EMCOR Group, Inc. Reports Third Quarter 2013 Results

- Total Backlog Remains Strong at $3.39 Billion -

- Quarter Three Operating Cash Flow - $120.3 Million -

- Creates U.S. Industrial Services Segment, Includes Ohmstede and RepconStrickland -

Business Wire

NORWALK, Conn.--(BUSINESS WIRE)--

EMCOR Group, Inc. (EME) today reported results for the third quarter ended September 30, 2013.

For the third quarter of 2013, net income attributable to EMCOR was $26.7 million, or $0.39 per diluted share. Excluding several one-time charges discussed below, non-GAAP net income was $32.6 million, or $0.48 per diluted share, compared to non-GAAP net income of $41.7 million, or $0.62 per diluted share, in the third quarter of 2012. Revenues in the third quarter of 2013 totaled $1.63 billion, compared to revenues of $1.61 billion in the year ago period.

Operating income for the third quarter of 2013 was $54.1 million, or 3.3% of revenues, which included operating losses and expenses aggregating approximately $3.9 million (including restructuring expenses of $1.9 million) primarily relating to the Company's decision to withdraw from the UK construction market. Additionally, included in the quarter's operating income were transaction expenses of $4.7 million associated with the Company's acquisition of RepconStrickland, Inc. Excluding these losses and expense items, the Company's non-GAAP operating income for the third quarter of 2013 was $62.7 million, or 3.9% of revenues, compared to non-GAAP operating income in the 2012 third quarter of $71.4 million, or 4.6% of revenues, as adjusted for 2012 UK construction operating losses.

Please see the attached tables for a reconciliation of non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share to the comparable GAAP figures.

Selling, general and administrative expenses were $149.7 million, or 9.2% of revenues including $4.7 million of transaction expenses referenced above in the third quarter of 2013, compared to $134.5 million, or 8.4% of revenues, in the year ago period.

The Company's income tax rate as reported in the 2013 third quarter was 46.4%, compared to an income tax rate of 40.5% in the year ago period.

Backlog as of September 30, 2013 was $3.39 billion, an increase of 0.3% from $3.38 billion at the end of the 2012 third quarter. Led by backlog growth in the transportation sector, combined with backlog growth in the water/wastewater and commercial sectors, EMCOR achieved modest backlog growth that more than offset backlog declines in the institutional, industrial and healthcare sectors. Backlog growth of $58 million for the quarter in the Company's domestic operations more than offset a backlog decline of $47 million related to the Company's decision to withdraw from the UK construction market. Total backlog increased 0.5% from $3.37 billion on December 31, 2012.

Following the acquisition of RepconStrickland in July 2013, to provide additional clarity and to reflect changes in its internal reporting regarding its organizational structure, EMCOR has divided its United States facilities services group into two separate segments. The operations that provide mobile mechanical services, site-based services and government services will now be in the segment known as “United States building services.” The operations that provide industrial maintenance and services for refineries and petrochemical plants will now be in the segment known as “United States industrial services.” This segment will include the businesses of Ohmstede, Redman Equipment and RepconStrickland.

Tony Guzzi, President and Chief Executive Officer of EMCOR Group commented, “We continued to execute our strategic initiatives as we operate in a slowly recovering non-residential construction market and under the overhang of sequestration. We produced solid growth in our U.S. electrical construction segment, with increased backlog. We were able to drive improved performance in our U.S. mechanical construction segment, despite lingering challenges from two projects that we outlined in our second quarter earnings conference call. Our new building services segment recorded a strong quarter, led by mobile mechanical and site-based services performance and higher margin work. However, as anticipated, the businesses in our industrial services segment could not replicate their unprecedented strong performance from last year, which related to three large non-recurring turnaround and repair projects performed in quarter three 2012. During the quarter ended September 30, 2013, we continued to feel the impact of sequestration on our government-related projects. The slowdown of government contract work, combined with the timing issues associated with IDIQ awards, will continue to hinder our near-term performance. We believe that many of the issues relating to sequestration will be resolved eventually. In the meantime, we are focused on factors within our control and are taking actions to optimize our operating performance and ensure we are well positioned to drive future growth.”

