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It has been about a month since the last earnings report for Emcor Group (EME). Shares were flat in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent trend continue leading up to its next earnings release, or is Emcor Group due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
EMCOR Q1 Earnings Match, Revenues Miss Estimates
EMCOR Group Inc. reported first-quarter 2020 results, wherein earnings met the Zacks Consensus Estimate but revenues missed the same.
Earnings & Revenues
The company reported adjusted earnings of $1.35 per share, which matched the consensus mark but increased 5.5% from the year-ago quarter, attributable to strength in healthcare and manufacturing market sectors.
Revenues during the quarter totaled $2.3 billion, missing the consensus mark of $2.32 billion by 1%. That said, the reported figure grew 6.5% year over year, of which 2.7% was organic growth, led by double-digit improvement in U.S. Mechanical Construction and Industrial Services segments.
The U.S. Construction segment recorded revenue improvement of 6.2% year over year, supported by strength in healthcare and manufacturing market sectors. Operating margin remained flat year over year in the quarter.
Within U.S. Construction, the U.S. Electrical Construction and Facilities Services segment’s revenues declined 0.5% but operating margin improved 30 basis points (bps) year over year. Nonetheless, the U.S. Mechanical Construction and Facilities Services segment reported revenue growth of 10.9% from a year ago. Operating margin remained on par with the year-ago level.
Revenues in the U.S. Building Services segment registered year-over-year revenue growth of 1.2%. This segment faced the maximum disruption from the COVID-19 pandemic as the quarter progressed, primarily due to complete or partial closure of customer facilities. Operating margin declined 140 bps year over year. The U.S. Industrial Services unit’s revenues grew 19.9% and operating margin improved 30 bps year over year. The growth was led by strength in its field services operations, as a result of strong execution on several large turnarounds.
The U.K. Building Services segment’s revenues increased 4.5% and operating margin expanded 120 bps year over year.
Selling, general and administrative expenses — as a percentage of revenues — were 9.9%, up 30 bps from the prior-year period.
Operating income totaled $106 million during the quarter, 3.6% higher than the prior-year period, supported by its focus on project execution. However, operating margin of 4.6% was 10 bps lower than the prior-year period.
Liquidity & Cash Flow
As of Mar 31, 2020, the company had cash and cash equivalents of $347.1 million compared with $358.8 million at 2019-end. Total debt (excluding operating leases) was $504.5 million, up from $312.2 million recorded on Dec 31, 2019. Total debt to capitalization was 19.9%, up from 13.2% at 2019-end.
In the quarter, EMCOR used $78.8 million cash for operating activities compared with $57.4 million a year ago.
In March, EMCOR entered into a $1.6-billion credit agreement, comprising a $1.3-billion revolving credit facility and $300 million term loan. It has an option to further increase the revolving credit line to $1.9 billion of capacity.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 1126.67% due to these changes.
Currently, Emcor Group has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Emcor Group has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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