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Introduction & Market Context
Aecon Group Inc . (TSX:ARE) presented its first quarter 2025 financial results on April 24, 2025, revealing a company experiencing significant growth in new contracts and backlog while navigating operational challenges. The construction and infrastructure development company’s stock closed at $17.38 on April 23, showing a modest 1.82% increase ahead of the results announcement.
The presentation highlighted Aecon’s strategic positioning in diverse infrastructure sectors while acknowledging the ongoing impact of legacy fixed-price projects on its financial performance. This follows the company’s Q3 2024 earnings, which had previously indicated a $110 million reserve for legacy projects and signaled an expectation for revenue growth to commence in 2025.
Quarterly Performance Highlights
Aecon reported substantial revenue growth in Q1 2025, with revenue increasing 25% to $1,062 million compared to $847 million in Q1 2024. When adjusted to exclude the impact of legacy projects and divestitures, revenue grew even more impressively at 34% to $1,035 million.
The company’s most notable achievement was the dramatic increase in new awards, which surged 325% to $4,096 million from $963 million in the prior year period. This contributed to a record backlog of $9,696 million at quarter-end, representing a 55% increase from $6,273 million at the end of Q1 2024.
As shown in the following chart of Aecon’s backlog growth:
However, profitability metrics presented a more complex picture. Reported Adjusted EBITDA decreased significantly to $3.6 million from $32.9 million in Q1 2024. The company’s adjusted figures, which exclude legacy project impacts, showed a much smaller decline to $32.2 million.
Detailed Financial Analysis
The Construction segment, which represents the majority of Aecon’s business, drove the revenue increase with a 25% rise to $1,057 million. This growth was primarily attributed to increases in nuclear operations ($125 million), industrial operations ($65 million), utilities operations ($15 million), and civil operations ($11 million).
Despite revenue growth, the Construction segment’s profitability declined significantly. Adjusted EBITDA fell from $28 million in Q1 2024 to negative $1 million in Q1 2025, while operating profit decreased from $7 million to negative $30 million. The company attributed these declines to lower gross profit margins in civil operations due to a legacy project and weaker profits in western Canada.
The Concessions segment also experienced challenges, with revenue decreasing 47% to $2 million and Adjusted EBITDA declining 12% to $13 million. These decreases were primarily due to lower management and development fees related to LRT projects nearing completion.
The following chart illustrates Aecon’s comprehensive financial performance for Q1 2025:
Aecon’s diverse business model across multiple sectors provides some resilience against sector-specific challenges. The company’s revenue distribution across civil, utilities, nuclear power, urban transportation, and industrial sectors is visualized below:
Strategic Initiatives
Aecon emphasized its strategy of de-risking its business through collaborative project delivery models. The company highlighted several significant projects, including the Darlington New Nuclear Project Small Modular Reactor, Contrecoeur Terminal Expansion Project, and the recently signed $2.8 billion Scarborough Subway Extension contract.
As illustrated in the following project overview:
The company also outlined its sustainability initiatives, targeting a 30% emission reduction by 2030 and 50% by 2032, with the ultimate goal of achieving net-zero scope 1, 2, and 3 emissions by 2050. Aecon reported an 11% emission reduction from 2020 to 2023 and a 34% reduction to date in 2024.
The sustainability roadmap includes initiatives such as hybrid/electric equipment, solar equipment, battery tools, and fleet retrofits:
Forward-Looking Statements
Aecon’s outlook for 2025 indicates expectations for stronger revenue driven by its record backlog, solid demand, and strategic acquisitions. This aligns with statements made in the Q3 2024 earnings call, where management projected revenue growth to begin in 2025.
The company acknowledged that operating profitability continues to be impacted by legacy fixed-price projects and emphasized the importance of claims resolution. Management reiterated its commitment to maintaining a disciplined capital allocation approach while making strategic investments.
The composition of Aecon’s backlog suggests a more balanced risk profile going forward, with 73% of contracts being Cost Plus/Unit Price and only 27% Fixed Price. This shift away from fixed-price contracts appears to be a strategic response to the challenges experienced with legacy projects.
Conclusion
Aecon’s Q1 2025 results present a company in transition, with strong indicators of future growth through record backlog and new awards, but continuing to navigate the financial impact of legacy projects. The significant difference between reported and adjusted figures underscores the material effect these legacy issues continue to have on current performance.
With a diverse business model, strategic focus on collaborative project delivery, and clear sustainability roadmap, Aecon appears positioned to capitalize on its growing backlog as it works through its operational challenges. Investors will likely focus on the company’s ability to convert its substantial backlog into improved profitability in upcoming quarters.
Full presentation:
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