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ABM Industries (ABM) Down 6.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for ABM Industries (ABM - Free Report) . Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

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

ABM Industries Beats Q3 Earnings Estimates

ABM Industries reported mixed third-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

Adjusted earnings (from continuing operations) came in at 60 cents per share, which outpaced the consensus mark by 2 cents and the year-ago quarter’s reported figure by 3 cents. The bottom line benefited fromhigher revenue contribution from the Technical Solutions segment, higher margin revenue mix and improved labor management primarily within the Business & Industry segment, and favorable impact of the adoption of Accounting Standards Codification ("ASC") 606. This was, however, partially offset by higher tax rate.

Total revenues of $1.65 billion missed the consensus estimate by $1 million but increased 1.5% year over year on the back of 2.3% organic revenue growth (excluding the adoption of ASC 606 and ASC 853).

Organic revenues were driven by growth within the Technical Solutions and Aviation segments, partially offset by a decline in revenues at Business & Industry, inclusive of the loss of lower-margin contracts.

Notably, the company’s Healthcare business was integrated into Business & Industry, Technical Solutions, and Education segments.

Revenues by Segment

Business & Industry revenues (49% of total revenues) decreased 1.8% year over year to $807.9 million. Technology & Manufacturing revenues (14%) declined 1.8% year over year to $226.9 million. Education revenues (13%) of $215.4 million decreased 0.3% from the prior-year quarter.

Technical Solutions revenues (10%) increased 27.2% year over year to $165.7 million.  Aviation revenues (16%) increased 1.1% year over year to $263.3 million.

Operating Results

Adjusted EBITDA of $93 million increased 5.2% year over year in the quarter under review. Also, the adjusted EBITDA margin of 5.6% improved 20 basis points year over year. Adjusted income from continuing operations was $40.2 million, up 5.8% year over year. Operating expenses increased 0.5% from the year-ago quarter to $1.45 billion. Selling, general and administrative expenses increased 8.9% from the year-ago quarter to $119.8 million.

Balance Sheet & Cash Flow

ABM Industries exited third-quarter fiscal 2019 with cash and cash equivalents of $60.5 million compared with $53.7 million at the end of the prior quarter. Long-term debt was $872.2 million compared with $905.5 million at the end of the prior quarter. Net cash provided by operating activities totaled $57.4 million in the reported quarter.

Dividend Payment

ABM Industries paid a quarterly cash dividend of 18 cents per share, leading to $11.9 million of total dividend payment in the reported quarter. Additionally, the company’s board of directors announced a cash dividend of 18 cents per share, payable Nov 4, 2019, to its shareholders of record as of Oct 3. This marks the 214th consecutive quarterly cash dividend declared by the company.

Fiscal 2019 Guidance

ABM Industries reaffirmed its fiscal 2019 guidance. The company continues to expect adjusted income from continuing operations in the range of $1.95-$2.05 per share.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months.

VGM Scores

Currently, ABM Industries has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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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