After AECOM quantified a long-projected earnings gain made possible by a smaller-than-expected fine to settle alleged misuse of federal funds, the Los Angeles-based company continued pounding its war drum about the billions of dollars of bid proposals its Management Services division hopes to convert into contract wins this year.
AECOM, among the biggest contractors in the Energy Department’s Cold War nuclear waste cleanup program, reported its fiscal first-quarter 2017 earnings Tuesday. It disclosed that Management Services’ operating income for the quarter included a $35-million “benefit from legal proceedings” related to the $57.5 million charge AECOM paid last fall to settle allegations the company spent federal dollars on non-nuclear-certified parts and services for the Waste Treatment Plant under construction at the Hanford Site in Washington state.
That was less money than AECOM had set aside for the settlement, which was sparked by a whistleblower lawsuit filed under seal in 2012 against Bechtel National and URS. AECOM acquired the latter company, the main subcontractor on the Waste Treatment Plant Bechtel is building at Hanford, in 2014. Both companies denied any wrongdoing in paying the settlement that totaled about $125 million.
AECOM disclosed the expected savings in November in an 8-K filing with the U.S. Securities and Exchange Commission, but did not book the gain until the quarter ended Dec. 31.
Fiscal first-quarter revenue and segment income grew year over year for Management Services, AECOM said Tuesday. Segment earnings rose some 7 percent to almost $75 million as revenue spiked by about 1 percent to $767 million.
AECOM’s Management Services division brought in roughly $3 billion in revenue during fiscal 2016, and nuclear cleanup contracts with the Energy Department’s Office of Environmental Management accounted for about 25 percent of the total, the company said last year.
So far in fiscal 2017, Management Services has more than $20 billion in bids out already. Most of these, worth $17.5 billion, will be awarded either to AECOM or its competitors by Sept. 30, Chairman and CEO Michael Burke said on a Tuesday conference call. Management Services will also bid on $8 billion more work by March 30, Burke said. That will include bids for defense and cybersecurity work unrelated to DOE nuclear cleanup.
In the long term — a frame the company did not define precisely — AECOM expects its profit margin in Management Services to hover around 7 percent. To stabilize margins in this thin-margined segment, the company plans to bid for more work as a prime contractor.
“[T]hat long-term 7% is our outlook for assuming more of a prime position on wins and fewer award fees, which are difficult to predict,” Steve Kadenacy, AECOM’s president and chief operating officer, said on the call.
Two major DOE nuclear cleanup contracts that could be awarded by the end of AECOM’s 2017 fiscal year — and for which the company has sent its own personnel to prebid meetings with DOE — are:
- A 10-year, Savannah River Site liquid waste services contract valued at about $6 billion. AECOM, which leads incumbent cleanup conglomerate Savannah River Remediation, confirmed it is in the hunt for the follow-on. Current SRR partner BWX Technologies, of Lynchburg, Va., is bidding against AECOM as a prime, as is Fluor Corp. of Irving, Texas. The new contract’s transition period is set to begin April 2.
- A five-year Paducah Gaseous Diffusion Plant deactivation and remediation contract worth an estimated $600 million to $1 billion. The deal’s base period, which includes a 120-day transition, would phase in on March 23.
The 10-year contract for legacy waste cleanup at the Los Alamos National Laboratory in New Mexico would also begin some time within AECOM’s 2017 fiscal year, but the company did not send any of its own personnel to an October presolicitation conference. AECOM is a junior partner in Los Alamos National Security, which could lose its Los Alamos management and operations contract over the improperly sealed barrel of transuranic waste that blew open underground at the Waste Isolation Pilot Plant in Carlsbad, N.M. in 2014 and ground DOE’s national transuranic waste disposal program to a halt for nearly three years.
The management and operations contract, managed by the National Nuclear Security Administration, used to include Los Alamos legacy cleanup, but that work was handed to DOE’s Environmental Management office after the accident at the Waste Isolation Pilot Plant. Los Alamos National Security will stay on the job under a stopgap cleanup contract through Sept. 30. The transition period for the long-term Los Alamos cleanup contract is set to begin July 2.
Outside of DOE’s legacy cleanup project, AECOM’s Construction Services division booked a massive win in its fiscal first quarter, hauling in a 10-year, roughly $1-billion fixed-price contract from Southern California Edison for decommissioning of the San Onofre Nuclear Generating Station in Pendleton, Calif., as part of a joint venture with EnergySolutions of Salt Lake City.
AECOM sees a “tremendous set of opportunities” in the worldwide decommissioning market, which the company now values at more than $200 billion, Burke said on Tuesday’s investor conference call. The company’s San Onofre win last year “gives us the credibility to take on a whole host of these other projects,” Burke said. AECOM is eyeing decommissioning opportunities in the U.S., Canada, Taiwan, and mainland China, Burke said.
The CEO is betting AECOM’s experience with DOE decommissioning projects will help the company stand out in the commercial market.
“In the nuclear space, there is probably no other firm that has done as much nuclear decommissioning in the United States as AECOM has in our legacy companies,” Burke said. “The work has primarily been done for the federal government, but between us and Bechtel, we have dominated that entire market for decades now.”
Overall, AECOM’s revenue rose nearly 1.5 percent in the company’s fiscal first quarter to almost $4.4 billion. Quarterly net income was more than $45 billion, or 30 cents a share, the company said. That is up more than 300 percent from a quarterly loss of more than $20 million in the 2016 first quarter.
