ABM Industries (ABM) Beats On Q2 Earnings, Revises View

Business services provider ABM Industries Incorporated (NYSE:ABM) recorded relatively healthy second-quarter fiscal 2016 (ended Apr 30, 2016) results on the back of solid revenues across most of the operating segments. Adjusted earnings (from continuing operations) for the reported quarter were $17.7 million or 31 cents per share compared with $19.0 million or 33 cents per share in the year-earlier quarter. The year-over-year decrease in adjusted earnings was primarily due to higher insurance-related expenses and an additional working day in the quarter. However, adjusted earnings for quarter exceeded the Zacks Consensus Estimate by 3 cents.

On a GAAP basis, net income for the reported quarter was $4.4 million or 8 cents per share, significantly down from $18.3 million or 32 cents per share in the year-ago quarter. The year-over-year decrease in earnings, despite healthy top-line improvement, was primarily attributable to higher operating expenses.

Revenues Rise on Organic Growth

Revenues for the reported quarter increased 6.9% year over year to $1,257.1 million and exceeded the Zacks Consensus Estimate of $1,246 million, largely driven by higher work order (tag) sales and a solid ABES (Technical Services) business. Organic growth improved 4.0% year over year, while inorganic growth added $34.0 million of incremental revenues during the quarter, primarily related to the Westway acquisition in the U.K. (reflected in the Building & Energy Solutions segment).

Operating profit for the reported quarter declined to $11.8 million from $27.2 million in the year-ago period owing to higher insurance-related expenses. Adjusted EBITDA decreased to $46.0 million from $48.7 million for respective margins of 3.7% and 4.1%.

Segmental Performance

Revenues from Janitorial increased 4.1% year over year to $686.4 million, driven by strong Work Order revenues. However, segment operating profit for the reported quarter declined 11.4% year over year to $34.8 million.

Revenues from Facility Services were down 1.9% year over year to $143.0 million, while operating profit improved 5.5% to $6.9 million owing to.

Revenues from Parking improved 7.2% year over year to $164.6 million, while operating profit from the segment was down 6.0% to $6.3 million.

Revenues from Building & Energy Solutions increased 25.9% to $153.1 million, while that from Other segment improved 14.5% year over year to $110.0 million.

Business Restructuring Update

ABM has embarked on a Vision 2020 plan that outlines its prospects for the next five years. The plan hinges on three primary phases, the first of which is aimed at increasing the efficiency of the company through diligent execution of the operating plan and stringent cost-reduction activities.

The second phase will focus on driving growth across the realigned verticals through effective realization of cost savings by way of procurement, account management and other organizational changes. The final phase of the transformation will include accelerated growth impetus from the vertical alignment and account planning systems with a focus on additional cost savings.

In concurrence with the quarterly results, management revealed that the company has successfully completed the first phase of the Vision 2020 plan. ABM is currently focusing on the second phase of the plan and remains confident of achieving $40-$50 million in savings through operational efficiencies by the end of 2017.

Financial Position

Cash and cash equivalents at quarter end were $45.7 million. Net cash from operating activities during the quarter was $87.4 million, compared with $71.4 million in the prior-year period. ABM ended the quarter with total debt of $336.5 million.

During the quarter, the company repurchased approximately 0.3 million shares for $10.2 million. As of Apr 30, 2016, ABM had shares worth $167.1 million remaining for repurchase under its $200 million share buyback program.

Updated Guidance

With relatively decent quarterly results and steady progress in its Vision 2020 plan, ABM updated its fiscal 2016 guidance. For fiscal 2016, ABM currently expects adjusted income from continuing operations in the range of $1.55–$1.65, up from $1.50–$1.60 expected earlier.

Going Forward

ABM’s comprehensive, strategic and transformation initiative is focused on driving sustainable profitability by effectively allocating resources to higher margin services and business verticals with a strong competitive edge. We expect this to fuel the company’s growth momentum in the coming quarters.

ABM currently has a Zacks Rank #3 (Hold). Some better-ranked stocks include CBIZ, Inc. (NYSE:CBZ) , CEB Inc. (NYSE:CEB) and The Hackett Group, Inc. (NASDAQ:HCKT) , each carrying a Zacks Rank #2 (Buy).