ABM Industries (ABM) Q3 Earnings: What's in the Cards?

Leading provider of facility solutions, ABM Industries Inc.ABM is scheduled to report third-quarter fiscal 2016 results after the markets closes on Sep 7. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by 3 cents. Over the last four quarters, earnings beat estimates thrice, delivering an average positive earnings surprise of 13.66%.

Let's see how things are shaping up for this announcement.

Factors to Consider

In order to fuel its growth momentum, ABM has embarked on a Vision 2020 Plan that outlines its vision for the next five years. The plan has three primary phases, the first of which is aimed at increasing the company's efficiency through diligent execution of the operating plan and stringent cost-reduction activities. The second phase will focus on driving growth across the realigned verticals through effective realization of the cost savings from procurement, account management and other organizational changes. The final phase of the transformation will include accelerated growth impetus from the vertical alignment and account planning systems with a continuous focus on additional cost savings.

ABM has successfully completed the first phase of the Vision 2020 plan. The company is currently focusing on the second phase and remains confident of achieving $40-$50 million in savings through operational efficiencies by the end of 2017.

ABM INDUSTRIES Price and EPS Surprise


During the third quarter, the company inked a deal to offer infrastructure upgrades in Temple Terrace in Florida. Per the deal it will provide its customized energy performance contracting program to improve energy efficiency in the city. This customized solution will ensure energy efficiency and will help save over $1.46 million in energy and operating costs over a period of 15 years. The project is expected to be completed in Oct 2016.

The company's UK Business and Industry Group was awarded a multi-year contract by its existing customer Realm Ltd to offer integrated facility services for its London Designer Outlet at Wembley. ABM is a supplier of multiple services to Realm's Dalton Park and Livingstone Designer Outlet. Per this contract ABM will offer an additional suite of service options to Realm which includes energy, HVAC & mechanical and electrical service.

Alongside, the company was selected to provide janitorial services for Commonwealth Partners in New York City at 787 7th Avenue. The multi-million dollar contract will enhance ABM's national portfolio with Commonwealth Partners. This contract will help the company strengthen its presence in a number of key markets, including Los Angeles, Seattle, San Francisco, San Diego and Washington DC.

However, as ABM has a significant presence in the U.K., it is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members post Brexit referendum. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering the productivity of the company.

Given the low cost of entry into the facility services business, ABM also faces intense competition from local and national players. Furthermore, the company faces indirect competition from building owners or tenants, who perform one or more of these services internally in order to cut costs, especially in the areas where external services are subject to sales tax. These strong competitive pressures could limit the company's success rate in bidding for profitable businesses and its ability to increase prices in accordance with the rising costs.

Earnings Whispers

Our proven model does not conclusively show that ABM is likely to beat earnings this quarter as it lacks the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at 0.00%.

Zacks Rank: ABM carries a Zacks Rank #3 which when combined with 0.00% ESP makes surprise prediction uncertain.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Francesca's Holdings Corporation FRAN , expected to report earnings on Sep 7, has an Earnings ESP of +11.11% and a Zacks Rank #2.

Finish Line Inc. FINL , expected to report earnings on Sep 23, has an Earnings ESP of +1.89% and a Zacks Rank #2.

Casey's General Stores Inc. CASY , expected to report earnings on Sep 13, and has an Earnings ESP of + 0.56% and a Zacks Rank #3.

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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 Nasdaq, Inc.

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

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