Shares of AECOM Technology Corporation (ACM) declined nearly 7% in yesterday’s session after the company reported soft fourth-quarter and fiscal 2014 results. Adjusted earnings came in at 79 cents per share, falling short of the Zacks Consensus Estimate of 82 cents by 3.7%. However, the bottom line inched up 2.6% from 77 cents earned in the prior-year quarter. Including one-time costs, GAAP earnings for the quarter came in at 64 cents per share.
For fiscal 2014, the company reported adjusted earnings of $2.53 per share compared with $2.35 in the prior-year. GAAP earnings decreased marginally to $2.33 a share from $2.35 reported in fiscal 2013.
GAAP earnings were impacted primarily by charges related to the URS acquisition. In Oct 2014, AECOM closed the acquisition of San Francisco-based URS Corp. for about $4 billion. The deal’s total enterprise value was around $6 billion.
Operational Details
AECOM reported revenues of $2,563 million, an increase of 23.3% year over year while net service revenue rose 6% to $1,319 million. Revenues also came ahead of the Zacks Consensus Estimate of $2,237 million. The company reported sales of $8,357 million for fiscal 2014, an increase of 2.5% year over year.
Revenue growth was driven by an impressive performance in the company’s international and construction services business. This was, however, partially offset by sluggishness in the design business in Americas.
New orders in the quarter aggregated $4.2 billion, which prompted a 52% year over year increase in backlog levels to $25.1 billion. Organically, the backlog levels marked growth of 33%. The acquisition of Hunt Construction Group contributed about $3 billion to the company’s total backlog.
AECOM’s operating income decreased nearly 17% year over year to $103 million in the quarter. The company’s gross margin inched down to 5% from 6.7% in the prior-year quarter.
General and administration expenses dropped to $15.5 million from $24 million in the year-ago quarter.
Segment Result
Professional Technical Services (PTS) revenues amounted to $2.4 billion, an increase of about 27% on a year-over-year basis. Net service revenue also increased 10% to $1.2 billion. Revenue growth was driven by strength in regions like EMEA and Asia. The company’s construction services business in the Americas was also a positive, although partially offset by sluggishness in the design business.
The Management Support Services (MSS) segment reported revenues of $201 million, declining about 9% year over year. Its net service revenue dropped approximately 27% year over year to $98 million in the quarter. The decline was owing to the project-repositioning initiative undertaken by the company to shift focus from lower-margin projects to higher-margin services.
Other Financial details
AECOM ended the fiscal with cash and cash equivalents of $574.2 million, long-term debt of $939.6 million and stockholder’s equity of $6,121.8 million.
Cash flow from operating activities was $174.9 million in the quarter and $360.6 million for the fiscal year. Free cash flow for the quarter came in at $161.6 million including a capital expenditure of $13.3 million. For fiscal 2014, AECOM reported free cash flow of $297.8million and capital expenditure of $62.9 million.
Outlook
The URS acquisition has made AECOM one of the major companies, in terms of revenues, in the engineering and construction industry. Post integration, the company intends to accelerate its strategy of offering an integrated-delivery model, by adding key capabilities and expertise in vital markets. Going forward, URS’ knowledge in sectors like construction, oil & gas, power and government services will likely be a significant growth driver for AECOM.
AECOM provided earnings guidance for fiscal 2015 in the range of $2.75–$3.35 per share. The mid point of the guidance includes a benefit of about $110 million from synergies generated through the URS acquisition.
Zacks Rank
AECOM currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Willdan Group, Inc. (WLDN), Pernix Group Inc (PRXG) and AO Smith Corp. (AOS). While Willdan Group sports a Zacks Rank #1 (Strong Buy), both Pernix Group and AO Smith hold a Zacks Rank #2 (Buy).
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