EMCOR Beats on Q1 Earnings, Guides Up - Analyst Blog

Shares of EMCOR Group Inc. EME increased by a marginal 0.6% after the company reported robust first-quarter 2014 results on Apr 29. The company reported adjusted earnings of 64 cents per share easily surpassing the Zacks Consensus Estimate of 53 cents. The first-quarter earnings also increased 28% compared with the year-ago earnings of 50 cents.

The earnings growth was driven by the company's diversified business and robust performance of its U.S. electrical construction, U.S. Mechanical Construction, U.S. Building Services as well as its U.S. Industrial Services segments. Moreover, the acquisition of RepconStrickland in 2013 continues to add to the company's growth.

Revenue and Orders

Total revenue in the first quarter increased 1.9% to $1.60 billion from $1.57 billion in the same quarter last year. However, revenues fell short of the Zacks Consensus Estimate of $1.63 billion.

The company's order backlog decreased 1.3% year over year to $3.37 billion. Backlogs grew in sectors like transportation, water/wastewater and healthcare, offset by a decline in institutional, hospitality/gaming and industrial sectors. The company's withdrawal from the U.K. construction market also impacted the backlog levels.

Income and Expenses

Gross profit for the quarter was $215.2 million compared with $191.1 million reported in the prior-year quarter. Gross margins for the quarter also increased to 13.4% from 12.2% in the last year.

EMCOR's non-GAAP operating income for the quarter increased 27.7% year over year to $72.1 million. The company's GAAP operating income for the quarter was $69.4 million including a loss of $2.8 million from the exit of U.K. construction market. The company incurred total selling, general and administrative (SG&A) expense of approximately $144.9 million in the quarter, up from $138.5 million in the prior-year period. The operating margin also increased to 4.3% from 3.3% in the prior-year quarter. 

Balance Sheet

Exiting the quarter, cash and cash equivalents reached approximately $406.7 million compared with $439.8 million at the end of 2013. Long-term debt and capital lease obligations decreased slightly to $330.6 million compared with $335.3 million as on Dec 31, 2013. Shareowners' equity was $1.51 billion at the end of the quarter, up from $1.46 billion at the year end 2013.

Contract Win

Following the earnings release, EMCOR's subsidiary, F&G Mechanical Corp., received a contract on Apr 30 for fixing up damages to the Statue of Liberty National Monument and Ellis Island, NY that were caused by Hurricane Sandy in Oct, 2012. The financial terms of the deal remain undisclosed.

Outlook

EMCOR Group expects healthy growth in 2014 driven by its recent acquisitions, strong cash and balance sheet position and the scope for recovery of non-residential construction markets. Along with the earnings release, the management reaffirmed the guidance for 2014 revenues to be around $6.8 billion. The company also increased its earnings per share guidance to a band of $2.45–$2.70 per share from the previous range of $2.40– $2.70 per share. The guidance excludes additional costs due to withdrawal from the U.K. construction market.

Other stocks to consider

EMCOR currently has a Zacks Rank #2 (Buy). Investors interested in this sector could consider some other stocks like Orion Marine Group, Inc. ORN, VSE Corp. VSEC and MasTec, Inc. MTZ. While Orion Marine Group sports a Zacks Rank #1 (Strong Buy), both VSEC Corp and MasTec have same ranks as EMCOR.