AECOM's Third-Quarter Results Exceed Executives' Expectations

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Researched by Industrial Info Resources (Sugar Land, Texas)--Executives at AECOM Technology Corporation (NYSE:ACM) sounded like they were ready to open a bottle of champagne and toast the company's third-quarter earnings results. John Dionisio, chief executive officer, Michael Burke, President, and Stephen Kadenacy, chief financial officer, all provided positive news on a conference call on August 7, 2012. "First let me say that I am pleased with the improvement in the balance of growth, profitability and liquidity," Dionisio said. He also noted, "During the quarter, our organic net service revenue, on a currency-neutral basis, improved by 2%, led by strength in our Asia, Australia and Canada operations, with solid growth in our civil infrastructure as well as our power, energy and mining end markets."Industrial Info happens to be tracking a couple of the projects involving AMCOM in Canada and Australia.

In the conference call, the executives reported a third-quarter revenue of $2.1 billion, 2.4% higher than the revenue from 2011's third quarter. This was driven by various key growth markets, including the Asia-Pacific, Europe, Middle East and Africa business/market areas, and AECOM's facilities' end market. Improved profitability and progress on working capital initiatives produced $186 million in free cash flow. Gross revenue rose 2.4% year-on-year (YoY), while net service revenue only went up 0.7%. The company also reported a 41% sequential increase in operating profit for the third quarter.

Industrial Info is tracking 38 projects involving AECOM that are worth approximately $27.3 billion and are in various stages, such as planning, engineering or construction. The executives from AECOM attributed part of the company's revenue growth to involvement in various metals and minerals projects. Two of the projects tracked by Industrial Info are iron ore mining projects with API Management (Como, Western Australia) that are worth about $3.5 billion. For one of the projects, API and AECOM are negotiating draft conditions for the environmental permit. For the other project, AECOM continues planning and scheduling.

As of June 2012, the company had $398 million of total cash and cash equivalents. AECOM reported having $1.1 billion in total debt and $672 million in net debt, which was the company's lowest net debt in seven quarters. This gives the executives another reason to make a toast.

Although AECOM's 2012 third quarter had the strongest third-quarter cash performance the company has ever reported, there were some areas where the company did not see growth. For example, operating income dropped 6.5% from last year to $108 million. The company blamed the decrease on challenging YoY performance in the Management Support Service segment. Backlog in the Management Support Service segment was down 11% sequentially. However, according to Kadenacy, total backlog" ended the quarter at $15.8 billion, flat year-over-year excluding the impact of foreign exchange." Kadenacy also mentioned that the company's healthy backlog positions it well for 2013.

Burke discussed aspects of the company's merger and acquisition (M&A) activities. He said that AECOM will continue to focus M&A activities in two categories: power, energy and mining end-markets, and emerging geographies. He said that the company's mining business has increased 120% this year, and it will continue to benefit from an increased presence in key geographies, such as Africa and Brazil, where mining activities are growing rapidly.

Burke talked about significant emerging markets, which included the Middle East, Africa, Eastern Europe, Asia and Brazil, which have tremendous end-market needs. According to Burke, emerging markets now account for 70% of the world's gross domestic product (GDP). By 2016, more than 50% of worldwide GDP is projected to come from emerging markets. Burke said that the company's investments position it well to benefit from this growth.

AECOM expects the fourth quarter to be almost as good as the third quarter. "In the fourth quarter, the company expects to have typical seasonal improvement in PTS [Professional Technical Services], margin improvement across the Americas and Europe, and continued recovery in MSS [Management Support Service segment]," Kadenacy said. "And on a full-year basis, we expect our free cash flow to meet or exceed our net income."

In North America, AMCOM is involved in a $7.6 billion subway project with MTA Capital Construction (New York, New York), which is expected to be completed by January 2016. AMCOM is involved in many other top-dollar projects in North America. The company is working with Dulles Corridor Metrorail (Vienna, Virginia) and Parsons Brinckerhoff (Herndon, Virginia) on a project that has a total investment value of $2.6 billion. For this particular project, AMCOM is performing detailed design. Completion is expected by January 2016.

AECOM is a global provider of technical and management support services to various types of markets, including power, energy and mining, transportation and environmental. The company is currently serving clients in more than 130 countries.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.