Aegion Corporation (AEGN) reported its fourth-quarter 2013 adjusted earnings from continuing operations at 40 cents per share, marking a year-over-year fall of 2%. The results were in line with the Zacks Consensus Estimate. While the North American Water and Wastewater business excelled in the quarter, performances of the Energy and Mining as well as Commercial and Structural businesses were disappointing.
Including acquisition-related expenses of 3 cents per share, earnings came in at 37 cents per share in the reported quarter, down from 40 cents in the prior-year quarter. Earnings in the year-ago quarter included acquisition-related expense of a penny.
Operational Update
Total revenue was $315.7 million in the said quarter, up 16% year over year. Brinderson contributed $60 million in revenues during the quarter. However, revenues fell short of the Zacks Consensus Estimate of $320 million.
The year-over-year revenue growth was driven by increased revenues in the North American Water and Wastewater segment, partly offset by decreased revenues from the industrial linings business, slowdown in the Canadian pipeline construction activity and a lull in pipe coating project activity for the oil and gas market in the Gulf of Mexico.
Cost of sales increased 19% to $245.8 million from $271.6 million in the year-ago quarter. Gross profit rose 7.4% year over year to $70.9 million. Gross margin contracted 180 basis points (bps) year over year to 22.5%.
Adjusted operating expenses went up 11% year over year to $48 million. Adjusted operating income was $23.9 million, down 6.9% year over year, leading to 180 bps contraction in the operating margin to 7.6%.
Segmental Performance
Revenues from the Energy and Mining segment grew 29.2% year over year to $176 million. The segment’s operating income went down 18.6% year over year to $13.9 million due to lack of project activity and decline in international market conditions for the industrial linings business.
The North American Water and Wastewater segment’s revenues increased 14% to $97.9 million from $85.7 million in the prior-year quarter. The segment’s operating income rose an impressive 75.9% year over year to $10 million. The growth was driven by increased volumes across all geographies.
Sales from the International Water and Wastewater segment were $29.5 million, down 2.6% from the year-ago quarter. The segment reported an operating income of $1.5 million, turning around the loss of $1.8 million in the year-ago quarter. The closure of the legacy projects in Singapore resulted in a $2 million reduction in the loss associated with these projects.
Revenues in the Commercial and Structural segment declined 37% year over year to $12 million. The segment reported an operating loss of $3.3 million versus an operating income of $4 million in the year-ago quarter.
Backlog
Consolidated backlog in the fourth quarter went up 6% year over year to $759 million (including Brinderson backlog of $268.3 million). Contract backlog in the North American Water and Wastewater segment was a record $241.9 million in the quarter, up 30.8% from the year-ago quarter. Energy and Mining backlog grew 78% year over year to $429 million. However, backlog in the Global Commercial and Structural segment declined 1.9% year over year to $49.8 million. The International Water and Wastewater business also registered a decrease of 32.5% to $38 million in contract backlog.
Financial Update
Aegion ended 2013 with cash and cash equivalents of $158 million, up from $133.7 million as of 2012-end. Cash flow from operations was $84 million as of Dec 31, 2013, against $110.7 million as of Dec 31, 2012.
As of Dec 31, 2013, long-term debt increased to $366.6 million from $221.8 million as of Dec 31, 2012. Debt-to-capitalization ratio was 33.5% as of Dec 31, 2013 compared with 26% as of Dec 31, 2012.
Fiscal 2013 Performance
For full-year 2013, Aegion reported earnings per share of $1.27, down 11.8% from $1.44 in 2012. The results fell short of the Zacks Consensus Estimate of $1.39 and also from the management guidance range of $1.45 to $1.50.
Revenues for the year 2013 increased 4.3% year over year to $1091 million. However, revenues lagged the Zacks Consensus Estimate of $1158 million.
Outlook
For full-year 2014, Aegion forecasts earnings per share in the range of $1.50 to $1.70. Cash flow from operations is expected to be between $100 and $110 million. The company anticipates return on invested capital in the range of 7%–8%.
In the first quarter of 2014, Aegion will combine the North America Water and Wastewater as well as International Water and Wastewater segments into a Global Water and Wastewater segment. In 2014, Global Water and Wastewater revenues are expected in the range of $500–$525 million and its operating margin is projected to be 7%–8%.
In addition, the Energy and Mining platform is expected to benefit from Brinderson’s contribution. Continued growth in the corrosion engineering as well as cathodic projection and linings business will also help development. Energy and Mining revenues are expected in the range of $770 million and $800 million, with operating margin of 8%–9%.
Commercial and Structural segment will be benefited from vertical integration, expertise of engineering veterans and intellectual property protections across the value chain. Additionally, Aegion has made significant investments to enhance sales. Revenues are expected in the band of $70–$85 million with operating margin ranging from negative low single digits to positive low single digits.
Moreover, strategic investments and backlog will expectedly bolster growth for Aeigon. A favorable market outlook supporting water and wastewater will also drive growth. However, Aegion remain cautious about pipe coating market.
Chesterfield, Missouri-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 #4 (Sell). Some better-ranked stocks in the sector include CaesarStone Sdot-Yam Ltd. (CSTE), USG Corporation (USG) and Wolseley plc (WOSYY). While CaesarStone sports a Zacks Rank #1 (Strong Buy), USG and Wolseley have a Zacks Rank #2 (Buy).
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