Mr. Guzzi continued, “As we look to the long-term, we are making significant progress to improve the strength and profitability of the Company. We completed the acquisition of RepconStrickland in late July and have made significant progress with its integration. Our customers have been very pleased with the combination of our businesses, and we look forward to our new U.S. industrial services segment making meaningful contributions in the years to come. Also, our efforts to exit the UK construction business are progressing well.”

Mr. Guzzi concluded, “From a financial standpoint, we are pleased with the strength of our balance sheet, supported by robust operating cash flows. However, the effects of less than expected 2013 revenue growth, combined with sequestration and the recent government shutdown, are expected to impact our fourth quarter results. Therefore, we are adjusting our 2013 full-year guidance to reflect these issues. Going forward, while we continue to operate in an economic environment that remains challenging and unpredictable, we are optimistic that the non-residential market should improve in 2014. Further, we executed several critical initiatives and acquisitions that will likely drive earnings growth in 2014.”

Revenues for the first nine months of 2013 totaled $4.75 billion, slightly higher compared to $4.73 billion for the first nine months of 2012.

Net income attributable to EMCOR for the first nine months of 2013 was $77.9 million, or $1.14 per diluted share. Excluding losses associated with the withdrawal from the UK construction market, transaction expenses associated with the acquisition of RepconStrickland and restructuring expenses in the first nine months of 2013, non-GAAP net income was $99.7 million, or $1.46 per diluted share, compared to non-GAAP net income of $103.8 million, or $1.53 per diluted share, in the year ago period as adjusted for 2012 UK construction losses.

Operating income in the first nine months of 2013 was $141.5 million, or 3.0% of revenues. Excluding the items mentioned in the immediately preceding paragraph, non-GAAP operating income for the 2013 nine-month period was $170.5 million, or 3.6% of revenues, compared to non-GAAP operating income of $175.9 million, or 3.8% of revenues, in the prior year period.

Please see the attached tables for a reconciliation of non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share to the comparable GAAP figures

For the first nine months of 2013, SG&A totaled $427.9 million, or 9.0% of revenues, compared to $406.7 million, or 8.6% of revenues, in the first nine months of 2012.

The Company noted that, based on the current size and mix of its backlog and assuming the continuation of current market conditions, it now expects to generate revenues in 2013 of approximately $6.45 billion, and now expects non-GAAP diluted earnings per share for 2013 of $2.10 to $2.25, excluding the above-mentioned expenses associated with the withdrawal from the UK construction market, transaction expenses from the RepconStrickland acquisition and restructuring expenses. Including these items, the Company expects to generate GAAP diluted earnings per share of $1.75 to $1.90.

EMCOR Group, Inc. is a Fortune 500 worldwide leader in mechanical and electrical construction services, energy infrastructure and facilities services. This press release and other press releases may be viewed at the Company's Web site at www.emcorgroup.com.

EMCOR Group's third quarter conference call will be available live via internet broadcast today, Thursday, October 24, at 10:30 AM Eastern Daylight Time. You can access the live call through the Home Page of the Company's Web site at www.emcorgroup.com.

This release may contain certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Any such comments are based upon information available to EMCOR management and its perception thereof, as of this date, and EMCOR assumes no obligation to update any such forward-looking statements. These forward-looking statements may include statements regarding market opportunities, market share growth, gross profit, backlog mix, projects with varying profit margins, and selling, general and administrative expenses. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly these statements are no guarantee of future performance. Such risk and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for EMCOR's services, adverse business conditions, availability of adequate levels of surety bonding, increased competition, unfavorable labor productivity and mix of business. Certain of the risks and factors associated with EMCOR's business are also discussed in the Company's 2012 Form 10-K and in other reports filed from time to time with the Securities and Exchange Commission. All these risks and factors should be taken into account in evaluating any forward-looking statements.

