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EMCOR (EME) Posts Striking Q2 Earnings Beat, Guidance Up

Zacks Equity Research

EMCOR Group Inc. EME posted an incredible beat in its second-quarter 2016 results, as its adjusted earnings from continuing operations of 95 cents per share, exceeded the Zacks Consensus Estimate of 71 cents by nearly 34%. The figure also fared impressively in year-over-year comparison, surpassing the year-ago tally of 74 cents by 28.4%.



The robust bottom-line performance was driven by an impressive organic growth across the company’s segments, coupled with streamlined costs and superior operational execution. The company raised its 2016 guidance for the second time, on the back of impressive backlog levels and an increasing traction in the U.S. construction and industrial services markets.

Net income from continuing operations came in at $56.5 million, up 20.2% compared with $47 million in the prior-year period.

Inside the Headlines

Revenues for the quarter rose an impressive 16.9% year over year to $1,933 million, and also topped the Zacks Consensus Estimate of $1,770 million, significantly. Strong revenue growth in the quarter was primarily driven by broad-based, robust organic performance across the company’s domestic segments, coupled with solid contribution from its recent acquisitions.

The U.S. Mechanical Construction segment (up 14% year over year) sustained its robust momentum and delivered double-digit revenue and operating income growth. The industrial, water, and hospitality market sectors contributed strongly to the impressive growth.

The company’s Industrial Services business also had a great quarter (up 48% year over year), led by increased field service activities and higher demand for services like specialty welding services. Also, the U.S. Electrical Construction segment (up 22% year over year) benefited from the Ardent acquisition as well as greater project activity within the hospitality, commercial transportation and hospitality market sectors.

The U.S. Building Services segment also performed well, rising 5.3% year over year driven by significant contribution from acquisitions.

Geographically, revenues from total U.S. operations jumped 18.1% year over year to $1,842.8 million. However, revenue growth from the United Kingdom building services was much less impressive, inching down 1.1% year over year to $90.6 million.

As of Jun 30, 2016, EMCOR’s backlog stood at a record level of $3.81 billion, up 5.1% year over year, driven by the continued recovery of the non-residential construction market. A rise in the backlog of U.S. Mechanical Construction and Building Services segments more than offset the dip in backlog for U.S. Electrical Construction and U.S. Industrial Services segments, resulting in overall growth. The backlog in the U.K. Building Services segment (down $16.7 million year over year) was hurt by the negative impact of foreign currency translation.

From an end market perspective, the company saw growth in backlog for the industrial, water and wastewater, commercial and hospitality markets, which more than compensated for the decline in healthcare, transportation and institutional sectors.

EMCOR’s non-GAAP operating income in the first quarter rose 22.3% year over year to $95 million. Operating margin for the quarter expanded 10 basis points year over year to 4.8%.

Liquidity & Cash Flow

EMCOR’s cash and cash equivalents totaled $443 million as of Jun 30, 2016, compared with $486.8 million as of Dec 31, 2015. Long-term debt and capital lease obligations stood at $289.8 million, declining from $297.6 million recorded on Dec 31, 2015.

Cash flow generated from operating activities for the three months ended Jun 30, 2016 came in at $47.8 million, up from usage of $6.1 million in the year-ago quarter.


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

EMCOR integrated Ardent into its U.S. Electrical Construction and Facilities Services segment.

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.

The company expects the Ardent acquisition to be marginally accretive to EMCOR’s 2016 earnings, with the accretion increasing to at least 10 cents per share in 2017.


Encouraged by its solid top line performance, accretive acquisitions and increasing traction in the U.S. construction and industrial services space, EMCOR’s management raised 2016 guidance, with adjusted earnings from continuing operations now expected in a range of $2.90–$3.10 (up from previous projections of $2.75–$3.00 per share).

Also, encouraged by the current size and mix of its backlog and overall positive market conditions, EMCOR raised its 2016 top-line guidance. For full-year 2016, the company now expects revenues to be roughly $7.4 billion (up from prior projections of a range of $7.2 billion).

EMCOR GROUP INC Price and EPS Surprise


Our Take

This was a solid first half of 2016 for EMCOR, as the company set new records for revenues, operating income and net income. Outstanding performance in the industrial segment, building services and UK segments set the tone for strong future growth, as is reflected in the company’s raised guidance.

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

Apart from this, we believe 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). Better-ranked stocks in the broader construction space include MDC Holdings Inc. MDC, Meritage Homes Corporation MTH and PulteGroup, Inc. PHM, each sporting a Zacks Rank #1 (Strong Buy).

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