ABM Beats Estimates (ABM) (ROL)

ABM Industries Inc.’s (ABM) fourth quarter fiscal 2012 adjusted earnings of 50 cents per share outpaced the Zacks Consensus Estimate of 40 cents as well as the year-ago quarter's earnings of 37 cents per share. Including one-time items, earnings in the quarter were 50 cents per share compared with 33 cents in the year-ago quarter.

Operational Update

Total revenue inched up 0.8% to $1.09 billion, ahead of the Zacks Consensus Estimate of $1.084 billion. Weak economic conditions and lower government spending affected results in the quarter.

Operating expense rose 1% year over year to $968 million. Selling, general and administrative expenses decreased 3% to $79.6 million. Operating profit increased 10% year over year to $36.7 million in the quarter. Operating margin improved 30 basis points to 3.4% in the quarter.

Segmental Performance

Janitorial: Revenues from the segment increased 1% to $604 million in the quarter. Operating profit increased 4% year over year to $37 million.

Facility Solutions: Revenues from the segment decreased 1% year over year to $238 million, attributable to tight government spending. Operating profit, however, increased 13% year over year to $10.4 million.

Parking: Revenues from the segment inched up 0.4% year over year to $154 million during the quarter. Operating profit in the segment rose 2% year over year to $7.6 million.

Security: Revenues from the segment rose 4% to $93.4 million from the prior-year quarter. Operating profit went up 2% year over year to $3 million.

Fiscal 2012 Performance

Adjusted earnings stood at $1.39 in fiscal 2012, ahead of the Zacks Consensus Estimate of $1.29, but flat compared with the prior year. Including one-time items, fiscal 2012 earnings were $1.14 per share compared with $1.27 in fiscal 2011. Total revenue increased 1.3% to $4.3 billion from $4.2 billion in the prior fiscal.

Financial Position

Cash and cash equivalents of the company as of fiscal 2012 end were $43.4 million, up from $26.5 million as of fiscal 2011 end. Cash flow from operating activities increased to $66.8 million during the year compared with $75 million in the previous year.

Dividend

The board of directors of ABM Industries declared a first quarter 2013 cash dividend of 15 cents per share, payable on December 28, 2012, to stockholders of record as of December 21, 2012.

Our Take

ABM Industries’ strategy entails growth through acquisitions. Its recent acquisition of Air Serv Corporation will significantly expand ABM's capabilities in meeting the end-to-end needs of the airlines and airport authorities and is expected to generate over $650 million in annual revenues. This acquisition will augment ABM’s aviation capabilities and position the company as the industry leader in this space. Furthermore, the acquisition of HHA Services will fortify ABM Industries’ health care capabilities enabling it to reach to a wider customer base.

The dearth of government spending along with weak economic conditions prevailing in the global scenario would weigh on the margins moving forward. Moreover, as the company’s Facility Solution segment depends heavily on government contracts, it will likely continue to have a negative impact on its revenues. ABM Industries retains a short-term Zacks #4 Rank (Sell).

San Francisco, California-based ABM Industries provides engineering, janitorial, parking, and security services to thousands of commercial, industrial, institutional, and retail facilities across the U.S. as well as Puerto Rico, British Columbia, and Canada. Rollins Inc. (ROL) is a Zacks #2 Rank (Buy) stock in the same industry.