ABM Lags Estimates, Cuts View

ABM Industries Inc.’s (ABM - Analyst Report) third quarter fiscal 2012 adjusted earnings were 37 cents per share, falling short of the Zacks Consensus Estimate of 42 cents as well as the the year-ago quarter's earnings of 51 cents per share.

Including one-time items, earnings in the quarter were 23 cents per share compared with 51 cents in the year-ago quarter.

Operational Update

Total revenues remained flat year over year at $1.08 billion. Contract cancellations of government-related businesses in the Facility Solutions segment negatively impacted results. The top line missed the Zacks Consensus Estimate of $1.09 billion.

Operating expense rose 2% year over year to $971.6 million. Selling, general and administrative expenses increased 3.6% to $79.1 million. Operating profit dropped 43.1% year over year to $23.2 million in the quarter.

Segmental Performance

Janitorial: Revenues from the segment increased marginally year over year to $602.5 million in the quarter. Operating profit decreased 13.2% year over year to $34.9 million. Improvement was unfavorably affected by one additional day of labor expense.

Facility Solutions: Revenues from the segment decreased 2.7% year over year to $230 million. Operating profit declined 11.1% year over year to $8.8 million. The decline was attributable to tight government spending.

Parking: Revenues from the segment rose 1.1% year over year to $155 million during the quarter. Operating profit in the segment also rose 8.3% year over year to $7.8 million.

Security: Revenues from the segment rose 4.4% to $91.6 million from the prior year quarter. Operating profit went up 5.3% to $3 million year over year.

Financial Position

Cash and cash equivalents of the company as of July 31, 2012, were $21.7 million, lower than $25.4 million as of April 31, 2012. Cash from operating activities decreased to $28.3 million in the reported quarter from $51.7 million in the year-ago quarter.

Dividend

The Board of Directors of ABM Industries also declared a third quarter cash dividend of 14.5 cents per share, payable on November 5, 2012, to stockholders of record as on October 4, 2012.

Share Repurchase

ABM Industries’ Board of Directors has authorized a $50 million share repurchase program. The company had approximately 54 million shares outstanding as of August 30, 2012.

Guidance

The company lowered its guidance for fiscal 2012 adjusted earnings to $1.36-$1.42 from the previous range of $1.40 to $1.50 per share. Earnings (on a reported basis) target is trimmed down to the range of $1.08-$1.14 from the previous range of $1.26 to $1.36.

Our Take

The dearth of government spending along with weak economic conditions prevailing in the global scenario would weigh on the margins moving forward. The Facility Solutions segment depends heavily on government contracts and any further cancellation of these contracts would affect the revenues negatively.

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