               
EMCOR GROUP, INC.
FINANCIAL HIGHLIGHTS

(In thousands, except share and per share information)

(Unaudited)

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 

 

For the three months ended

September 30,

For the nine months ended

September 30,

2013         2012 2013       2012
Revenues $ 1,629,067 $ 1,606,242 $ 4,754,221 $ 4,734,798
Cost of sales 1,422,757   1,402,994   4,175,238   4,156,893  
Gross profit 206,310 203,248 578,983 577,905
Selling, general and administrative expenses 149,722 134,477 427,855 406,656
Restructuring expenses 2,466   145   9,642   145  
Operating income 54,122 68,626 141,486 171,104
Interest expense (2,352 ) (1,807 ) (5,978 ) (5,460 )
Interest income 235   381   862   1,165  
Income before income taxes 52,005 67,200 136,370 166,809
Income tax provision 23,112   26,890   55,285   64,711  
Net income including noncontrolling interests 28,893 40,310 81,085 102,098
Less: Net income attributable to noncontrolling interests (2,203 ) (729 ) (3,214 ) (1,924 )
Net income attributable to EMCOR Group, Inc. $ 26,690   $ 39,581   $ 77,871   $ 100,174  
 
Basic earnings per common share $ 0.40   $ 0.59   $ 1.16   $ 1.50  
Diluted earnings per common share $ 0.39   $ 0.59   $ 1.14   $ 1.48  
 
Weighted average shares of common stock outstanding:
Basic 67,174,848 66,568,318 67,127,149 66,667,681
Diluted 68,163,701 67,511,707 68,119,740 67,717,704
 
Dividends declared per common share $ 0.06   $   $ 0.12   $ 0.15  
 
   
EMCOR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

               
 

 

September 30,

2013

(Unaudited)

December 31,

2012

ASSETS
Current assets:
Cash and cash equivalents $   444,037 $   605,303
Accounts receivable, net 1,286,237 1,221,956
Costs and estimated earnings in excess of billings on uncompleted contracts 110,241 93,061
Inventories 42,724 50,512
Prepaid expenses and other 85,247   73,621
Total current assets 1,968,486 2,044,453
Investments, notes and other long-term receivables 5,865 4,959
Property, plant & equipment, net 123,138 116,631
Goodwill 829,316 566,588
Identifiable intangible assets, net 550,785 343,748
Other assets 29,169   30,691
Total assets $   3,506,759   $   3,107,070
LIABILITIES AND EQUITY
Current liabilities:
Borrowings under revolving credit facility $ $
Current maturities of long-term debt and capital lease obligations 1,882 1,787
Accounts payable 479,604 490,621
Billings in excess of costs and estimated earnings on uncompleted contracts 390,606 383,527
Accrued payroll and benefits 241,181 224,555
Other accrued expenses and liabilities 178,743   194,029
Total current liabilities 1,292,016 1,294,519
Borrowings under revolving credit facility 400,000 150,000
Long-term debt and capital lease obligations 3,195 4,112
Other long-term obligations 376,347   301,260
Total liabilities 2,071,558   1,749,891
Equity:
Total EMCOR Group, Inc. stockholders’ equity 1,422,188 1,346,080
Noncontrolling interests 13,013   11,099
Total equity 1,435,201   1,357,179
Total liabilities and equity $   3,506,759   $   3,107,070
 
                   
EMCOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2013 and 2012

(In thousands) (Unaudited)

 
 
2013 2012
Cash flows - operating activities:
Net income including noncontrolling interests $   81,085 $   102,098
Depreciation and amortization 25,907 22,577
Amortization of identifiable intangible assets 21,317 22,336
Deferred income taxes (666 ) 949
Excess tax benefits from share-based compensation (1,267 ) (5,636 )
Equity income from unconsolidated entities (880 ) (628 )
Other non-cash items 1,860 3,753
Distributions from unconsolidated entities 634 867
Changes in operating assets and liabilities, excluding the effect
of businesses acquired (59,943 ) (103,285 )
Net cash provided by operating activities 68,047   43,031  
Cash flows - investing activities:

