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ABM Industries (ABM) Up 1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for ABM Industries (ABM - Free Report) . Shares have added about 1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ABM Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

ABM Industries Q3 Earnings & Revenues Surpass Estimates

ABM Industries reported strong third-quarter fiscal 2018 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings of 57 cents per share surpassed the Zacks Consensus Estimate by 3 cents and came ahead of the year-ago figure by 6 cents. The bottom line benefited from lower tax rates (as a result of the Tax Cuts and Jobs Act, which reduced corporate tax rates significantly) and higher revenue contribution. This was, however, partially offset by increased expenses related to the buyout of GCA Services Group as well as higher wage and overtime costs resulting from a tightening labor market.

Total revenues of $1.62 billion beat the consensus mark by $13 million and increased 23.2% year over year. The top line was driven by contributions from acquisition of GCA Services Group and organic growth within the Business & Industry segment, Technical Solutions and Technology & Manufacturing segments, partially offset by the Aviation segment. 

Revenues related to GCA acquisition came in at $260 million, which was reflected in the Education ($143.5 million), the Technology & Manufacturing ($59.6 million), and the Business & Industry segments ($45.3 million).

Organic revenue growth was 4.5%, mainly driven by growth within the Business & Industry segment, which includes an UK-related contract win from September 2017. Organic revenue growth within Technical Solutions was 14%.

Revenues by Segment

Business & Industry revenues (45% of total revenues) increased 12.7% year over year to $735.2 million. Technology & Manufacturing revenues (14%) climbed 42.9% year over year to $230.8 million. Education revenues (13%) increased to $210.9 million from $67.3 million in the prior-year quarter. Technical Solutions revenues (7%) increased 14% year over year to $121.6 million. Healthcare revenues (4%) increased 16.5% year over year to $69.1 million. Aviation revenues (16%) declined 0.8% year over year to $256.8 million.

Operating Results

Adjusted EBITDA of $88.4 million improved 54.3% year over year due to the GCA acquisition. Adjusted EBITDA margin improved 110 bps to 5.4%.

Adjusted income from continuing operations was $38 million, up 30.5% year over year. Adjusted operating income margin was 2.3%, up 10 bps from the prior-year quarter.

Operating expenses increased 22.1% from the year-ago quarter to $1.45 billion. Selling, general and administrative expenses increased 8.6% from the year-ago quarter to $110 million.

Balance Sheet & Cash Flow

ABM Industries exited fiscal third quarter with cash and cash equivalents of $46 million compared with $69.7 million at the end of the prior quarter. Long-term debt was $998.4 million compared with $1.09 billion at the end of the prior quarter. Cash provided by operating activities was $74.2 million in the reported quarter.

Dividend Payment

ABM Industries paid a quarterly cash dividend of 17.5 cents per share, leading to $11.5 million of total dividend payment in the reported quarter. Additionally, the company’s board of directors declared a cash dividend of 17.5 cents per share, payable on Nov 5 to shareholders of record on Oct 4. This marks the 210th consecutive quarterly cash dividend declared by the company.

Fiscal 2018 Guidance

ABM Industries reaffirmed its fiscal 2018 guidance for adjusted income from continuing operations in the range of $1.85-$1.95 per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, ABM Industries has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

ABM Industries has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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