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EMCOR (EME) Posts Record Q1 Earnings, Revenues, Guides Up

Zacks Equity Research

EMCOR Group Inc. EME posted record first-quarter 2017 results, as its adjusted earnings from continuing operations of 88 cents per share trumped the Zacks Consensus Estimate of 68 cents by 29.4%.

The figure fared even better in year-over-year comparison, increasing a whopping 54.4% from the year-ago tally of 57 cents.



The bottom-line performance was driven by solid top-line growth and cost efficiency, which trickled down to the bottom line.

Inside the Headlines

The company generated record revenues for the quarter, which rose an impressive 8.4% year over year to $1,891.7 million, and also surpassed the Zacks Consensus Estimate of $1,798.3 million. Interestingly, it was EMCOR’s eight consecutive quarter of record year-over-year revenue growth. Organic revenue growth for the quarter came in at 4%.

Strong revenue growth in the quarter was primarily driven by broad-based, robust organic performance across the company’s domestic segments, along with solid contribution from its recent acquisitions. Particularly, the electrical and mechanical construction segments saw robust execution.

In terms of end-markets, the quarter witnessed particularly strong execution in commercial, manufacturing, healthcare and transportation markets.

In the quarter under review, the U.S. Construction segment (up about 16.5% year over year) sustained its robust momentum and delivered strong revenue, and operating income growth, driven by the U.S. Electrical Construction business (up 27.2%). The U.S. Mechanical Construction business grew 10.3% year over year.

The company’s U.S. Building Services segment revenues edged down 0.7% year over year. The U.S. Industrial Services revenue grew a modest 0.4% year over year.

Geographically, revenues from total U.S. operations jumped 9.4% year over year to $1,812.7 million. However, revenue growth from the UK building services continued to be strained, declining 9.8% year over year to $79 million, as start-up costs associated with the timing of new projects hurt the segment.

As of Mar 31, 2017, EMCOR’s backlog was $3.97 billion, up 3.2% year over year, supported by a strong domestic market.

A rise in the backlog of the U.S. Mechanical Construction, U.S. Electrical Construction and UK Building Services segments more than offset the dip in backlog for U.S. Building Services and U.S. Industrial Services segments, resulting in overall growth.

From an end-market perspective, the company witnessed growth in backlog for the commercial, water & wastewater, hospitality and healthcare markets, which was somewhat offset by the declines in industrial, institutional and transportation sectors.

EMCOR’s non-GAAP operating income came in at $82.8 million, up 46% compared with $56.7 million in the prior-year quarter. Operating margins came to 4.4%, reflecting an improvement of 120 basis points over the prior-year period.

Liquidity & Cash Flow

EMCOR’s cash and cash equivalents totaled $302.8 million as of Mar 31, 2017, compared with $464.6 million as of Dec 31, 2016. Total debt and capital lease obligations were $280.4 million, declining from $283.3 million recorded on Dec 31, 2015.

Cash flow used in operating activities for the quarter ended Mar 31, 2017 came in at $5.2 million, significantly lower than $37.2 million in the previous year.


During the quarter, the company acquired two firms — one in fire protection and one in mechanical services. Both acquisitions will add unique capabilities to EMCOR's portfolio and broaden its geographic footprint.

In second-quarter 2016, EMCOR completed the acquisition of Ardent Services, L.L.C. and Rabalais Constructors, LLC (collectively called Ardent) for a price of $205 million in cash. Ardent is an established provider of electrical and instrumentation services to the energy infrastructure market in North America.

Ardent will fortify EMCOR’s market-leading position in electrical construction and services, and will also serve to expand its capabilities in the energy and industrial sectors, particularly in the gulf coast, western and mid-continent regions. EMCOR integrated Ardent into its U.S. Electrical Construction and Facilities Services segment. The company expects the Ardent buyout to be accretive to EMCOR’s 2017 earnings by at least 10 cents per share.

EMCOR Group, Inc. Price, Consensus and EPS Surprise

EMCOR Group, Inc. Price, Consensus and EPS Surprise | EMCOR Group, Inc. Quote

Guidance Raised

Encouraged by its solid top-line performance, accretive acquisitions and increasing traction in the U.S. construction space, EMCOR’s management raised its 2017 guidance, with earnings from continuing operations projected in the range of $3.20–$3.50 (up from previous projections of $3.10–$3.50).

In light of the current size and mix of its backlog and overall positive market conditions, EMCOR reiterated revenue guidance for 2017 to be between $7.5 billion and $7.6 billion.

Our Take

EMCOR had a solid start to the year 2017, as the company set new records for revenues, and net income. Outstanding performance in the construction segment, building services and industrial services set the tone for strong future growth, as is reflected in the company’s healthy backlog and 2017 guidance.

Also, a healthy balance-sheet position and increasing market traction added to the company’s strength, indicating bright future prospects. In addition, increasing strength in the U.S. construction and industrial services markets bode well for the company.

Apart from this, we believe that the company’s diversified business structure, along with its concerted efforts to explore beyond traditional shop-related operations for tapping other profitable areas like food processing and power, will drive long-term growth.

EMCOR currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the broader construction sector include Century Communities, Inc. CCS, Meritage Corporation MTH and M.D.C. Holdings, Inc. MDC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Century Communities has registered a positive average surprise of 6.6% for the four trailing quarters, beating estimates all through.

Meritage has registered a remarkable positive average surprise of 14.2% for the last four quarters, driven by four consecutive beats.

M.D.C. Holdings has a modest earnings beat history, having surpassed estimates twice over the trailing four quarters. Last quarter, it beat estimates by 14.7%.

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