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Aegion (AEGN) Misses on Q2 Earnings, Beats Revenue Estimates

Aegion Corporation AEGN reported second-quarter 2017 adjusted earnings of 34 cents per share, up around 47.8% year over year. Earnings, however, missed the Zacks Consensus Estimate of 42 cents. Including one-time items, Aegion reported profit of 33 cents per share in the quarter compared to 10 cents recorded in the prior-year quarter.

Operational Update

Total revenue of $354 million in the quarter increased 19% year over year. Revenues also beat the Zacks Consensus Estimate of $349 million.  

Adjusted cost of sales increased 17% to $274.7 million from $234 million in the year-ago quarter. Adjusted gross profit improved 25% to $79.8 million from $63.6 million in the prior-year quarter. Adjusted gross margin expanded 110 basis points (bps) year over year to 22.5%.

Aegion Corp Price, Consensus and EPS Surprise

 

Aegion Corp Price, Consensus and EPS Surprise | Aegion Corp Quote

Adjusted operating expenses climbed 18.5% year over year to $57.8 million. Adjusted operating income surged 48% year over year to $21.9 million. Operating margin in the quarter came in at 6.2%, expanding 120 bps from the year-ago quarter.

Segmental Performance

Revenues from the Infrastructure Solutions segment edged down 1.3%, year over year, to $148.3 million. The segment’s adjusted operating income plummeted nearly 50% year over year to $8.4 million.

The Corrosion Protection segment’s revenues jumped 35% to $127.7 million from $94.4 million recorded in the comparable quarter last year. The segment reported an adjusted operating profit of $11.2 million compared to a loss of $1.5 million in the year-ago quarter.

Revenues in the Energy Services segment surged 47.8% year over year to $78.4 million. The segment reported an adjusted operating profit of $2 million compared to a loss of $0.9 million witnessed in the prior-year quarter.

Financial Update

Aegion had cash and cash equivalents of $105.3 million at the end of second-quarter 2017 compared with $129.5 million at the end of 2016. Cash flow from operations came in at $27 million during the second quarter, compared with $12 million in the year ago quarter.

Aegion’s consolidated backlog came in at $774 million as of Jun 30, 2017, up 23% year over year. New orders increased during second-quarter 2017 compared to first-quarter 2016, by a total of 35% to $764 million.

Strategic Actions

Aegion’s market-leading technologies in growing and predictable end markets will drive its long-term organic growth strategy. The company continuously reviews its portfolio and end markets. In line with this, the company made some strategic actions in Jul 2017. Per the plan, Aegion approved to divest its pipe coating and insulation business in Louisiana, exit all non-pipe related contract applications for the Tyfo Fibrwrap system in North America, restructure Corrosion Protection’s operations in Canada and implement cost-reduction actions. These restructuring initiatives are anticipated to generate annualized savings in excess of $15 million in 2018.

To date, Aegion has recognized approximately $9 million of annualized savings. The company estimated pre-tax, cash charges of $9–$11 million, with the majority of the charges planned for the second half of 2017. The anticipated charges consist primarily of employee severance, retention, extension of benefits, employment assistance programs, early lease termination and other restructuring related costs.

Outlook

Aegion forecasts solid second-half 2017 performance, driven by increased backlog. It remains committed to achieve three-year financial targets. The company’s strong end markets, investments in sales resources, market expansion and R&D will significantly enhance profitability in 2018.

Aegion will continue to participate in the North American civil structures market through third-party product sales and engineering support. The company has been awarded two related contracts, valued at approximately $35 million, in the Middle East for robotic interior pipe weld coatings. Over 75% of the value is for offshore activity planned in 2018 at margins in line with prior offshore projects. This reflects Aegion’s focus on strategic end markets for municipal and midstream oil & gas pipelines and West Coast refinery services to deliver sustainable organic revenue and earnings growth.

However, Aegion expects 2017 adjusted EPS to moderately exceed the 2016 results due to execution issues in Australia, cathodic protection services in the U.S., as well as limited backlog in Denmark and the Tyfo Fibrwrap system in North America.

Aegion’s Infrastructure Solutions segment’s results will be backed by strong second-half 2017 orders for projects in the North American market for Insituform CIPP rehabilitation resulted in record backlog and a continued favorable outlook for full-year 2017 profit growth. Corrosion Protection segment’s growth in 2018 will be supported by key project awards in the Middle East, Central America and South America. A favorable market for day-to-day refinery maintenance and turnaround services on the U.S. will drive revenues and operating margin expansion in its Energy Services segment in the second half of 2017.

Share Price Performance

In the last one year, Aegion has outperformed the industry with respect to price performance. The stock gained around 19.8%, while the industry recorded growth of 11.6% over the same time frame.



Zacks Rank & Stocks to Consider

Aegion currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector are NCI Building Systems, Inc. NCS, KB Home KBH and Owens Corning OC. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NCI Building has expected long-term growth rate of 10.00%.

KB Home has expected long-term growth rate of 16.66%.

Owens Corning has expected long-term growth rate of 14.80%.

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