EMCOR's (EME) Q3 Earnings & Revenues Top, FY'23 Views Up
EMCOR Group, Inc. EME reported impressive third-quarter 2023 results, with earnings and revenues surpassing the Zacks Consensus Estimate and increasing year over year.
Strength across the segments and market helped the company to achieve 12.8% higher organic revenues.
The upward trend of the company can be attributable to the strong performance of its combined U.S. Construction segments and U.S. Building Services segment, backed by solid end-market demand as well as top-tier execution initiatives. Moreover, resilient demand for its services, primarily in semiconductors, data centers, manufacturing re-shoring, healthcare and across the EV value chain, sparked the growth momentum. Owing to these tailwinds, the company raised its 2023-year outlook for revenues and earnings.
Following the results, shares of EMCOR rose 7.5%, during the trading session on Oct 26. The investor’s sentiments must have been boosted by the company’s solid segmental performances and updated 2023 views.
Earnings & Revenue Discussion
The company reported adjusted earnings of $3.61 per share, surpassing the Zacks Consensus Estimate of adjusted earnings of $2.71 per share by 33.2%. The metric also increased 67.1% from the year-ago quarter’s figure of earnings of $2.16 per share.
EMCOR Group, Inc. Price, Consensus and EPS Surprise
EMCOR Group, Inc. price-consensus-eps-surprise-chart | EMCOR Group, Inc. Quote
Revenues were $3.21 billion, surpassing the consensus mark of $3.15 billion by 1.9% and increasing 13.5% year over year.
Segment Details
EMCOR currently operates in four reportable segments, which are U.S. Construction Services (Electrical and Mechanical Construction and Facilities Services), U.S. Building Services, U.S. Industrial Services and U.K. Building Services.
U.S. Construction Services: This segment's revenues were up 16.4% year over year to $2.03 billion year over year. Our estimate for the segment's revenues was $1.94 billion. The segment’s reported operating margin expanded by 270 basis points (bps) year over year to 9.9%.
Within the U.S. Construction umbrella, the U.S. Electrical Construction and Facilities Services segment’s revenues increased 10.1% year over year to $697.4 million. Operating income went up 77.5% and margin expanded 350 bps year over year to 9.1%. The U.S. Mechanical Construction and Facilities Services segment’s revenues rose 19.9% from a year ago to $1.33 billion. Its operating income grew 53%, while its margin expanded 220 bps year over year to 10.4%.
U.S. Building Services: Revenues in this segment were up 13.7% from the prior-year quarter’s levels to $817.7 million, driven by strong demand for energy efficiency and retrofit projects, building automation and controls, IAQ upgrades, as well as maintenance and repair service projects. Our estimate for this segment’s revenues was $783.3 million, considerably on the lower side of the reported value.
Operating income increased 24.1% year over year and margin improved 60 bps to 7%.
U.S. Industrial Services: This segment’s revenues increased 2% year over year to $252.2 million. The reported value was below our model’s expectation of $308.1 million.
Operating loss contracted by 87.5% to $0.2 million year over year and operating margin expanded 50 bps to (0.1)%. The notable increases in the demand, driven by greater new build heat exchanger orders, resulted in this segment’s growth.
U.K. Building Services: This segment’s revenues declined 5.9% from the year-ago quarter to $110.7 million. The reported value was below our model’s estimate of $120.6 million.
Operating income increased 6% to $8.9 million and operating margin grew 90 bps to 8% year over year. This decline was due to challenging market conditions.
Operating Highlights
The gross margin expanded 240 bps year over year to 17% in the quarter. Our estimate for this metric was 15.3%. Selling, general and administrative expenses — as a percentage of revenues — were 9.6% compared with the prior-year quarter’s levels of 9.3%.
Operating income in the quarter amounted to $235 million, up 56.6% year over year. The reported figure was above our model’s expectation of $182 million.
Despite persistent inflationary and uncertain economic conditions, the operating margin of 7.3% expanded 200 bps from the prior-year quarter’s levels. We expected the metric to be 5.8%.
Liquidity & Cash Flow
As of Sep 30, 2023, EMCOR had cash and cash equivalents of $523.6 million compared with $456.4 million at 2022 end. Long-term debt and finance lease obligations totaled $97.5 million, lower than the 2022-end level of $231.6 million.
Net cash provided by operating activities was $475.9 million in the first nine months of 2023 compared with $238.4 million in the prior-year period.
The remaining performance obligations or RPOs as of Sep 30, 2023, were $8.64 billion, up 21.7% year over year.
Updated 2023 View
The company updated its annual revenue guidance to approximately $12.5 billion compared with the prior expected range of $12- $12.5 billion.
Earnings per share are now expected to be within $12.25-$12.65, up from the previously expected range of $10.75-$11.25. The effective tax rate is still estimated to be 27.5-28% for 2023.
Zacks Rank
EMCOR currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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