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A month has gone by since the last earnings report for EMCOR Group, Inc. EME. Shares have added about 1.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is EME 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 drivers.
EMCOR Posts Record Q1 Earnings, Revenues Beat Estimates
EMCOR posted its fifth consecutive earnings beat, as first-quarter 2018 adjusted earnings from continuing operations came in at a record 94 cents per share. The figure trumped the Zacks Consensus Estimate of 85 cents by 10.6%.
The earnings figure improved 6.8% year over year, driven by higher productivity and improved margins. Solid non-residential construction demand and strong project execution boosted profits.
Inside the Headlines
The company generated a record $1.9 billion in revenues, which edged up 0.5% year over year and surpassed the Zacks Consensus Estimate of $1,816 million.
Revenues in the quarter were primarily fueled by sound performance from the combined U.S. Construction and U.S. Building segments, along with solid contribution from recent acquisitions.
Coming back to the quarter under review, the U.S. Construction segment (up 3.5% year over year) sustained its robust momentum and delivered strong revenues as well as operating income growth. The segment was driven by the U.S. Mechanical Construction business (up 2.6%). The U.S. Electrical Construction business rose 4.1% year over year.
The company’s U.S. Building Services segment revenues inched up 3.3% year over year,driven by strong execution in commercial site-based and energy services businesses.
The U.S. Industrial Services revenues, affected by the lingering impact of Hurricane Harvey, continued to exhibit a lackluster performance and contracted 28.4% year over year. The hurricane led to a delay in the fall turnaround work and under absorption of overhead costs for projects which the company was unable to execute, which dented margins.
Revenues from total U.S. operations fell 1.1% year over year to $1,793.5 million. Revenue growth from the U.K. building services continued on growth trajectory and grew 35% year over year to $106.9 million. The upside was driven by profitable new contracts, solid execution in base business and increased project activity.
As of Mar 31, 2018, EMCOR’s backlog was $3.98 billion, down 0.5% year over year.
A rise in the backlog of the U.S. Building Services, U.S. Industrial Services, and U.K. Building Services segments more than offset the dip in backlog for the U.S. Mechanical Construction and U.S. Electrical Construction.
From an end-market perspective, the company witnessed growth in backlog for the commercial and water & wastewater markets, offset by declines in industrial, healthcare and transportation sectors.
EMCOR’s operating income was $78.7 million, down 5% from the prior-year quarter. Operating margins were 4.1%, reflecting a contraction of 30 basis points from the prior-year quarter.
Liquidity & Cash Flow
EMCOR’s cash and cash equivalents totaled $352.4 million as of Mar 31, 2018, compared with $467.4 million as of Dec 31, 2017. Total debt and capital lease obligations were $266.5 million, down from $269.8 million recorded on Dec 31, 2017.
For the quarter, cash flow used in operating activities totaled $143.4 million, significantly higher than $72.7 million recorded in the year-ago quarter.
On the back of its accretive acquisitions and solid traction in the U.S. construction space, EMCOR’s management reiterated guidance for 2018, with earnings from continuing operations in the range of $4.10-$4.70.
In light of the current size and mix of its backlog and overall positive market conditions, EMCOR expects revenues in the range of $7.6-$7.7 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
EMCOR Group, Inc. Price and Consensus
EMCOR Group, Inc. Price and Consensus | EMCOR Group, Inc. Quote
At this time, EME has a subpar Growth Score of D, a grade with the same score on the momentum front. The stock was also 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, EME has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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