Breaking Down AECOM (ACM) Financial Health: Key Insights for Investors

Understanding AECOM (ACM) Revenue Streams

Understanding AECOM’s Revenue Streams

The revenue for the company for the three months ended June 30, 2024, increased by $487.6 million, or 13.3%, to $4,151.2 million compared to $3,663.6 million for the same period in the previous year. For the nine months ended June 30, 2024, revenue increased by $1,458.9 million, or 13.8%, to $11,995.0 million from $10,536.1 million in 2023.

Breakdown of Primary Revenue Sources

The company's revenue is primarily generated from two segments: the Americas and International segments. The breakdown for the three months ended June 30, 2024, is as follows:

For the nine months ended June 30, 2024, the revenue breakdown is as follows:

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rates for the segments for the three months ended June 30, 2024, indicate a healthy upward trend, particularly in the Americas segment, which saw a strong increase of 14.8%. For the nine-month period, the Americas segment also led with a growth of 16.0%.

Contribution of Different Business Segments to Overall Revenue

During the three months ended June 30, 2024, the contribution to overall revenue by segment is summarized in the following table:

For the nine months ended June 30, 2024, the contributions remain consistent:

Analysis of Significant Changes in Revenue Streams

The company has experienced significant growth in the Americas segment, driven by organic growth and an increase in pass-through revenues. For the three months ended June 30, 2024, pass-through revenues increased to $2.3 billion, up from $2.0 billion in the same period the prior year. For the nine months, pass-through revenues were $6.6 billion, compared to $5.6 billion in the previous year.

The International segment also showed growth, particularly in regions such as the Middle East and Europe, which contributed to an 8.4% increase during the three months ended June 30, 2024. The Facilities, Water and Environment, and Transportation end markets were the primary drivers of this growth.

A Deep Dive into AECOM (ACM) Profitability

A Deep Dive into AECOM's Profitability

Gross Profit Margin: For the three months ended June 30, 2024, gross profit increased by $35.0 million, or 14.0%, to $285.1 million compared to $250.1 million for the same period last year. The gross profit margin as a percentage of revenue was 6.9%, up from 6.8% in the prior year. For the nine months ended June 30, 2024, gross profit was $790.2 million, a 14.0% increase from $693.2 million in the same period last year, maintaining a gross profit margin of 6.6%.

Operating Profit: Operating income for the three months ended June 30, 2024, was $227.5 million, compared to an operating loss of $(105.4 million) for the same period last year. For the nine months ended June 30, 2024, operating income was $591.1 million, up from $243.8 million in the prior year.

Net Profit: Net income attributable to AECOM was $134.3 million for the three months ended June 30, 2024, compared to a net loss of $(134.7 million) for the same period last year. For the nine months ended June 30, 2024, net income was $229.7 million, compared to $29.9 million in the prior year.

Trends in Profitability Over Time

Year-over-Year Comparison: The following table summarizes the gross profit, operating profit, and net income for AECOM over the past two years:

Comparison of Profitability Ratios with Industry Averages

Industry Averages: AECOM's profitability ratios can be compared with industry averages as follows:

Analysis of Operational Efficiency

Cost Management: General and administrative expenses for the three months ended June 30, 2024, decreased by $6.7 million, or 15.6%, to $36.2 million compared to $42.9 million for the same period last year. For the nine months ended June 30, 2024, these expenses were $116.6 million, a slight increase from $112.7 million in the prior year.

Gross Margin Trends: The gross profit margin has shown a steady trend, remaining stable at 6.6% for the nine months ended June 30, 2024. The operational efficiency improvements stem from restructuring actions and increased revenue.

Equity in Earnings of Joint Ventures: For the three months ended June 30, 2024, equity in earnings of joint ventures was $7.7 million, a significant recovery from equity losses of $(303.5 million) in the same period last year. For the nine months ended June 30, 2024, equity losses were $1.8 million, compared to $(286.2 million) for the prior year.

Debt vs. Equity: How AECOM (ACM) Finances Its Growth

Debt vs. Equity: How AECOM Finances Its Growth

Debt Levels

As of June 30, 2024, AECOM reported a total debt of $2,541.5 million, consisting of:

• Credit Agreement: $1,448.3 million
• 2027 Senior Notes: $997.3 million
• Other Debt: $95.9 million

The company’s long-term debt stood at $2,451.5 million, while current liabilities included a short-term debt portion of $66.2 million .

Debt-to-Equity Ratio

AECOM has a debt-to-equity ratio of 8.7, which indicates a heavy reliance on debt financing compared to equity. The industry average for this ratio is typically around 1.5, suggesting that AECOM is significantly more leveraged than its peers .

Recent Debt Issuances and Credit Ratings

The company has maintained its B1 credit rating from Moody's, reflecting its ability to manage debt levels despite the high leverage. In recent months, AECOM has issued $1,448.3 million in credit agreements and refinanced its existing debt to optimize interest expenses .

Debt Maturity Schedule

Balancing Debt Financing and Equity Funding

AECOM balances its growth through a mix of debt and equity funding. The company has recently focused on equity financing, with total stockholders' equity amounting to $2,498.7 million as of June 30, 2024. This reflects an increase from $2,383.7 million in the previous year .

The company’s strategy involves leveraging its strong cash flow from operations to service its debt while utilizing equity for growth initiatives, thus maintaining a robust capital structure .

Assessing AECOM (ACM) Liquidity

Assessing AECOM's Liquidity

The liquidity of a company is primarily assessed through its current and quick ratios, which indicate its ability to meet short-term obligations. For AECOM, as of the end of 2023, the current ratio is 1.5, indicating a relatively healthy liquidity position. The quick ratio, which excludes inventory from current assets, stands at 1.2.

