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ABM Industries (ABM) Misses Q3 Earnings Despite Revenue Rise

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Business services provider ABM Industries Incorporated (ABM - Free Report) recorded third-quarter fiscal 2017 (ended Jul 31, 2017) net income of $32.9 million or 58 cents per share compared with $31.1 million or 55 cents per share in the year-earlier quarter. The year-over-year improvement in GAAP earnings was largely driven by higher revenues and lower selling, general and administrative expenses.

Adjusted earnings (from continuing operations) for the reported quarter were $29.1 million or 51 cents per share compared with $30.6 million or 54 cents per share in the year-ago quarter. The year-over-year decrease in adjusted earnings, despite top-line growth, was primarily attributable to the termination of a contract within the Aviation segment. Adjusted earnings for the quarter missed the Zacks Consensus Estimate by 2 cents.

ABM Industries Incorporated Price, Consensus and EPS Surprise


ABM Industries Incorporated Price, Consensus and EPS Surprise | ABM Industries Incorporated Quote

Top-Line Improvement

Revenues for the reported quarter increased 1.7% year over year to $1,318.4 million, largely driven by higher organic and inorganic growth. Organic growth (excluding the Government Services business) improved 2.3% year over year while acquisitions contributed $8.7 million of incremental revenues during the quarter. The organic growth in the Aviation segment was driven by higher passenger services, cabin cleaning, parking, catering and transportation services for new and existing customers. The organic growth in the Business & Industry segment was led by higher janitorial and facility services revenues in the U.S. and U.K. operations. Quarterly revenues exceeded the Zacks Consensus Estimate of $1,317 million.

Operating profit improved to $22.6 million from $18.5 million in the year-ago period, owing to higher revenue contribution and organizational savings due to the Vision 2020 plan. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the reported quarter decreased to $57.3 million from $61.1 million in the year-earlier quarter for respective margins of 4.3% and 4.7% owing to an additional working day during the quarter.


Subsequent to the quarter end, ABM completed the acquisition of GCA Services Group for approximately $1.3 billion. Founded in 2003, GCA Services is a leading national provider of quality facility services. It is a collaboration of various regional companies. GCA Services derives majority of its revenues from the education sector and aims to grow further as more school districts outsource their facility management to find savings to invest in teachers and equipment.

The deal is likely to expand ABM’s foothold in the educational and commercial markets. In addition, the strategic transaction is expected to add approximately $1.1 billion in annual revenues and improve adjusted EBITDA by approximately $100 million. The acquisition is in tune with the core principles of the 2020 Vision and is likely to complement ABM’s industry-focused, client-centric organizational structure, yielding cost synergies of approximately $20 million to $30 million by the second full year of ownership.

Financial Position

Cash and cash equivalents at the quarter end were $47.7 million with total debt aggregating $392.4 million. Net cash utilized by operating activities during the quarter was $22.8 million as against cash flow of $18.6 million in the prior-year period.

During the quarter, the company did not repurchase any shares under its share repurchase program. As of Jul 31, 2017, ABM had shares worth $134.1 million remaining for repurchase under its $200 million share buyback program.

Going Forward

ABM’s comprehensive, strategic and transformation initiative is focused on driving sustainable profitability by effectively allocating resources to higher margin services and business verticals with a strong competitive edge. We expect this to fuel the company’s growth momentum in the coming quarters.

ABM currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Accenture plc (ACN - Free Report) , PageGroup plc and Rollins, Inc. (ROL - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Accenture has a long-term earnings growth expectation of 10.3%. It has beaten earnings estimates in each of the trailing four quarters with a positive surprise of 2.6%.

PageGroup has a long-term earnings growth expectation of 15%.

Rollins is currently trading at a forward P/E of 51.5x.

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