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EMCOR's (EME) Q1 Earnings Beat, View Up, Stock Rises 5%

Zacks Equity Research

EMCOR Group Inc. EME reported first-quarter 2019 results, wherein both the top and bottom lines surpassed the respective Zacks Consensus Estimate. In fact, this marked the ninth consecutive earnings beat for the company. Notably, the stock gained more than 5% during yesterday’s trading session, after it provided upbeat guidance for 2019.

Adjusted earnings during the quarter came in at $1.28 per share, beating the consensus mark of $1.05 by 21.9%. Also, the reported figure increased 36.2% from the year-ago quarter. The improvement was driven by continued strength across the board.

EMCOR generated record first-quarter revenues of $2.16 billion, which surpassed the consensus mark of $1.97 billion by 9.5% and grew 13.6% year over year. Of the total growth, 11.0% was organic, driven by solid growth across business, including double-digit growth in its U.S. Electrical Construction, U.S. Building Services and U.S. Industrial Services segments.

EMCOR Group, Inc. Price, Consensus and EPS Surprise

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

Segment Details

The U.S. Construction segment maintained robust momentum on strong revenues. The U.S. Electrical Construction and facilities services segment revenues rose 16.1% year over year. Organically, this segment’s revenues grew 12.1% from the prior-year quarter. Overall growth of the segment was supported by contribution from a recent acquisition. The U.S. Mechanical Construction and facilities services segment revenues increased 9.9% from a year ago during the quarter.

The U.S. Building Services segment revenues grew 12.6% year over year on the back of strong growth across mobile mechanical services and commercial site-based services businesses.

The U.S. Industrial Services revenues also increased 29.8% year over year, given significantly improved spring turnaround activity.

Importantly, revenues from total U.S. operations grew 14.3% year over year to $2.05 billion.

The U.K. Building Services segment registered 0.6% year-over-year revenue improvement, driven by new customer wins and strong demand for small- to mid-sized project activity, partly offset by significant foreign exchange headwinds.

Operating Highlights

Selling, general and administrative expenses, as a percentage of revenues, decreased 50 basis points (bps) to 9.6% from the prior-year figure of 10.1%.

The company’s operating income was $102.3 million during the quarter, higher than $78 million in the prior-year period. Operating margin was 4.7%, up 60 bps from the prior-year figure of 4.1%. The upside was mainly driven by exceptional execution of cost-control measures.

Liquidity & Cash Flow

EMCOR’s cash and cash equivalents totaled $252 million as of Mar 31, 2019 compared with $363.9 million at 2018-end. Long-term debt and capital lease obligations came in at $255.4 million, up from $254.8 million recorded on Dec 31, 2018.

It used $57.4 million cash for operating activities in the first quarter versus $59.1 million a year ago.

2019 Guidance Up

Buoyed by solid market conditions and favorable project mix, EMCOR lifted its view for full-year 2019 earnings as well as revenues.

The company now expects earnings from continuing operations within $5.00-$5.50 a share, up from prior expectation of 4.70-$5.40. EMCOR projects revenues between $8.5 billion and $8.6 billion, up from the prior guided range of $8.3-$8.4 billion for the year.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Zacks Construction sector are Masonite International Corporation DOOR, Arcosa, Inc. ACA and Construction Partners, Inc. ROAD, each carrying a Zacks Rank #2 (Buy).

Masonite International’s earnings for 2019 are expected to grow 8.4%.

Arcosa and Construction Partners’ three-five year expected EPS growth rate is projected at 13.1% and 10%, respectively.

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