Aecom

AECOM said the quarter included a $337 million pretax charge tied to delays on a large construction management project. Excluding that charge, adjusted EBITDA and EPS improved year over year by 5% and 11%, and design NSR increased 5% adjusted for one less working day. The company reported positive free cash flow of $55 million in the quarter, while the construction management project charge reduced cash flow by $185 million. For full-year fiscal 2026, management now expects approximately $7.3 billion of NSR and midpoint adjusted EBITDA and EPS of $950 million and $4.05, respectively; adjusted for the charge, it expects NSR of $7.65 billion to $7.7 billion and midpoint adjusted EBITDA and EPS of $1.29 billion and $6. The full-year adjusted EBITDA margin outlook was raised to 17.4% from 17%, and free cash flow guidance is $300 million. Management also said the first problematic project is now expected to complete near the end of the second quarter of fiscal 2027, the second in the first quarter of fiscal 2027, and the two projects should drive about $0.5 billion of cash impact in the first half of fiscal 2027.

Troy Rudd framed the quarter as strong operationally despite the charge, emphasizing record wins, a 13% backlog increase, and a 1.6x book-to-burn as proof that client demand remains healthy. He said the construction management issue was driven by a delayed large design-build P3 project that would not pass today’s risk hurdles, and stressed that the company has since changed leadership, tightened controls, and stopped pursuing that type of work in CM. His tone was cautious but confident, repeatedly pointing to strong backlog, long-term visibility, and a 5% to 8% organic growth algorithm for the business over time.

Gaurav Kapoor focused on the earnings quality beneath the charge and on margin resilience. He said Americas adjusted operating margin would have been 18% excluding the CM impact, with approximately 140 basis points of pressure from record business development spending, and he expects Americas margins to normalize next quarter. He also highlighted International margin strength at 14.3%, $2 billion of undrawn borrowing capacity, no maturities for several years, and continued cash burn from the two CM projects through the first half of fiscal 2027; he also said interest expense in 2027 will be higher by $30 million to $35 million year over year because of that cash use and higher average debt balances.

Analysts pressed management on the size and timing of the problem-project claims, the cash burn into 2027, and whether construction management could drag on growth next year. Management said the claims should remain in the $600 million to $650 million range and that the two projects will require about $0.5 billion of cash in the first half of fiscal 2027, while reiterating confidence in recovery efforts. They also explained that CM now mostly runs under GMP-style terms with risk pushed to subcontractors, and that new CM backlog is largely different in risk profile from the two legacy P3 design-build jobs. Questions also focused on the 2026 restructuring spend, and management said the full guidance of $150 million to $200 million still stands, with most of the impact expected later rather than in Q4.