Payments for acquisitions of businesses, net of cash acquired, and related contingent

consideration agreement

(448,943 ) (20,613 )
Proceeds from sale of property, plant and equipment 1,171 1,830
Purchase of property, plant and equipment (24,006 ) (29,356 )
Purchase of short-term investments (22,433 )
Maturity of short-term investments 4,616   22,490  
Net cash used in investing activities (467,162 ) (48,082 )
Cash flows - financing activities:
Proceeds from revolving credit facility 250,000
Repayments of long-term debt (6 ) (38 )
Repayments of capital lease obligations (1,256 ) (1,654 )
Dividends paid to stockholders (8,052 ) (9,988 )
Repurchase of common stock (4,998 ) (23,912 )
Proceeds from exercise of stock options 2,320 2,953
Payments to satisfy minimum tax withholding (927 ) (1,654 )
Issuance of common stock under employee stock purchase plan 2,088 1,913
Payments for contingent consideration arrangements (537 ) (5,748 )
Distributions to noncontrolling interests (1,300 ) (1,600 )
Excess tax benefits from share-based compensation 1,267   5,636  
Net cash provided by (used in) financing activities 238,599   (34,092 )
Effect of exchange rate changes on cash and cash equivalents (750 ) 2,201  
Decrease in cash and cash equivalents (161,266 ) (36,942 )
Cash and cash equivalents at beginning of year 605,303   511,322  
Cash and cash equivalents at end of period $   444,037   $   474,380  
 
                     
EMCOR GROUP, INC.
SEGMENT INFORMATION

(In thousands) (Unaudited)

 
 

For the three months ended

September 30,

2013       2012
Revenues from unrelated entities:
United States electrical construction and facilities services $   340,529 $   318,960
United States mechanical construction and facilities services 616,403 593,448
United States building services 457,777 444,510
United States industrial services 110,879   125,412
Total United States operations 1,525,588 1,482,330
United Kingdom construction and facilities services 103,479   123,912
Total worldwide operations $   1,629,067   $   1,606,242
 
 

For the nine months ended

September 30,

2013 2012
Revenues from unrelated entities:
United States electrical construction and facilities services $ 984,443 $ 905,343
United States mechanical construction and facilities services 1,741,483 1,794,268
United States building services 1,361,392 1,341,940
United States industrial services 335,358   288,605
Total United States operations 4,422,676 4,330,156
United Kingdom construction and facilities services 331,545   404,642
Total worldwide operations $   4,754,221   $   4,734,798
 
                 
EMCOR GROUP, INC.
SEGMENT INFORMATION

(In thousands) (Unaudited)

 
 

 

For the three months ended

September 30,

2013         2012
Operating income (loss):
United States electrical construction and facilities services $     23,971 $     22,146
United States mechanical construction and facilities services 27,421 30,359
United States building services 23,285 17,690
United States industrial services 307   11,129  
Total United States operations 74,984 81,324
United Kingdom construction and facilities services 1,136 1,646
Corporate administration (19,532 ) (14,199 )
Restructuring expenses (2,466 ) (145 )
Total worldwide operations 54,122 68,626
Other corporate items:
Interest expense (2,352 ) (1,807 )
Interest income 235   381  
Income before income taxes $     52,005   $     67,200  
 
 

For the nine months ended

September 30,

2013 2012
Operating income (loss):
United States electrical construction and facilities services $ 68,147 $ 68,121
United States mechanical construction and facilities services 56,809 82,688
United States building services 52,928 33,653
United States industrial services 26,319   22,617  
Total United States operations 204,203 207,079
United Kingdom construction and facilities services (2,122 ) 9,090
Corporate administration (50,953 ) (44,920 )
Restructuring expenses (9,642 ) (145 )
Total worldwide operations 141,486 171,104
Other corporate items:
Interest expense (5,978 ) (5,460 )
Interest income 862   1,165  
Income before income taxes $     136,370   $     166,809  
 
 
EMCOR GROUP, INC.
RECONCILIATION OF 2013 AND 2012 OPERATING INCOME

(In thousands) (Unaudited)

 

In our press release, we provide actual 2013 and 2012 third quarter and year-to-date September 30, 2013 and 2012

operating income. The following table provides a reconciliation between 2013 and 2012 operating income based on

non-GAAP measures to the most direct comparable GAAP measures.

