ABM Sales Lag, EPS in Line

ABM Industries’ ( ABM - Analyst Report ) second-quarter fiscal 2012 adjusted earnings were 30 cents per share, in line with the Zacks Consensus Estimate. The results improved 7% from 28 cents in the year ago quarter.

On a reported basis, earnings were 21 cents per share compared with 26 cents in the year-ago quarter.

Operational Update

Revenues were flat year over year at $1.06 billion in the reported quarter due to a delayed start of new contracts along with declining contribution from government business. Revenues missed the Zacks Consensus Estimate of $1.09 billion.

Operating expenses inched up 0.4% year over year to $947.9 million in the quarter. Selling, general and administrative expenses also increased 2.1% to $85.2 million. Operating profit declined 28.8% to $18.9 million.

Segmental Performance

Janitorial: Revenues in the segment improved marginally by 0.5% to $593.4 million. Operating profit, however, decreased 4.1% to $33.5 million. The segment’s improvement aided by the addition of new clients in the high-technology sector was offset by delay in new job starts.

Facility Solutions: The segment’s revenues declined 2.9% to $222.6 million in the quarter. Operating profit also fell 6.7% to $6.4 million. The segment was negatively affected by timing of government contracts and delay in starting projects.

Parking: Revenues declined 2.2% to $152.7 million. Operating profit, however, improved significantly by 24.5% to $6.1 million, driven by improvement in work and cost reduction initiatives.

Security: In this segment, revenues improved 5.6% to $88.9 million. Operating profit in the quarter rose 12.8% to $1 million. Improvement in revenues stemmed from new business. Operating profit was benefited by cost cutting initiatives in addition to new business.

Financial Position

Cash and cash equivalents were $25.4 million as of April 30, 2012, compared with $26.5 million as of October 31, 2011. Net cash provided by operating activities were $43.5 million during the reported quarter, higher than $31.9 million in the year-ago quarter.

Dividend

The company’s Board of Directors authorized it to pay dividends of 14.5 cents a share in the third quarter of fiscal 2012, payable on August 6, 2012, to stockholders of record as of July 5, 2012.

Guidance

ABM has reaffirmed its fiscal 2012 adjusted earnings guidance of $1.40-$1.50 per share and earnings (on a reported basis) target of $1.26-$1.36 per share. Fiscal 2012 has one additional day compared with fiscal 2011. The extra day is expected to impact earnings negatively by 3 cents-5 cents.

Recently, ABM has gained several new contracts in the energy sector. The company has teamed up with many educational institutions including Madison County School District in Madison County and Fayette County Career & Technical Institute (“FCCTI”) in Uniontown (Pennsylvania) to provide Bundled Energy Solutions Program.

The program will benefit the institutions by reallocating their savings from the project and paying for the improvements either on the energy front or in infrastructure development.

However, the company faces severe challenges from the delay in project starts coupled with reduced government spending which may weigh on its revenues.

ABM retains a short-term Zacks #3 Rank (Hold). Currently, we have a long-term Neutral recommendation on the stock.