Emcor Group (EME) Down 2.9% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Emcor Group (EME). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Emcor Group due for a breakout? 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.
EMCOR Beats on Q3 Earnings & Revenues, Raises Guidance
EMCOR Group Inc. reported solid results in third-quarter 2019. Adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate and improved year over year. The solid performance was mainly driven by strong project execution across the business.
Backed by the solid performance, favorable project mix, and strong underlying market conditions, EMCOR has raised its full-year 2019 guidance for revenues as well as earnings.
Adjusted earnings during the reported quarter came in at $1.45 per share, beating the consensus mark of $1.41 by 2.8%. The reported figure also increased 6.6% from the year-ago quarter’s level. The improvement was driven by strong revenue growth across the board and disciplined project execution.
Revenues of $2.29 billion surpassed the consensus mark of $2.17 billion by 5.5% and rose 11.8% year over year. Notably, the company experienced solid demand across geographies and end-markets served. Organically, revenues increased 8.1% year over year.
In the quarter under review, the U.S. Construction segment recorded revenue improvement of 14.3% year over year, with organic growth of 10.4%.
Within U.S. Construction, the U.S. Electrical Construction segment reported revenue growth of 14.1% year over year. Also, the U.S. Mechanical Construction segment reported revenue growth of 14.4% from a year ago. Markedly, operating margin in these two segments was 6.1% and 7%, respectively, given strong project execution.
Revenues in the U.S. Building Services segment maintained robust momentum on double-digit revenue growth of 12.3% and operating margin improvement of 40 basis points (bps) year over year. The solid improvement was driven by strong performance of mechanical and commercial site-based businesses.
The U.S. Industrial Services unit posted revenue growth of 3% year over year. However, the U.K. Building Services segment’s revenues declined 2.9% year over year due to significant macroeconomic uncertainties.
Selling, general and administrative expenses — as a percentage of revenues — were 9.6%, in line with the prior-year period. However, the metric was down 10 bps sequentially.
Non-GAAP operating income (excluding impairment loss on identifiable intangible assets) totaled $115.7 million during the quarter, 3.6% higher than $111.8 million in the prior-year period. However, adjusted operating margin of 5.1% was down 40 bps from the prior-year figure of 5.5%.
Liquidity & Cash Flow
As of Sep 30, 2019, the company had cash and cash equivalents of $368.1 million compared with $363.9 million at 2018-end. Long-term debt and finance lease obligations totaled $247.8 million, down from $254.8 million recorded on Dec 31, 2018.
In the first nine months of 2019, EMCOR provided $176.9 million cash to operating activities compared with $65.9 million in the comparable prior-year period.
2019 Guidance Raised
Buoyed by solid first nine months performance, favorable project mix and the assumption that the current market conditions will continue, EMCOR lifted its view for full-year 2019 earnings as well as revenues.
EMCOR now projects revenues to be $9 billion, up from the prior guided range of $8.8-$8.9 billion for the year. The company now expects earnings within $5.65-$5.75 per share, up from the prior expectation of $5.50-$5.75.
Notably, the company’s solid growth of business and the non-residential construction market is expected to persist in 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
At this time, Emcor Group has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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.
Emcor Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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