Aecom Q3 EPS Loss Driven by Project Charge
Aecom posted a third-quarter loss as a construction management charge overwhelmed revenue, though record design wins bolstered future outlook.
Aecom reported a third-quarter fiscal 2026 adjusted EPS loss of 50 cents, a 137.3% drop from the prior year's $1.34. This result missed the Zacks Consensus Estimate of $1.49 by 133.6%, primarily due to a $337 million pre-tax charge related to a construction management project. The charge stemmed from lower subcontractor productivity and a delayed timeline, pushing the company into an operating loss of $76 million against a $294.1 million profit a year earlier.
Net service revenues declined 16% year over year to $1.61 billion, falling short of the $2.02 billion consensus mark. Consolidated revenues dropped 14.2% to $3.59 billion. Adjusted EBITDA swung to an $8.2 million loss from a $312.8 million gain in the same quarter last year. According to GN markets/earnings (en-US), the company expects substantial completion of the problematic project in the second quarter of fiscal 2027, while simultaneously pursuing claims through dispute resolution.
Regional Performance Diverges
The Americas segment faced significant pressure, with revenues down 20% to $2.63 billion and net service revenues falling 29% to $808.4 million. Despite this, Americas design net service revenues increased 6% after adjusting for working days. The segment incurred an adjusted operating loss of $130.2 million; excluding the construction charge, the adjusted operating margin was 18.0%, a 250-basis-point decline year over year. However, Americas backlog rose 8% to a record high, supported by a 1.8x book-to-burn ratio.
International operations showed stronger momentum, with revenues increasing 6% to $953.1 million and net service revenues rising 4% to $800.5 million. Growth in the U.K. and Australian markets drove this performance. Adjusted operating income in the segment advanced 26% to $114.1 million, expanding the adjusted operating margin by 240 basis points to 14.3%. International backlog increased 28% to a record level, maintaining a 1.4x book-to-burn ratio.
Record Wins Offset Cash Flow Drop
Third-quarter contract wins reached a record $4.2 billion, including $4 billion in design wins. The overall book-to-burn ratio stood at 1.6x, and year-to-date wins rose 29% to $10.5 billion. The design-only backlog hit a new high of $26.14 billion at quarter-end. Management highlighted two of the largest contract recompetes in the company's history, both with expanded scope, while the U.S. federal defense pipeline grew by roughly 30%.
Despite strong bookings, operating cash flow declined 66% year over year to $95.2 million, and free cash flow fell 79% to $55.1 million. Cash and cash equivalents decreased to $1.01 billion as of June 30, 2026, from $1.59 billion in September 2025. Total debt remained at $2.75 billion, with net leverage at 1.5x. The company anticipates cash-use headwinds from construction management projects will persist through the first half of fiscal 2027.
Forward Guidance Adjusted
Aecom has updated its fiscal 2026 guidance to reflect the ongoing impact of the construction management charge. Management expects to return to at least 100% free cash flow conversion over the long term once project-related cash impacts subside. The company has tightened risk controls and no longer pursues design-build public-private partnership projects in its construction management business, aiming to stabilize margins and cash flow generation in the coming quarters.
