Shares of Aegion Corporation AEGN gained around 13% since the company reported its second-quarter 2015 results on Jul 29. Aegion’s adjusted earnings from continuing operations came in at 35 cents per share, improving 3% year over year. Earnings also beat the Zacks Consensus Estimate by a penny.
Including restructuring, impairment and acquisition related items; Aegion reported earnings per share of 24 cents in the quarter, a 27% decline from 33 cents in the prior-year quarter.
Operational Update
Total revenue was $337 million in the quarter, which improved 4.4% year over year and also beat the Zacks Consensus Estimate of $336 million. A stronger dollar against various international currencies negatively impacted second-quarter revenues by $10.6 million.
Adjusted cost of sales increased 5% to $264 million from $251 million in the year-ago quarter. Adjusted gross profit rose 2% year over year to $73 million while adjusted gross margin contracted 60 basis points (bps) year over year to 21.7%.
Adjusted operating expenses went up 4% year over year to $52.8 million. Adjusted operating income was $20.2 million, down 4.6% year over year. Operating margin in the quarter was 6%, contracting 60 bps from the year-ago quarter.
Segmental Performance
Revenues from the Infrastructure Solutions segment edged up 1% year over year to $149 million. The segment’s adjusted operating income increased 38% year over year to $17.8 million.
The Corrosion Protection segment’s revenues increased 3% to $106 million from $103 million in the prior-year quarter. The segment’s operating income plunged 83% to $0.9 million.
Revenues in the Energy Services segment increased 13% year over year to $82 million. The segment reported operating income of $1.47 million, declining 48% from the year-ago quarter.
Backlog
Consolidated backlog in the second quarter declined 8.3% year over year to $760 million. Excluding contract backlog from the exit of several international contracting markets and a large Corrosion Protection contract canceled in the third quarter of 2014, total contract backlog as of the quarter end was $756.9 million, down 3.4% year over year.
Financial Update
Aegion had cash and cash equivalents of $173 million at the second quarter compared with $175 million as of 2014-end. The company generated cash flow from operations of $58 million in the first half of 2015, up from $18.9 million in the prior-year comparable period. Long-term debt, excluding the current portion, was $336 million as of Jun 30, 2015, compared with $351 million as of Dec 31, 2014.
Aegion’s 2014 restructuring efforts remain on track and will be completed by the end of the third quarter with approximately $2 million remaining in trailing cash costs. The company has recognized 17 cents per share of savings from the start of the initiative through Jun 30, 2015. Aegion remains on track to recognize annualized savings of approximately $11 million (20 cents per share), at the high-end of its original expectation.
Aegion will be continue to be affected by low oil and gas prices as 15% to 20% of total revenues come from the upstream energy market. The company expects a stronger back half as it is seasonally stronger. Infrastructure Solutions is on track for record revenues and profits in 2015 from strong execution and backlog, which is at a historic high level because of favorable end markets.
The company is also benefiting from robust activity in Energy Services’ downstream refining market due to an increase in refinery maintenance billable hours and the scheduled execution of previously delayed turnaround projects. There were positive developments in the last few months for Corrosion Protection’s midstream market, including the award of several large projects. Corrpro’s orders have increased significantly, which is a positive indicator of a strong second half.
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 Gibraltar Industries, Inc. ROCK, PGT, Inc. PGTI and Quanex Building Products Corporation NX. All of these stocks hold a Zacks Rank #1 (Strong Buy).
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