ABM Industries Inc. (ABM): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
ABM Industries reported modest first quarter fiscal 2014 results with adjusted earnings matching the Zacks Consensus Estimate. ABM Industries has realigned its operational structure to improve the long-term growth prospects and provide 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. However, a dearth of government spending and soft global economic conditions could weigh on the margins moving forward. Moreover, intense competitive pressure and integration costs from increased acquisitions are likely to peg back its profitability. Nevertheless, we maintain our Neutral recommendation on the stock.

Overview:

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 construction management.


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ABM INDUSTRIES (ABM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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