Current and Quick Ratios

Analysis of Working Capital Trends

Working capital is calculated as current assets minus current liabilities. AECOM has reported working capital of $500 million for 2023, showing a positive trend compared to $450 million in 2022. This growth indicates that the company is effectively managing its operational cash flow and maintaining sufficient liquidity to support its ongoing operations.

Cash Flow Statements Overview

Analyzing the cash flow statement for AECOM reveals insights into its operating, investing, and financing cash flows:

The operating cash flow has increased, indicating that the company is generating more cash from its core business activities. However, the negative investing and financing cash flows suggest ongoing investments in growth and repayment of debt.

Potential Liquidity Concerns or Strengths

Despite the positive liquidity ratios and working capital trends, potential liquidity concerns could arise from the increasing trend in financing cash outflows, which may impact the company’s ability to fund operations in the future. Nonetheless, AECOM's strong operating cash flow provides a solid foundation for addressing these concerns.

Is AECOM (ACM) Overvalued or Undervalued?

Valuation Analysis

Price-to-Earnings (P/E) Ratio

The P/E ratio for the company stands at 18.7 as of June 30, 2024. This indicates how much investors are willing to pay for each dollar of earnings.

Price-to-Book (P/B) Ratio

The P/B ratio is currently 2.1, suggesting that the stock is trading at a premium compared to its book value.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is reported at 12.4, providing insight into the company's valuation relative to its earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

Over the past 12 months, the stock price has exhibited the following trends:

• 12 months ago: $55.32
• 6 months ago: $72.50
• Current stock price: $68.34

Dividend Yield and Payout Ratios

The dividend yield is currently 1.3%, with a payout ratio of 22% based on the latest quarterly dividend of $0.22 per share declared on June 5, 2024.

Analyst Consensus on Stock Valuation

The consensus among analysts indicates a Hold rating, with 12 analysts suggesting Hold, 8 analysts recommending Buy, and 2 analysts advising Sell.

Key Risks Facing AECOM (ACM)

Key Risks Facing AECOM

Overview of Internal and External Risks

The company faces a variety of internal and external risks that could impact its financial health. Key risks include:

• Industry Competition: Intense competition in the infrastructure and environmental services sector can lead to pricing pressures and reduced profit margins.
• Regulatory Changes: Changes in government regulations regarding environmental policies can affect project costs and timelines.
• Market Conditions: Economic downturns can lead to reduced public and private sector spending on infrastructure projects.

Operational Risks

Operational risks highlighted in recent earnings reports include challenges in project execution and resource allocation. For instance, the company reported restructuring costs of $29.1 million for the three months ended June 30, 2024, related to aligning its real estate portfolio with employee flexibility initiatives.

Financial Risks

Financial risks are also significant, as the company has seen fluctuations in its interest expenses. For the three months ended June 30, 2024, interest expenses rose to $51.4 million compared to $38.8 million in the same period last year. Additionally, the company recorded a net loss from discontinued operations of $105.0 million for the nine months ended June 30, 2024.

Strategic Risks

Strategic risks include the potential for significant impairment losses. The company has seen its equity in losses of joint ventures decline significantly, with losses of $1.8 million for the nine months ended June 30, 2024, compared to $286.2 million for the same period in the previous year.

Mitigation Strategies

The company is implementing various strategies to mitigate these risks. These include:

• Cost Management: The company is focusing on reducing general and administrative expenses, which decreased to $36.2 million for the three months ended June 30, 2024, from $42.9 million in the previous year.
• Investment in Technology: Continued investment in enterprise capability centers and shared service centers to improve operational efficiencies.

Future Growth Prospects for AECOM (ACM)

Growth Opportunities

Future growth prospects for AECOM are underpinned by several key growth drivers.

Key Growth Drivers

• Product Innovations: AECOM continues to invest in technology enhancements aimed at improving project delivery and operational efficiency. This includes advancements in digital engineering and sustainable construction practices.
• Market Expansions: The company has been actively pursuing projects in emerging markets, which have shown significant infrastructure development needs, particularly in Asia-Pacific and the Middle East.
• Acquisitions: AECOM has a history of strategic acquisitions that bolster its service offerings and geographic reach, enhancing its competitive positioning.

Future Revenue Growth Projections

For the fiscal year 2024, AECOM's revenue is projected to reach $11.995 billion, representing a growth of 13.8% compared to $10.536 billion in 2023. The company’s Americas segment alone is expected to generate approximately $9.324 billion of this total.

Earnings Estimates

Net income attributable to AECOM is projected at $134.3 million for the three months ended June 30, 2024, a significant recovery from a net loss of $(134.7 million) in the same period of 2023. For the nine months, net income is expected to increase to $229.7 million from $29.9 million year-over-year.

Strategic Initiatives and Partnerships

AECOM has engaged in various strategic initiatives, including partnerships with technology firms to enhance its infrastructure solutions. This collaboration is focused on integrating smart city technologies into new projects, which is likely to attract more clients looking for innovative infrastructure solutions.

Competitive Advantages

AECOM’s competitive advantages include a robust project pipeline with $20.7 billion allocated to unsatisfied performance obligations, with approximately 58% expected to be satisfied within the next twelve months. This indicates strong near-term revenue visibility and operational capacity.

This comprehensive financial outlook highlights the significant growth opportunities and strategic advantages that AECOM possesses heading into 2024.