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ABM Beats on Q4 and FY13 Adjusted Earnings

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Business services provider ABM Industries Incorporated (ABM - Free Report) reported better-than-expected fourth quarter fiscal 2013 results with adjusted earnings of 48 cents per share that exceeded the Zacks Consensus Estimate by 3 cents. However, it compared unfavorably with the year-ago adjusted earnings per share of 50 cents, which benefited from a tax gain of 11 cents.

GAAP earnings for the reported quarter were $24.2 million or 43 cents per share compared with $27.7 million or 50 cents per share in the year-earlier quarter.

For fiscal 2013 (ended Oct 31, 2013), ABM reported net income of $72.9 million or $1.30 per share compared with $62.6 million or $1.14 per share in the previous fiscal. Excluding non-recurring items, adjusted earnings for the reported fiscal improved to $1.52 per share from $1.39 in fiscal 2012.

The year-over-year improvement was primarily attributable to strong organic growth, accretive acquisitions, and lower payroll and payroll-related expenses, partially offset by higher sales and marketing costs associated with its growth initiatives. The adjusted earnings beat the Zacks Consensus Estimate by 4 cents.

Total quarterly revenue increased 13.5% year over year to $1, 236.8 million with healthy organic growth from new sales and expansion of services. Revenues for the reported quarter exceeded the Zacks Consensus Estimate of $1,231 million. For fiscal 2013, ABM recorded revenues of $4,809.3, an improvement of 11.8% year on year from $4,300.3 million.

Segment Performance

Janitorial: Quarterly revenues from the segment increased a record 4.1% year over year to $628.7 million, due to significant new business wins and tag sales. However, segment operating profit declined 8.3% to $34.0 million owing to initial costs associated with new contracts.  

Facility Services: Organic revenues improved 0.6% year over year to $152.8 million, while operating profit increased 19.3% to $8.1 million.

Parking: Revenues from the segment declined 1.2% year over year to $152.2 million during the quarter, although operating profit expanded 4.3% to $8.5 million.

Security: The segment reported revenues of $97.1 million compared with $93.5 million in the year-ago quarter, representing a 3.9% year-over-year increase. Operating profit increased 70.0% to $5.1 million.

Building & Energy Solutions: Revenues from the segment increased 33.1% to $114.8 million, owing to accretive acquisitions and new commercial service and maintenance contracts like bundled energy solutions jobs. Operating profits climbed a stellar 82.5% to $8.6 million with stringent cost-cutting measures and benefits from investments in healthcare vertical and energy businesses.

Adjusted EBITDA improved 15.7% in the reported quarter to $58.1 million, driven by incremental contribution from recent acquisitions and new businesses.

ABM has a healthy pipeline of future businesses and is particularly going strong in government business. The company expects to continue its bull run in the coming quarters as well with continued healthy margin improvements and seamless integration of acquired businesses. Management also reiterated that corporate restructuring initiatives were well on track to have a sustained long-term growth momentum.

Financial Position

Cash and cash equivalents at quarter-end were $32.6 million. Net cash from operations was $51.0 million for the reported quarter compared with $66.8 million in the prior-year period. ABM was able to reduce its outstanding debt under its credit facility by $33 million to $315 million. The company also hiked its fourth quarter dividend by 3% to 15.5 cents per share.


ABM provided its initial guidance for fiscal 2014 and anticipates income from continuing operations to be in the range of $1.38 to $1.48 per share. Adjusted income is expected to be in the range of $1.58 to $1.68 per share.

Moving Forward

Although ABM’s fourth quarter and full fiscal 2013 results exceeded management’s expectations and beat the overall estimates, it failed to generate much interest among investors as share pries remained almost flat after the earnings release.

ABM’s strategy entails growth through acquisitions. The company expects to extend its global footprint as well as strengthen its position in existing markets through successful integration of these companies and organic growth across the industry verticals.

ABM presently has a Zacks Rank #2 (Buy). Other players in the industry that warrant a look include Korn/Ferry International (KFY - Free Report) , CTPartners Executive Search Inc. and Rollins Inc. (ROL - Free Report) , all of which have the same Zacks Rank as ABM.

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