reported quarter versus cash provided by operating activities of $3.6 million in the prior-year quarter.

Long-term debt was $383.9 million as of Mar 31, 2014, compared with $388.6 million as of Dec 31, 2013. Debt-to-capitalization ratio was 34.6% as of Mar 31, 2014 compared with 34.8% as of Dec 31, 2013.

Outlook

For full-year 2014, Aegion reiterates earnings per share in the range of $1.50 to $1.70. Cash flow from operations has also reaffirmed to be between $100 and $110 million. The company confirmed return on invested capital in the range of 7–8%.

The company expects that the corrosion engineering and cathodic protection as well as the robotic coatings business will grow on the back of continues progress on the offshore Saudi Aramco Wasit project, which is expected to be completed in late 2014 or early 2015.

Further, Brinderson is actively bidding several large upstream opportunities in the coming months which will drive growth.  On the flip side, the international mining markets and the oil and gas market in Mexico remain challenging for the industrial linings business, which is factored into the outlook for 2014.

Over the past few months, there has been renewed interest from existing mining customers in several markets. In addition, the coatings operation in Louisiana continues to actively pursue a significant addressable market for the Gulf of Mexico offshore market which will aid long term growth.

Chesterfield, MO-based Aegion is a diversified building and construction company which provides infrastructure protection, proprietary technologies and facilities. It also offers services related to the rehabilitation and improvement of sewer, water, energy and mining piping systems.

Aegion currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the sector include Simpson Manufacturing Co., Inc. SSD, United Rentals, Inc. URI and Vulcan Materials Co. VMC. All these stocks carry a Zacks Rank #1 (Strong Buy).