EMCOR (EME) Beats On Q3 Earnings & Revenues, Raises Guidance

EMCOR Group Inc. (NYSE:EME) reported solid results in third-quarter 2019. Adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate, and improved year over year. The solid performance was mainly driven by strong project execution across the business.

Backed by the solid performance, favorable project mix, and strong underlying market conditions, EMCOR has raised its full-year 2019 guidance for revenues as well as earnings.

Adjusted earnings during the reported quarter came in at $1.45 per share, beating the consensus mark of $1.41 by 2.8%. The reported figure also increased 6.6% from the year-ago quarter. The improvement was driven by strong revenue growth across the board and disciplined project execution.

EMCOR Group, Inc. Price, Consensus and EPS Surprise

Revenues of $2.29 billion, which surpassed the consensus mark of $2.17 billion by 5.5%, grew 11.8% year over year. Notably, the company experienced solid demand across geographies and end-markets served. Organically, revenues increased 8.1% year over year.

Segment Details

In the quarter under review, the U.S. Construction segment recorded revenue improvement of 14.3% year over year, with organic growth of 10.4%.

Within U.S. Construction, the U.S. Electrical Construction segment reported revenue growth of 14.1% year over year. Also, the U.S. Mechanical Construction segment reported revenue growth of 14.4% from a year ago. Markedly, operating margin in these two segments was 6.1% and 7%, respectively, given strong project execution.

Revenues in the U.S. Building Services segment maintained robust momentum on double-digit revenue growth of 12.3% and operating margin improvement of 40 basis points (bps) year over year. The solid improvement was driven by strong performance of mechanical and commercial site-based businesses.

The U.S. Industrial Services unit posted revenue growth of 3% year over year. However, the U.K. Building Services segment’s revenues declined 2.9% year over year due to significant macroeconomic uncertainties.

Operating Highlights

Selling, general and administrative expenses — as a percentage of revenues — were 9.6%, in line with the prior-year period. However, the metric was down 10 bps sequentially.

Non-GAAP operating income (excluding impairment loss on identifiable intangible assets) totaled $115.7 million during the quarter, 3.6% higher than $111.8 million in the prior-year period. However, adjusted operating margin of 5.1% was down 40 bps from the prior-year figure of 5.5%.

Liquidity & Cash Flow

As of Sep 30, 2019, the company had cash and cash equivalents of $368.1 million compared with $363.9 million at 2018-end. Long-term debt and finance lease obligations totaled $247.8 million, down from $254.8 million recorded on Dec 31, 2018.

In the first nine months of 2019, EMCOR provided $176.9 million cash to operating activities compared with $65.9 million in the comparable prior-year period.

2019 Guidance Raised

Buoyed by solid first nine months performance, favorable project mix and the assumption that the current market conditions will continue, EMCOR lifted its view for full-year 2019 earnings as well as revenues.

EMCOR now projects revenues to be $9 billion, up from the prior guided range of $8.8-$8.9 billion for the year. The company now expects earnings within $5.65-$5.75 per share, up from the prior expectation of $5.50-$5.75.

Notably, the company’s solid growth of business and the non-residential construction market is expected to persist in 2020.

Zacks Rank

EMCOR — which share space with MasTec, Inc. (NYSE:MTZ) , Dycom Industries, Inc. (NYSE:DY) and Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) in the Zacks Building Products - Heavy Construction industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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