Aegion Slips on Guidance Cuts For Q2 & FY14 - Analyst Blog

Shares of Aegion Corporation AEGN slipped 5.71% and closed at $22.14 after the company lowered its second-quarter and fiscal 2014 guidance at its investor day in New York. However, this was an automatic reaction as the shares will soon get a lift as the market reacts to the company's future plans. These plans, also discussed at the event, include achieving sustainable earnings growth, increasing cash flow from operating activities and improving return on invested capital.

The company expects second-quarter earnings between 34 and 36 cents from the previous guidance of 39 to 41 cents. The guidance was lowered due to a slower ramp-up of project activity in the second quarter and weaker margins for parts of the Energy and Mining segment. While the Water and Wastewater segment is performing in line with expectations, the Commercial and Structural segment will likely disappoint. On a positive note, the Commercial and Structural segment is expected to pick up steam and perform better in the second half of 2014.

Consequently, the guidance for fiscal 2014 earnings per share has been lowered to a range of $1.50 to $1.65 from the previous $1.50 to $1.70 range. The guidance remains unchanged for cash flow from operating activities in the range of $100 million to $110 million and a 7% to 8% return on invested capital.

Aegion has set long-term earnings per share growth target of 15%. The company expects to deliver an increase in cash flow from operating activities at the same rate of earnings per share growth or higher. The expected earnings per share growth also lays the foundation for an over 100 basis point annual improvement in return on invested capital with the goal of reaching 10–12% in 2017.

Conditions in the energy, mining, wastewater pipeline and commercial infrastructure industries remain favorable for Aegion. The company also highlighted its initiatives that will position it for growth. The Energy and Mining platform has expanded its comprehensive capabilities to target the growing upstream, midstream and downstream oil and gas segments in North America. The Brinderson acquisition in 2013 has provided access to the upstream and downstream markets. In addition, its strikes a better balance between more predictable and growing recurring sources of revenues compared to the project-oriented nature of Aegion's key pipeline protection businesses.

Furthermore, there are promising opportunities in the Middle East to support the execution of a strategy to jointly market its products. Given these growth prospects, The Energy and Mining segment is expected to deliver revenue growth between 10% and 12% annually over the projection of approximately $800 million in 2014 and reach $1.1 billion to $1.2 billion in 2017.

The Commercial and Structural segment aims to strengthen its already strong position in the North American fiber-reinforced polymer market through innovation, a shift to a product-centric sales strategy and investments to significantly enhance its operating capabilities. The global outlook for its Fibrwrap technology remains strong, backed by government-led infrastructure rehabilitation efforts especially to address seismic concerns, in key Asian markets. The segment is projected to grow from revenues of $70 million to $85 million in 2014 to $120 million to $130 million in 2017.
 
In the Water and Wastewater segment, the North American cured-in-place pipe market is enjoying a cycle of elevated and sustained municipal expenditures, supported by Insituform's market leading position. The segment will also benefit from the stable markets in Europe as well as growth in the Asia-Pacific region.  Aegion estimates segment revenues to grow 3% to 5% annually, reaching $570 million to $590 million in 2017, with improving operating efficiencies.

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 #3 (Hold). Some better-ranked stocks in the sector include Simpson Manufacturing Co., Inc. SSD, Gibraltar Industries, Inc. ROCK and United Rentals, Inc. URI. While Simpson Manufacturing and Gibraltar Industries sport a Zacks Rank #1 (Strong Buy), United Rentals holds a Zacks Rank #2 (Buy).