Aecom free cash flow soars, seeks emerging market buys

Tue Aug 7, 2012 1:47pm EDT

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(Reuters) - Engineering and design company Aecom Technology Corp (ACM.N) generated strong free cash flow in the third quarter and said it was looking at acquisitions to increase presence in emerging markets.

Aecom shares, which have fallen by more than a third after touching a year-high in February, went up as much as 19 percent on the New York Stock Exchange on Tuesday to be one of the top gainers on the index.

The company has been pressured for the last few quarters by weak client spending in its management support services segment, which provides direct support services for U.S. Army equipment.

The segment, which accounted for 12 percent of its total revenue, suffered due to rapid withdrawal of troops from Iraq.

Aecom said it was looking to buy companies catering to power, energy and mining sectors and emerging markets.

The company had $398 million of cash and cash equivalents and $1.1 billion of debt — its lowest net debt in seven quarters — as of June 30.

"Our mining business, which has grown by over 120 percent this year, will benefit from increased presence in key geographies such as Africa and Brazil where mining activities are growing rapidly," said Aecom President Michael Burke.

The company expects to close three deals this year for a price less than $75 million, Burke said.

Aecom generated a free cash flow of $186 million in the third quarter, up from just $1 million a year earlier.

"The quarter had fairly low expectations going in and the most positive thing we saw was material improvement in the company's ability to generate cash, which has been a focus area for investors," said Robert W. Baird analyst Andrew Wittmann.

The Los Angeles-based company reduced the time it takes to collect revenue after a sale to 92 days in the quarter ended June from 98 days in the second quarter. It said it hopes to bring it down to 80 days.

Aecom provides architectural and engineering design, and program and construction management services for highways, airports, the government and commercial buildings.

April-June net income was $69.4 million, or 63 cents per share, compared with $73.8 million, or 62 cents per share, a year earlier. The number of outstanding shares fell 7 percent in the third quarter.

Revenue grew 2 percent to $2.10 billion. Management support services segment revenue fell 9 percent to $248.7 million.

Revenue at its biggest professional technical services segment grew 4 percent to $1.85 billion.

Analysts on average had expected earnings of 64 cents per share on revenue of $2.09 billion, according to Thomson Reuters I/B/E/S.

Shares of the company were up nearly 16 percent at $18.48.

(Reporting by Megha Mandavia in Bangalore; Editing by Maju Samuel, Supriya Kurane)

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