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EMCOR (EME) Stock Declines as Q4 Earnings Miss Estimates

·6 min read

EMCOR Group, Inc. EME reported mixed results for fourth-quarter 2021. Adjusted earnings lagged the Zacks Consensus Estimate but revenues surpassed the same. On a year-over-year basis, both the metrics improved, thanks to robust demand for its services.

Following the announcement, shares of the company fell 2.3% on Feb 24.

Tony Guzzi, the chairman, president and CEO of EMCOR, said, As we move into 2022, we will maintain our disciplined capital allocation strategy, focusing on organic growth investments, strategic acquisition opportunities, and returning cash to shareholders through share repurchases and dividends.”

Earnings & Revenue Discussion

The company reported adjusted earnings of $1.89 per share, missing the consensus mark of $1.92 by 1.6% but increasing 1.6% from the year-ago figure of $1.86.

EMCOR Group, Inc. Price, Consensus and EPS Surprise

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

EMCOR Group, Inc. price-consensus-eps-surprise-chart | EMCOR Group, Inc. Quote

Revenues totaled $2.64 billion, surpassing the consensus mark of $2.55 billion by 3.4% and improving 15.7% year over year.

Segment Details

The U.S. Construction segment revenues were up 12% year over year to $1.6 billion. Segment operating margin fell 170 basis points (bps) year over year. Despite continued supply chain constraints and COVID-related headwinds, the segment remained resilient, leveraging its long-term supplier relationships and focusing on safety to maintain solid operating margins.

Within the U.S. Construction umbrella, the U.S. Electrical Construction and Facilities Services segment revenues increased 17.3% year over year to $541.9 million. Operating income fell 5.9% and margin contracted 190 bps year over year. The U.S. Mechanical Construction and Facilities Services segment revenues rose 9.4% from a year ago to $1,060.7 million. Its operating income declined 7.7% and margin contracted 170 bps year over year. The upside in both the businesses was driven by strong performance in key market sectors including manufacturing, healthcare, commercial and water/wastewater.

Revenues in the U.S. Building Services segment improved 10.4% from the prior-year quarter to $630.1 million backed by increased demand for projects, retrofits, and building automation and controls, including increasing energy efficiency. Operating income was flat year over year and margin was down 50 bps.

The U.S. Industrial Services unit’s revenues increased 72.6% year over year to $283.6 million. Operating income rose a whopping 146.3% and operating margin was 1.4% versus negative 5.2% a year ago. The company continues to serve the refining and petrochemical customers and is well positioned for the opportunities ahead in the growing renewable energy and renewable fuels markets.

The U.K. Building Services segment’s revenues gained 7.7% from the year-ago quarter to $123.9 million on excellent contract and specialized project execution. Operating income rose 17.5% and operating margin grew 30 bps year over year.

Operating Highlights

Gross margins contracted 130 bps to 15.3% for the quarter. Nonetheless, selling, general and administrative expenses — as a percentage of revenues — of 9.8% improved 90 bps from the prior-year period.

Operating income for the quarter was $143 million, up 3.9% from the prior-year period. Adjusted operating margin of 5.4% contracted 60 bps from the prior-year period.

2021 Highlights

Total revenues for 2021 came in at $9.9 billion, up 12.6% from $8.8 billion in 2020. Adjusted operating margin for the year was 5.4% compared with 5.6% in the year-ago period. For 2021, adjusted EPS came in at $7.06 compared with $6.40 in the previous year.

Liquidity & Cash Flow

As of Dec 31, 2021, EME had cash and cash equivalents of $821.3 million compared with $902.9 million at 2021-end. Long-term debt and finance lease obligations totaled $245.5 million, marking a decline from the 2020-end level of $259.6 million.

For 2021, net cash provided by operating activities was $318.8 million compared with $806.4 million in 2020.

The remaining performance obligations at 2021-end were $5.60 billion, up almost 22% from $4.59 billion at 2020-end.

2022 Guidance

For 2022, EMCOR anticipates the non-residential market to grow, energy efficiency upgrades to drive HVAC replacement projects, oil & gas markets to improve, and the U.K. market to remain strong. Yet, fuel and energy costs are likely to remain a headwind. Also, macro uncertainties like supply chain disruption, inflation and increased COVID-19 mandates are likely to impact the business.

Based on the expected project mix and its current visibility into 2022, EMCOR expects earnings per share within $7.15-$7.85 and revenues between $10.4 billion and $10.7 billion. The Zacks Consensus Estimate for earnings is currently pegged at $7.76 per share. The consensus estimate for revenues is currently pegged at $10.3 billion.

Zacks Rank & Recent Construction Releases

EMCOR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gibraltar Industries, Inc. ROCK reported lackluster earnings for fourth-quarter 2021. Earnings missed the Zacks Consensus Estimate and declined on a year-over-year basis due to low margins in the Renewables segment. Margins were affected by increased field costs owing to supply-chain disruptions and intense inflation on structural steel in solar canopy racking projects.

Gibraltar’s net sales surpassed the consensus mark and increased from the year-ago level.

Armstrong World Industries, Inc. AWI reported solid results for fourth-quarter 2021. The top and bottom lines surpassed the Zacks Consensus Estimate as well as increased on a year-over-year basis. The improvement was attributed to a favorable Average Unit Value and benefits from the acquisitions of Turf, Moz, and Arktura in 2020.

Armstrong World noted that the resurgence of the pandemic in certain markets and the global supply chain and labor disruptions resulted in extended project timelines.

TopBuild Corp. BLD reported better-than-expected results for fourth-quarter 2021.

TopBuild’s earnings and revenues surpassed their respective Zacks Consensus Estimate and improved year over year, thanks to favorable volume and acquisitions as well as pricing at both businesses, defying the labor and material-constrained market.

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