Los Angeles-based construction and engineering giant AECOM beat Wall Street earnings and revenue estimates for its fiscal fourth quarter, even though both profits and sales were lower than a year ago, reflecting the headwinds that have come with the COVID-19 pandemic during 2020.
The company reported adjusted earnings of $0.60 per share, besting analysts’ consensus estimates of $0.57, according to Zacks, on revenues of $3.57 billion for the quarter, 7% higher than consensus estimates. But a year ago, before the onset of the pandemic as the construction industry boomed, AECOM posted earnings of $0.79 per share on $5.12 billion in revenue.
On a conference call to discuss the results, CEO Troy Rudd expressed hope for increased infrastructure spending under the Biden administration, as well as opportunities for its environmental services group with a renewed focus on climate change.
“The recent U.S. presidential election… is poised to create opportunities for us,” Rudd said. “We see bipartisan support for funding to help our state and local clients weather the impacts of COVID, a continued focus on infrastructure investments as a job creator and competitive differentiator for the U.S. and an increasing regulatory emphasis on environment and water markets.”
AECOM also said its backlog increased 13% compared to a year ago to $41.2 billion, and provided guidance for earnings growth in 2021, saying its earnings per share were on track to grow 23% over the next fiscal year. In addition, the firm completed $455 million of share repurchases since September, and its board approved expanding its stock repurchase program from $305 million to $1 billion.
Rudd tempered his upbeat remarks by saying revenue growth would likely be flat in fiscal 2021. He also said any positive impacts from a new administration’s approach probably wouldn’t be felt until the second half of 2021, while uncertainty from the pandemic still hung over the sector.
“There's no question that the impact of the pandemic has changed the world,” Rudd said. “Here in the United States, we're seeing within our large client base, particularly our state and local government client base, continued uncertainty over funding. But we do believe that with the change in government that in the second half of the year, there'll be some certainty around funding that might be helpful for state and local governments.”
He also said Biden’s emphasis on the environment is a positive for AECOM and its customers.
“We see opportunity for an ambitious presidential agenda focused on climate change, which our clients have great ambitions for,” Rudd said. “And then, you know, there seems to be some interest in a broader infrastructure investment from the new administration. So, again, I'm optimistic those things are kind of lining themselves up to address some of that uncertainty that exists in our large U.S. market today.”
AECOM’s results come amid a mixed bag of earnings reports from public construction companies during the second half of 2020. While Tutor Perini posted its highest quarterly results in more than a decade, Skanska’s profits fell 29% year-over-year in the third quarter as the pandemic continued to impact its business.
Adam Thalhimer, director of research at Richmond, Virginia-based Thompson Davis Asset Management, said AECOM’s guidance on continued earnings growth in 2021 was noteworthy, since it still overlapped with the original outlook the firm issued before the pandemic hit.
“The high end of their guidance for next year is now at the low end of what they originally thought, pre-COVID,” Thalhimer said. “That’s impressive when you consider what COVID did to state and local budgets and private road construction.”
But he also noted Rudd’s bullishness on increased infrastructure spending could meet the same type of political gridlock similar aspirations did in the Trump administration.
“You’ve got to remember Trump when he came in, he was talking trillions of dollars for infrastructure, and there were occasional flare ups, but he could never get it through Congress,” Thalhimer said. “If the Republicans hold the Senate, I just don't know how much more open [Senate Majority Leader Mitch] McConnell is going to be to some massive infrastructure bill with Biden than he was with Trump.”
He also said that Rudd’s tying any positive impacts to the second half of next year was illustrative of the larger headwinds still hanging over the construction industry that will take time to clear, even amid the positive news of two vaccines having high success rates in trials over the last week.
“Revenue is going to be harder to come by in the first half of next year for every construction company,” Thalhimer said. “A lot of construction companies are talking about 2021 uncertainty, and just not knowing what the 2021 construction season really holds yet.”