AECOM (ACM)

Infrastructure consulting service company AECOM (NYSE:ACM) fell short of the market’s revenue expectations in Q2 CY2025, with sales flat year on year at $4.18 billion. Its non-GAAP profit of $1.34 per share was 6.2% above analysts’ consensus estimates.

Company Overview

Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE:ACM) provides various infrastructure consulting services.

Companies providing engineering and design services boast ever-evolving technical expertise. Compared to their counterparts who manufacture and sell physical products, these companies can also pivot faster to more trending areas due to their smaller physical asset bases. Green energy and water conservation, for example, are current themes driving incremental demand in this space. On the other hand, those providing engineering and design services are at the whim of construction and infrastructure project volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

AECOM’s competitors include Jacobs Engineering (NYSE:J), Fluor (NYSE:FLR), and KBR (NYSE:KBR).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, AECOM’s sales grew at a sluggish 4% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AECOM’s annualized revenue growth of 7.3% over the last two years is above its five-year trend, but we were still disappointed by the results.

AECOM also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. AECOM’s backlog reached $24.59 billion in the latest quarter and averaged 2% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, AECOM’s $4.18 billion of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.3% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its newer products and services will not accelerate its top-line performance yet.

AECOM has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 6.6% gross margin over the last five years. Said differently, AECOM had to pay a chunky $93.45 to its suppliers for every $100 in revenue.

This quarter, AECOM’s gross profit margin was 7.8%, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

AECOM was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.5% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, AECOM’s operating margin rose by 2.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, AECOM generated an operating margin profit margin of 7%, up 1.6 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AECOM’s EPS grew at a spectacular 17.1% compounded annual growth rate over the last five years, higher than its 4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into AECOM’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, AECOM’s operating margin expanded by 2.5 percentage points over the last five years. On top of that, its share count shrank by 17.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For AECOM, its two-year annual EPS growth of 19.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, AECOM reported adjusted EPS at $1.34, up from $1.16 in the same quarter last year. This print beat analysts’ estimates by 6.2%. Over the next 12 months, Wall Street expects AECOM’s full-year EPS of $5.17 to grow 4.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

AECOM has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5%, subpar for an industrials business.

Taking a step back, we can see that AECOM’s margin dropped by 1.5 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

AECOM’s free cash flow clocked in at $261.7 million in Q2, equivalent to a 6.3% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although AECOM hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 13.8%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, AECOM’s has increased over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

AECOM reported $1.79 billion of cash and $2.55 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.16 billion of EBITDA over the last 12 months, we view AECOM’s 0.6× net-debt-to-EBITDA ratio as safe. We also see its $57.86 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see AECOM provide full-year EBITDA guidance that slightly beat analysts’ expectations. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue missed. Overall, this quarter was mixed. The stock traded up 1.7% to $114 immediately after reporting.

Updated: November 8, 2025 at 10:31 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in AECOM.

AECOM has some positive attributes, but it isn’t one of our picks. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while AECOM’s low gross margins indicate some combination of competitive pressures and high production costs, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders.

AECOM’s P/E ratio based on the next 12 months is 24.1x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $141.75 on the company (compared to the current share price of $130.81).