ABM Industries (ABM) Beats on Q2 Earnings, Lowers Guidance

ABM Industries Inc. ABM reported better-than-expected second-quarter fiscal 2018 results.

Adjusted earnings (from continuing operations) came in at 47 cents per share surpassing the Zacks Consensus Estimate by 2 cents. However, the bottom-line figure decreased 4.1% on a year-over-year basis. The downturn was mainly due to increased expenses related to buyout of CGA Services Group as well as higher wage and overtime costs resulting from a tightening labor market, partially offset by benefit from tax cut.

Revenues came in at $1.58 billion, which outpaced the consensus mark by $22.2 million and increased 20.6% year over year. The uptick was primarily driven by contributions from acquisition of GCA Services Group, organic growth within the Business & Industry segment, and parking and transportation wins within the Aviation segment.

Organic revenues grew 4.5% year over year. This improvement can be attributed to 6.8% and 3.9% organic growth in Business & Industry and Aviation segments, respectively. Revenues related to GCA came in at $256.4 million, which was reflected in the Education ($141.5 million), the Technology & Manufacturing ($60.6 million), and the Business & Industry segments ($42.5 million).

Shares of ABM have gained 11% since the announcement of its quarterly results. However, the stock has declined 14.6% year to date against the 10.1% increase of the industry it belongs to.

Let’s delve deeper in to the numbers.

Revenues by Segment

Revenues from Business & Industry, Aviation, Technology & Manufacturing, and Healthcare segments totaled $723.2 million (up 13.4% year over year), $245.4 million (up 5.8%), $227.5 million (up 41%) and $69.6 million (up 15.3%), respectively.

Education segment revenues came in at $206.3 million compared with $65.2 million in the year-ago quarter. Technical Solutions segment revenues of $108.5 million decreased 2.1% year over year.

ABM Industries Revenue (TTM)

ABM Industries Incorporated Revenue (TTM) | ABM Industries Incorporated Quote

Operating Performance

Operating profit of $45.3 million declined 11.2% year over year. Adjusted EBITDA of $83 million increased 37.3% from the year-ago quarter. Adjusted EBITDA margin of 5.3% expanded 70 basis points (bps) year over year.

Balance Sheet

ABM ended the quarter with cash and cash equivalents of $69.7 million, up from $68.6 million in the first quarter of fiscal 2018. Long-term debt totaled $1.1 billion compared with $1.2 billion the prior quarter.

In the reported quarter, cash flow from operating activities was $99.6 million compared with $33.8 million in the previous quarter. The company paid dividend of $11.5 million in the same period.

Fiscal 2018 Guidance

ABM lowered its fiscal 2018 earnings guidance to adjust for increase in wage inflation and personal costs. Adjusted income from continuing operations is anticipated to be in the range of $1.85-$1.95 per share, down from $2-$2.10 per share expected earlier. The mid-point of the guided range is below the Zacks Consensus Estimate of $1.93.

Stocks to Consider

ABM has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector include BG Staffing, Inc. BGSF, Insperity, Inc. NSP and Heidrick & Struggles International, Inc. HSII. While BG Staffing carries a Zacks Rank #2 (Buy), Insperity and Heidrick & Struggles sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected earnings per share growth rate for Heidrick & Struggles, Insperity and BG Staffing is 13.5%, 18% and 20%, respectively.

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