ABM's third-quarter fiscal 2014 adjusted earnings beat the Zacks
Consensus Estimate by $0.02 with record revenues. ABM has realigned
its operational structure to improve the long-term growth prospects
and generate higher margin opportunities. The company expects to
extend its global footprint and strengthen its position in existing
markets through continuous acquisitions and organic growth across
the industry verticals. ABM has also increased its guidance for
fiscal 2014 on a healthy pipeline of future businesses. However,
intense competitive pressures and high integration and start-up
costs are likely to peg back its profitability to some extent.
Nevertheless, we maintain our Neutral recommendation on the stock.
Founded in 1909 and headquartered in San Francisco, California,
ABM Industries Inc. provides engineering, janitorial, parking, and
security services to thousands of commercial, industrial,
institutional, and retail facilities across the U.S. as well as
Puerto Rico, British Columbia, and Canada.
Effective first quarter 2013, the company reorganized its
reportable segments to better align with the reorganization of the
operational structure to an onsite, mobile, and on-demand
market-based entity. The Onsite Services include the Janitorial,
Parking, and Security reportable segments and a part of the
erstwhile Facility Solutions segment, which is split into two new
reportable segments, Facility Services and Building & Energy
Solutions. The five operating segments are discussed hereunder:
Janitorial Services provide a wide range of basic janitorial
services for a variety of facilities commercial office buildings,
industrial buildings, retail stores, shopping centers, warehouses,
airport terminals, health facilities and educational institutions,
stadiums and arenas, and government buildings. These services
include floor cleaning and finishing, window washing, furniture
polishing, carpet cleaning and dusting, and other building cleaning
services. The services are based on either fixed price'
arrangements, cost-plus' arrangements, or tag' (extra service)
work. In fixed price arrangements, clients pay a fixed fee every
month over a specified contract term. In cost-plus arrangements,
clients reimburse the company for the agreed-upon amount of wages
and benefits, payroll taxes, insurance charges, and other expenses
associated with the contracted work, in addition to a profit
percentage. Tag work represents supplemental services as requested
by clients outside of the standard service specification.
Facility Solutions provide end-to-end integrated facility
solutions services that include building operations and maintenance
and bundled energy solutions through both mobile and on-site
services. The on-site services comprise both mechanical engineering
and technical services and solutions for facilities and
infrastructure systems, while the mobile services consist of
preventative maintenance, retro-commissioning, mechanical retrofits
and upgrades, electric vehicle charging stations, electrical
service, systems start-ups, performance testing, and energy audits.
These services are designed to extend the useful life of facility
fixed assets, improve equipment operating efficiencies, reduce
energy consumption, lower overall operational costs, and enhance
the sustainability of client locations.
Parking provides parking and transportation services across
parking lots and garages at several facilities such as office
buildings, hotels, medical centers, retail centers, sports and
entertainment arenas, educational institutions, municipalities, and
airports. Parking services are based on three types of arrangements
namely, managed locations, leased locations, and allowance
locations. Under the managed location arrangements, ABM manages the
underlying parking facility for the owner in exchange for a
management fee. In case of leased locations, the company leases
parking facilities from the owner and bears most of the operating
expenses incurred. Under these arrangements, ABM retains all
revenues from monthly and transient parkers and pays rent to the
owner per the terms and conditions of the lease. In case of
allowance location arrangements, ABM is paid a fixed or hourly fee
to provide parking services and bears the agreed-upon operating
expenses based upon the agreement terms.
Security Services provides security services such as staffing of
security officers mobile patrol services investigative services
electronic monitoring of fire, life safety systems, and access
control devices and security consulting services. ABM's clients in
this segment include Class A high rise, commercial, industrial,
retail, medical, petro-chemical, and residential facilities. The
revenues are generally based on actual hours of service at
contractually specified rates, or on a flat monthly billing, or on
single rate billing.
Building & Energy Solutions provides preventative
maintenance services, retro-commissioning, mechanical retrofits and
upgrades, electric vehicle charging stations, electrical service,
systems start-ups, performance testing, and energy audits to a
diverse client base. These include both private and public sectors,
including various U.S. Government entities. This segment also
provides support to U.S. Government entities for specialty service
solutions such as leadership development, education and training,
language support services, medical support services, and
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