In its third quarter earnings call earlier this week, AECOM announced it had set a new high mark for revenue in a quarter, posting $5.1 billion, an increase of 13% over Q3 2017. Net income for the period was $61 million, a drop of nearly 40% from the prior year. Total backlog also set a new record of $54 billion, up 16%.
The composition of projects is strong, said chairman and CEO Michael Burke, with an increasing share of larger projects that carry a longer duration. He expects backlog to be even higher at year end. W. Troy Rudd, chief financial officer, said the current backlog provides nearly three years of revenue visibility. The free cash flow was positive for the 23rd time in the past 25 quarters.
All three of AECOM's segments — design and consulting; construction; and management — won bids at a strong rate during the period. Led by quick mobilization after last year’s hurricanes in the southeastern United States and in Puerto Rico and the resulting recovery efforts, design and consulting services (DCS), which comprises 54% of AECOM's operating income, realized 17% organic growth in the Americas and a 9% year-over-year backlog increase, marking the eighth consecutive quarter of backlog growth. Performance was particularly strong in transportation and water markets. International markets, such as those in the Asia-Pacific region, were also strong, though the pace of opportunity has slowed in the United Kingdom, which AECOM officials attributed in part to Brexit.
At 28% of the operating income, the management services (MS) division’s backlog rose 124% from the beginning of fiscal year 2017. MS is pursuing about $30 billion of qualified opportunities; $10 billion worth of bids are currently under client evaluation.
Rudd called out building construction's strong performance, which he expects will see a fourth-consecutive year of double-digit revenue growth as part of the firm's construction services (CS) segment, which represented 18% of its income. Civil and power businesses, part of CS, performed to expectations, which Burke said is in part thanks to the Shimmick acquisition integration progressing "much better than planned." CS has more than two years of annual revenue in its backlog of $13 billion. The company also made progress on its non-core oil and gas planned sales, which were announced last quarter.
AECOM also announced on the call that, starting when the trading window opened on Aug. 9, it commenced a $150 million accelerated share repurchase plan. That decision, said Rudd, reflects increased business momentum, continued backlog growth and confidence in AECOM's balance sheet, as well as a belief that buying shares is a compelling avenue to driving shareholder value.
AECOM said it is confident its strong Q3 performance will help it achieve its five-year financial targets, including delivering a compound annual growth rate of 5% in revenue.
During a question-and-answer session, AECOM executives shared that they’re investing more in the Middle East and Saudi Arabia in particular. In an effort to optimize and de-risk its portfolio throughout the past year, the company concentrated efforts in markets where it believed bigger opportunities were available. About 75% of its business is coming from the U.S. right now, but it started focusing more on markets with the biggest potential.
Disaster recovery, for example, paid off as one of those focuses. They also see aviation as a tremendous opportunity, which parallels what ConstructConnect chief economist Alex Carrick told Construction Dive last month about aviation. AECOM's transportation category, of which aviation is a huge part, posted 61% growth in the first six months of the year.
"We're focusing on markets that have the most growth where we can have a concentrated and dominate position as opposed to trying to be all things to all people," an AECOM executive said.