ABM Industries Sees Record Revenues
ABM Industries (NYSE:ABM) caught my eye on Wednesday after I noted the marked change in its year-over-year quarterly performance. The company provides integrated facility solutions services in the United States and internationally. It offers carpet cleaning and dusting, floor cleaning and finishing, furniture polishing, window washing, and other building cleaning services for airports and other transportation centers, educational institutions, health facilities, retail stores, shopping centers, stadiums and arenas, and warehouses, as well as commercial office, government, and industrial buildings. The company also provides onsite services comprising mechanical engineering and technical services for facilities and infrastructure systems as well as parking and transportation services for clients at various locations.
In addition, it offers security services comprising staffing of security officers, mobile patrol services, investigative services, electronic monitoring of fire, life safety systems, access control devices, and security consulting services to various facilities. Further, the company provides heating, ventilation, air-conditioning, electrical, lighting, and other general maintenance and repair for clients in the private and public sectors. Additionally, it offers support services to the U.S. government entities, such as military base operations, leadership development, education and training, energy efficiency management, medical support services, and construction management. Its stock has been relatively flat over time but is down recently by 9 percent in the last three months. Its most recent report suggests things may be turning around.
The biggest highlight is that the company’s revenues were $1.23 billion in the second quarter of fiscal 2014, up 4.9 percent compared to $1.17 billion last year, primarily due to organic growth of 4.1 percent. Its janitorial service achieved organic growth of 3.1 percent while its building and energy solutions and air service segments delivered organic growth of 21 percent and 5.9 percent, respectively, due to newly awarded contracts. It is important to note that several items impacting comparability for the second quarter of fiscal 2014 total $3.6 million after-tax. This includes $1.9 million after-tax for litigation associated with an unfavorable arbitration award. The remaining $1.7 million after-tax of items impacting comparability are primarily associated with rebranding and restructuring initiatives.
That said, adjusted net income after-tax was 33 cents per diluted share, down 8.3 percent compared to 36 cents per diluted share in the second quarter of fiscal 2013, primarily as a result of higher legal expenses, start-up costs associated with significant new contracts, and adverse weather. Combined, these items reduced adjusted net income by 4 cents per diluted share in the second quarter of fiscal 2014. Net cash from operations was $76.6 million for the second quarter of fiscal 2014, up 55.4 percent compared to net cash from operations of $49.3 million for the same period last year, primarily as a result of timing of client receivables and payment of vendor invoices.
President and CEO Henrik Slipsager said in a press release: “We achieved record revenue for the second quarter, with organic growth across all operating segments. Our top-line momentum continued to accelerate as we achieved a 4.9 percent increase in revenue, driven primarily by new business in our Onsite and BES groups. However, operating profits from the new business, as well as savings realized from the realignment of our infrastructure and operations, were offset by greater than anticipated legal expenses, start-up costs, and the impact of unfavorable weather. We delivered a strong second quarter of revenue and remain on track to meet our financial objectives for the year as we continue to set the stage for profitable growth across all our business segments.”
So is the stock a buy? I think it is at current levels, given the company seeing record revenues and the upbeat outlook for the second half of the year. That said, the company reaffirmed its previously issued 2014 guidance for after-tax net income of $1.38 to $1.48 per diluted share and adjusted after-tax net income of $1.58 to $1.68 per diluted share. It is important to note that this guidance assumes that Congress will retroactively reenact the Work Opportunity Tax Credit within the company’s fiscal year, which ends October 31. However, given the stock’s trading range, I think investors are in a good position to initiate a long position.
Disclosure: Christopher F. Davis holds no position in ABM Industries and has no intentions of initiating a position in the next 72 hours. He has a buy rating on the stock and a $31 price target.