Episode Details

AECOM (ACM) Q3 FY2026 — Q3 FY2026 (quarter ended June 30; 8-K accepted 4:35pm ET Aug 10, so AFTER the close): adjusted EPS negative $0.50 vs a $1.46 estimate and net service revenue $1,609M vs $2,013.5M, both hit by a $337M charge the company did NOT add back. The stock fell 8.5% to $67.05, then 9.0% to $61.04 - down 16.7% in two sessions, and a 52-week low of $60.35 on Aug 13. It closed $63.11 on Aug 14. AECOM's headline looked like a double miss - adjusted EPS of negative $0.50 against a $1.46 bar and net service revenue of $1,609M against $2,013.5M - and this time the headline was right. A $337M charge on one 2019 Construction Management contract flowed straight through adjusted earnings because management chose not to exclude it. The stock fell 8.5% then 9.0% to a 52-week low - the fourth straight double-digit earnings break in a year that has taken ACM down 53%. THE CALL: HOLD (3/5, A REAL MISS, AND A REAL BACKLOG) — base-case value ~$67 vs ~$63.11 today. KEY METRICS: - CALL: HOLD, 3/5. Fair value $67 vs the $63.11 close on Aug 14, about 5.6% upside. Bull $84, bear $44, weighted 30/50/20. We are BELOW the Street: 16 buy, 8 hold, 1 sell, average target $79.43 over the last month, $83.11 over the quarter, $115.03 over the year. Every named rating predates this print - the most recent is RBC at Outperform on Jul 22. Post-print cuts: Baird to $73, KeyCorp to $79, Bank of America to $81, RBC to $90. - THE QUARTER (ended Jun 30; 8-K accepted 4:35pm ET Aug 10, so AFTER the close): GAAP revenue $3,586.1M, down 14.2%. Cost of revenue $3,620.1M, so gross profit was NEGATIVE $34.0M. Operating loss $76.0M against $294.1M a year ago. Net loss attributable to AECOM $86.7M; diluted EPS negative $0.67. BASIS PROOF: continuing-ops loss of $83.824M over 128.564M diluted shares is negative $0.65, the filed figure. Shares 128,696,425 off the 10-Q cover. - THE CHARGE: $337M pre-tax on ONE Construction Management project awarded in 2019, on terms AECOM says would not clear its current risk policies - lower subcontractor productivity, delayed completion, higher cost to complete. Substantial completion is not expected until Q2 FY2027, and claims will take years and litigation, so no recovery is booked. Crucially AECOM did NOT add the charge back to adjusted EPS, so the miss is real on the Street's basis. - THREE EPS NUMBERS FOR ONE YEAR: FY2026 GAAP guidance $2.37-$2.87; adjusted $3.95-$4.15; adjusted EXCLUDING the charge $5.90-$6.10. At $63.11 that is 24.1x, 15.6x or 10.5x. The adjusted-to-GAAP bridge is $150-200M of restructuring (ZERO in 9M FY2025 vs $53.6M in 9M FY2026), $58M of amortisation and $8M of financing fees. EV is $9,854M - $8,122M market cap plus $2,745.2M debt less $1,012.9M cash - or 10.4x the $935-965M EBITDA guide, 7.6x ex-charge. - THE CASH AND THE BACKLOG: Q3 operating cash flow $95M, down 66%; free cash flow $55M, down 79%. FY2026 free cash flow guidance is now about $300M against $684.9M actual in FY2025 and $707.9M in FY2024. Cash fell from $1,585.7M to $1,012.9M in nine months, debt flat at $2,745.2M, net leverage still 1.5x. Against that: backlog $27.8B, up 13%, a record on $4.2B of wins and a 1.6 book-to-burn, and ex-charge EPS of $1.49 BEAT the $1.46 bar. What to watch: UP: fiscal Q4 in November delivering free cash flow at or above the $300M guide with no further cost-to-complete revision, and Q4 adjusted EPS of $1.55-$1.75 as the full-year guide requires. DOWN: any further revision before substantial completion in Q2 FY2027, more net service revenue guidance cuts, or cash conversion staying near the 40% this year implies against a 100%-plus target. Below $55 the bear case is largely priced. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.