Shares of leading mechanical & electrical construction and energy infrastructure service provider EMCOR Group, Inc. (EME) inched down 1.54% after it reported fourth-quarter 2014 results. EMCOR’s non-GAAP earnings came in at 68 cents per share, missing the Zacks Consensus Estimate of 76 cents by 10.5%. The non-GAAP earnings also declined 10.5% from 76 cents earned in the year-ago quarter.
Sluggish growth in the construction business primarily weighed on the company’s profitability. Also, restructuring of certain non-productive business areas led to an increase in operational costs. Moreover, aggressive pricing in Building Services resulted in the loss of two major joint ventures, thereby, perpetuating the decline.
For full year 2014, non-GAAP income from continuing operations was $2.49 per share, reflecting a 12.2% rise from the year-ago value of $2.22.
Revenues and Orders
EMCOR’s fourth-quarter 2014 revenues climbed 3.9% to $1,714.8 million from the year-ago figure. The top line also surpassed the Zacks Consensus Estimate of $1,679 million by 2.1%.
Revenues from the U.S. operations rose 3.6% to $1,624.0 million. Also, revenues from the United Kingdom building services grew 10.7% to $90.8 million, contributing considerably to the overall growth.
Revenue growth in the present quarter was mainly fueled by noteworthy performance of the U.S. Industrial Services segment. Additionally, strong demand growth in the field service offerings was a crucial driver of revenues. Finally, exceptional performance of the U.K. Building Services segment added to the overall revenue growth. Management asserted that incremental works in the maintenance contract base had primarily driven the performance in the U.K. Building segment.
For full year 2014, the company recorded revenues of $6,425.0 million, reflecting a marginal 1.4% rise over the 2013 value.
Backlog as of Dec 31, 2014 totaled $3.63 billion, recording a decent increase of 8.7% from the prior-year period. Rise of backlog in the commercial, transportation and water/wastewater sectors were stronger than the decline in healthcare, institutional and industrial sectors, prompting overall growth.
Income and Expenses
Gross profit for the quarter totaled $248.6 million compared with the year-ago tally of $236.9 million. EMCOR’s gross margin increased 10 basis points (bps) to 14.5% compared with third-quarter 2014.
The company’s GAAP operating income in the fourth quarter aggregated $74.5 million, declining from $75.9 million in the comparable quarter a year ago. Non-GAAP operating income came in at $76 million or 4.4% of revenues, which was at par with the prior-year figure of $76 million or 4.6% of revenues. GAAP operating margin declined 30 bps to 4.3%.
Total selling, general and administrative (SG&A) expenses stood at $172.2 million, reflecting a rise from the year-ago quarter tally of $161.0 million.
Other Financial Details
EMCOR’s cash and cash equivalents totaled $432.1 million as of Dec 31, 2014, versus as of Dec 31, 2013. Long-term debt and capital lease obligations of the company was $316.4 million, declining from the previous-year value of $335.3 million. Shareowners’ equity stood at $1,416 million at Dec 31, 2014, down from $ 1,466.3 million at year-end 2013.
The company’s cash flow for the twelve-month period ended Dec 31, 2014 rose 64.4% year over year to $246.7 million, compared with $150.1 million in the year-ago period.
Outlook
Based on the assumption that existing market conditions are unlikely to change in the current year, management provided guidance for fiscal 2015. EMCOR expects revenues at around $6.6 billion and earnings from continuing operations in the range of $2.65 to $2.95 per share.
Management’s bullish sentiment rests on the expectation that backlogs are going to surge in 2015. The company also expects considerable infrastructure-related projects in and around New York to drive growth in 2015.
Zacks Rank
EMCOR currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the sector include Dycom Industries Inc. (DY), Danaher Corp. (DHR), AO Smith Corp. (AOS). While Dycom Industries Inc sports a Zacks Rank #1 (Strong Buy), both Danaher Corp. and AO Smith Corp. carry a Zacks Rank #2 (Buy).
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