AECOM Q3 Earnings In line, Revenues Down on Weakness in MSS - Analyst Blog

AECOM Technology Corporation (ACM) reported third-quarter fiscal 2014 (ended Jun 30, 2014) adjusted earnings of 65 cents per share, in line with the Zacks Consensus Estimate. However, earnings were down 7.7% compared with the prior-year quarter earnings of 70 cents. Including one-time costs, the GAAP earnings for the quarter came in at 70 cents per share.

AECOM reported revenues of $1,968 million, down 4.8% year over year while the net service revenue declined 2.5% to $1,205 million. The revenues were primarily impacted by the dismal performance of the Management Support Services segment. However, the increased demand for the company's construction services business partially offset the decline. The new orders in the quarter aggregated $2.2 billion, which led to a 22% year over year increase in backlog levels at $20.5 billion.  Revenues were marginally ahead of the Zacks Consensus Estimate of $1,967 million.

AECOM's operating income decreased 18.2% year over year to $91.5 million in the quarter. The company's gross margin decreased to 5.5% from 6.4% in the prior-year quarter.

The general and administration expense stood at $22.9 million versus $24.0 million in the year-ago quarter.

Segment Result

Professional Technical Services(PTS) revenues in the quarter were $1,794.6 million, down 2.8% on year-over-year basis. The net service revenue (NSR) also increased 0.9% to $1.11 billion, attributable to ongoing growth in regions like EMEA and Asia. The company's construction services business in the Americas was also a positive.

The Management Support Services (MSS) segment reported revenues of $173.5 million, which declined 21.3% year over year whereas its net service revenue declined 30.8% year over year to $93 million in the quarter. The decline was due to the project repositioning initiative taken by the company to shift focus from lower-margin projects to higher-margin services.

Other Financial details

AECOM ended the quarter with cash and cash equivalents of $510.1 million, long-term debt of $977.0 million and stockholder's equity of $2,197.5 million.

Cash flow from operating activities was $79.7 million in the quarter. Free cash flow stood at $63.3 million including capital expenditures of $16.4 million.

Business Update

In July, AECOM announced its decision to acquire San Francisco-based URS Corp. (URS) for about $4 billion or $56.31 per URS share. Slated to close in Oct 2014, the deal's total enterprise value stands at around $6 billion. Post merger, AECOM is likely to become one of the largest companies, in terms of revenues, in the engineering and construction industry. The combined entity will be headquartered in Los Angeles with a key operational presence in San Francisco, where URS is presently based.

Outlook

AECOM reaffirmed its guidance for earnings in fiscal 2014 in the range of $2.50–$2.60 per share.

Zacks Rank

AECOM currently holds a Zacks Rank #3 (Hold). Other stocks worth considering include VSE Corp. (VSEC) and North American Palladium Ltd. (PAL), both of which carry a Zacks Rank #2 (Buy).