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A month has gone by since the last earnings report for Emcor Group (EME). Shares have added about 4.4% in that time frame, underperforming the S&P 500.
Will the recent positive 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 its most recent earnings report in order to get a better handle on the important catalysts.
EMCOR’s Q2 Earnings Beat Estimates, Margin Rise Y/Y
EMCOR Group Inc. reported impressive earnings for second-quarter 2020. Adjusted earnings surpassed the Zacks Consensus Estimate, mainly driven by cost discipline amid the COVID-19 pandemic.
Earnings & Revenues
The company reported adjusted earnings of $1.44 per share, which topped the consensus mark of 92 cents by 56.5% but decreased 3.4% from the year-ago quarter.
Revenues totaled $2,014 million, missing the consensus mark of $2,040 million by 1.3% and declining 13.3% year over year due to tepid segmental performance.
The U.S. Construction segment revenues decreased 11.2% year over year to $1.24 billion. Segment operating income grew 1.4% and operating margin improved 100 basis points (bps) year over year, supported by strong performance across businesses.
Within the U.S. Construction umbrella, the U.S. Electrical Construction and facilities services segment revenues decreased 21.7% year over year to $445.9 million. Revenue declines in most of the markets served were partially offset by improvement in the institutional and hospitality market. Operating income fell 56.3% and margin contracted 50 bps year over year. The U.S. Mechanical Construction and Facilities Services segment revenues fell almost 4% from a year ago to $790.4 million due to softness in manufacturing and commercial market activities. Its operating income rose 24.1% and margin improved 190 bps year over year.
Revenues in the U.S. Building Services segment declined nearly 10% due to reduced project and control activities within its Mechanical Services division due to COVID-19 impacts, as well as decline in large project activity in the Energy Services unit. Additionally, reduction in IDIQ project activity within the Government Services business due to a smaller contract base and lower government spending added to the woes. Operating margin of 5.6% was up 30 bps from the prior year.
The U.S. Industrial Services unit’s revenues declined 28.2% year over year to $212.2 million. The segment was significantly impacted by volatility in crude oil prices resulting from geopolitical tensions between OPEC and Russia, as well as a dramatic reduction in demand for refined oil products due to COVID-19-related restrictions.
The U.K. Building Services segment’s revenues decreased 17.3% but operating margin jumped 80 bps year over year, backed by proper execution across the company’s diversified customer base. The decline was mainly attributable to a decrease in project activities and foreign currency headwinds.
Selling, general and administrative expenses — as a percentage of revenues — were 10.2%, which improved 50 bps from the prior-year period.
Non-GAAP operating income for the quarter was $110.1 million, down 8.2% from the prior-year period. Yet, adjusted operating margin of 5.5% was up 30 bps from the prior-year period, supported by strong operating conversion within most of the segments.
Liquidity & Cash Flow
As of Jun 30, 2020, the company had cash and cash equivalents of $481.4 million compared with $358.8 million at 2019-end. Long-term debt and finance lease obligations totaled $294.1 million, up from $244.1 million recorded on Dec 31, 2019.
For the first six months of 2020, EMCOR provided $276.7 million cash to operating activities versus $42.2 million cash used in operations in the comparable year-ago period.
Backed by quarterly performance, current operating conditions and visibility into the remainder of the year, EMCOR expects revenues to be $8.6-$8.7 billion and adjusted earnings per share of $5.00-$5.50. In 2019, the company registered revenues of $9.17 billion and adjusted earnings of $5.75 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 21.07% due to these changes.
Currently, Emcor Group has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Emcor Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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