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EMCOR Gains From Robust Construction Activity & Acquisitions

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Vigorous construction activity in the United States, particularly in the non-residential markets, along with strategic acquisitions have been favorable for EMCOR Group, Inc. (EME - Free Report) .

Robust Construction Business to Boost Profitability

Although EMCOR’s U.S. Industrial Services business has been affected in the recent quarters owing to persistent headwinds, robust performance of U.S. Construction business has helped the company to mitigate the negatives.

Meanwhile, ongoing industry trends hold tremendous potential for EMCOR and the companies like MasTec (MTZ - Free Report) , Primoris Services Corporation (PRIM - Free Report) and Sterling Construction Company (STRL - Free Report) , going forward. Currently, the commercial market represents lucrative opportunities, given an increasing tendency among clients to upgrade buildings and other infrastructure-related services.

In fact, in the last reported quarter, the U.S. Construction segment (up 2.4% year over year in revenues) sustained its robust momentum, delivering strong revenues as well as operating income growth. The segment was driven by solid contribution from U.S. Electrical Construction segment’s revenues (up 6.7% year over year), owing to impressive execution of its diverse mix of projects.

The improvement is being driven by higher project activity within health care, commercial and transportation markets. Encouraged by robust performance in the first half of 2018, accretive acquisitions and increasing traction in the U.S. construction space, EMCOR’s management raised its revenue as well as earnings guidance for 2018. In light of the current size and mix of its backlog, as well as overall positive market conditions, EMCOR expects revenues to be approximately $7.8 billion, depicting an increase from the prior guided range of $7.6-$7.7 billion. Moreover, EMCOR now expects earnings from continuing operations within $4.40-$4.80 per share versus $4.10-$4.70 expected earlier.

EMCOR to Benefit From Strategic Acquisitions

Acquisitions have been integral to EMCOR’s growth strategy. The company acquired two companies during the second quarter of 2018. One of them provides mobile mechanical services within the Western region of the United States, and the other one offers mobile mechanical and fire protection services within the Southern region of the country. Results of both the companies have been included in its United States Building Services segment.

Companies acquired in 2017 and 2018 so far, reported in its U.S. Mechanical Construction and Facilities Services and U.S. Building Services segments, have generated incremental revenues and operating income of $16.5 million and $1.6 million, respectively, in the second quarter.

Buyouts will likely add unique capabilities to EMCOR's portfolio and broaden its geographic footprint, thereby contributing to the company’s revenue stream, going forward.

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