                   

For the three months ended

September 30,

For the nine months ended

September 30,

2013   2012 2013   2012
GAAP operating income $   54,122 $   68,626 $   141,486 $   171,104
Transaction expenses related to the acquisition of RepconStrickland, Inc. 4,689 6,050
EMCOR UK construction operating losses 2,057 2,819 13,968 4,765
EMCOR UK restructuring expenses 1,865     8,990  

Non-GAAP operating income, excluding

RepconStrickland transaction expenses, UK losses

and UK restructuring expenses

$   62,733   $   71,445   $   170,494   $   175,869
 
                 
EMCOR GROUP, INC.
RECONCILIATION OF 2013 AND 2012 NET INCOME

(In thousands) (Unaudited)

 

In our press release, we provide actual 2013 and 2012 third quarter and year-to-date September 30, 2013 and 2012

net income attributable to EMCOR Group, Inc. The following table provides a reconciliation between 2013 and

2012 net income attributable to EMCOR Group, Inc. based on non-GAAP measures to the most direct comparable

GAAP measures.

 
 
 
 

For the three months ended

September 30,

For the nine months ended

September 30,

2013       2012 2013       2012
GAAP net income attributable to EMCOR Group, Inc. $   26,690 $   39,581 $   77,871 $   100,174

Transaction expenses related to the acquisition of

RepconStrickland, Inc. (1)

2,898 4,256
EMCOR UK construction losses (2) 1,579 2,128 10,721 3,598
EMCOR UK restructuring expenses (3) 1,431     6,900  

Non-GAAP net income attributable to EMCOR Group,

Inc., excluding RepconStrickland transaction

expenses, UK losses and UK restructuring expenses

$   32,598   $   41,709   $   99,748   $   103,772
 
(1) Amount is net of tax effect of $1.8 million in the quarter and in the nine-month period.
(2) Amount is net of tax effect of $0.5 million in the 2013 quarter and $3.2 million in the 2013 nine-month period.
Amount is net of tax effect of $0.7 million in the 2012 quarter and $1.2 million in the 2012 nine-month period.
(3) Amount is net of tax effect of $0.4 million in the quarter and $2.1 million in the nine-month period.
 
               
EMCOR GROUP, INC.
RECONCILIATION OF 2013 AND 2012 DILUTED EARNINGS PER SHARE FIGURES

(Unaudited)

 

In our press release, we provide actual 2013 and 2012 third quarter and year-to-date September 30, 2013 and 2012

diluted earnings per share. The following table provides a reconciliation between 2013 and 2012 EPS based on

non-GAAP measures to the most direct comparable GAAP measures.

 
 
 

For the three months ended

September 30,

For the nine months ended

September 30,

2013       2012 2013       2012
GAAP diluted earnings per common share $   0.39 $   0.59 $   1.14 $   1.48

Transaction expenses related to the acquisition of

RepconStrickland, Inc. (1)

0.04 0.06
EMCOR UK construction losses (2) 0.02 0.03 0.16 0.05
EMCOR UK restructuring expenses (3) 0.02 0.10

Non-GAAP diluted earnings per common share,

excluding RepconStrickland transaction expenses,

UK losses and UK restructuring expenses

$ 0.48 $ 0.62 $ 1.46 $ 1.53
 
(1) Amount is net of tax effect of $1.8 million in the quarter and in the nine-month period.
(2) Amount is net of tax effect of $0.5 million in the 2013 quarter and $3.2 million in the 2013 nine-month period.
Amount is net of tax effect of $0.7 million in the 2012 quarter and $1.2 million in the 2012 nine-month period.
(3) Amount is net of tax effect of $0.4 million in the quarter and $2.1 million in the nine-month period.
 

Contact:
EMCOR Group, Inc.
R. Kevin Matz, 203-849-7938
Executive Vice President
Shared Services
or
Investors:
FTI Consulting, Inc.
Nathan Elwell / Matt Steinberg
212-850-5600
or
Media:
Linden Alschuler & Kaplan, Inc.
Lisa Linden / Mollie Fullington
212-575-4545 / 917-346-6123

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