ABM Misses on Q4 Earnings Despite Record Revenues

Business services provider ABM Industries Incorporated (ABM) reported fourth-quarter fiscal 2014 adjusted earnings of 52 cents per share, which missed the Zacks Consensus Estimate by 3 cents. The recurring earnings per share, however, compared favorably with the year-ago adjusted tally of 48 cents.

ABM Industries Incorporated - Earnings Surprise | FindTheBest

GAAP earnings for the reported quarter were $27.9 million or 49 cents per share compared with $24.2 million or 43 cents per share in the year-earlier quarter. The year-over-year increase in earnings was primarily attributable to record revenues, driven by healthy organic and inorganic growth.

Total quarterly revenue increased 5.0% year over year to an all-time high of $1,298.9 million with 3.8% organic growth and accretive acquisitions. Revenues for the reported quarter marginally fell short of the Zacks Consensus Estimate of $1,300 million.

For fiscal 2014, ABM reported adjusted earnings of $1.57 per share compared with $1.52 in the year-ago period. GAAP earnings for fiscal 2014 were $75.6 million or $1.32 per share compared with $72.9 million or $1.30 per share in fiscal 2013. The year-over-year increase in earnings was largely driven by top-line growth. Revenues for fiscal 2014 improved 4.6% year over year to $5,032.8 million.

Segment Performance

Quarterly revenues for the Janitorial segment increased 5.3% year over year to $666.1 million due to significant new business wins in the sports and entertainment, high-tech, automotive and manufacturing, and financial services verticals as well as higher tag sales. Segment operating profit improved 13.5% to $38.7 million owing to lower labor costs associated with safety initiatives, realignment savings and new business.

Revenues from Facility Services segment decreased 3.7% year over year to $147.1 million, while operating profit increased 4.9% to $8.5 million.

Revenues from Parking segment were up 2.9% year over year to $156.7 million, while operating profit expanded 11.9% to $9.4 million due to the termination of lower margin contracts and stringent cost management.

The Security segment reported revenues of $94.2 million compared with $97.1 million in the year-ago quarter, representing a 3.0% year-over-year decrease. Operating profit was down 26.9% to $3.8 million.

Revenues from the Building & Energy Solutions segment were up 18.3% to $135.7 million, driven by strong organic growth in healthcare, energy and government businesses and accretive acquisitions. Operating profit improved 29.5% to $10.1 million due to new businesses and inorganic growth.

Revenues from Other segment improved 13.4% year over year to $99.1 million due to strong organic growth in Air Serv, while operating profit declined 12.8% to $3.4 million.

Other Metrics

Adjusted operating profit was up 10.0% year over year to $46.3 million with strong top-line growth and margin improvement due to business realignment, partially offset by higher operating expenses on new business and increased compensation expense to support growth initiatives. Adjusted EBITDA was up 9.1% to $63.4 million, due to margin improvement in Janitorial, Parking, Building & Energy Solutions, and Air Serv businesses.

ABM has a healthy pipeline of future businesses with strength particularly seen in its government business. The company expects to improve its profitability in the coming quarters with seamless integration of acquired businesses and newer contracts. Management also reiterated that corporate restructuring initiatives were well on track to yield sustained long-term growth momentum.

Financial Position

Cash and cash equivalents at fiscal end were $36.7 million. Net cash from operations by the end of fiscal 2014 declined to $120.7 million from $135.3 million in the prior-year period, largely due to delayed client collections and higher taxes paid. Outstanding debt under its credit facility was $320 million.

ABM repurchased $10.0 million worth of shares in the reported quarter. The company currently has $30 million worth of shares available to buy under its $50 million share repurchase program. ABM increased its quarterly cash dividend from 15.5 cents to 16 cents per share, which represents its 195th consecutive quarterly dividend payment.

Outlook

ABM offered an initial guidance for fiscal 2015. The company expects adjusted income in the range of $1.65 to $1.75 per share. After-tax net income is expected to be $1.45 to $1.55 per share.

Moving Forward

ABM’s strategy entails growth through acquisitions. The company expects to extend its global footprint as well as strengthen its position in existing markets through successful integration and organic growth across industry verticals.

ABM presently has a Zacks Rank #4 (Sell). Other players in the industry that warrant a look include Gartner Inc. (IT), CBIZ, Inc. (CBZ) and The Hackett Group, Inc. (HCKT), all of which carry a Zacks Rank #2 (Buy).

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