The Earnings Debate

AECOM reported financial results for the third quarter of fiscal 2026.

The results included a "$337 million pretax charge" during the quarter that was "primarily the result of a delay in delivering a large construction management project." This project-related charge impacted third quarter net service revenue (NSR) and EBITDA by "$337 million," third quarter EPS by "$1.99," and third quarter cash flow included a "$185 million use." Americas NSR declined "29%" for the third quarter, and the Americas adjusted operating margin was "negative 16.1%," which was "18%" when excluding the construction management impact. In the International segment, third quarter NSR increased "4%," and adjusted operating margin was "14.3%." Despite the headwinds, AECOM delivered positive third quarter free cash flow of "$55 million." Excluding the project charge, adjusted EBITDA and EPS for the third quarter improved year-over-year by "5%" and "11%" respectively.

Chief Executive Officer Troy Rudd and Chief Financial and Operations Officer Gaurav Kapoor detailed how the company is managing its legacy risk.

Rudd noted that they "decided many years ago to no longer pursue design-build work for P3 clients in the construction management business." This project is expected to be complete "near the end of the second quarter of fiscal 2027." Meanwhile, the company's backlog grew "13% to a new all-time high" on a "1.6 book-to-burn across the business" for the third quarter, which includes a "1.8x in the Americas." President Lara Poloni highlighted strong market demand, noting that the pipeline with the Department of War, their "largest single client," increased by "approximately 30% in the quarter." In Canada, defense pipeline opportunities are up, and the government committed to "more than doubling that share to 5% of GDP by 2035." Additionally, Poloni reported that the Australia backlog was up "more than 40% year-over-year" and the U.K. business is progressing on the "Great Grid upgrade project."During the third quarter, AECOM secured notable awards, including "two of our largest recompetes ever" in the environment business, won in their own right without a joint venture.

Post-quarter wins included a "10-year program management role" for a Canadian highway and bus transit project, as well as a "large rail project in Saudi Arabia." For full year fiscal 2026 guidance, AECOM now expects full year NSR of "approximately $7.3 billion," full year adjusted EBITDA of "$950 million," and full year adjusted EPS of "$4.05" at the midpoint of the ranges.

Adjusted for the charge, they expect full year NSR of "$7.65 billion to $7.7 billion," and full year adjusted EBITDA and EPS of "$1.29 billion" and "$6" at the midpoint, which includes a raised expectation for full year adjusted EBITDA margin of "17.4%." Full year free cash flow is expected to be "$300 million." Looking to fiscal 2027, the remaining project completions will have a cash flow impact of "about $0.5 billion" in the first two quarters and year-on-year interest expense is estimated to be "$30 million to $35 million" higher.

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