EMCOR Group Inc. (EME) reported second-quarter 2014 results with Non-GAAP earnings of 61 cents per share which surpassed the Zacks Consensus Estimate by a penny. Second-quarter earnings also improved 27% from the year-ago earnings of 48 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 propel growth.
Revenues and Orders
Total revenue in the second quarter was relatively flat year over year at $1.56 billion. However, revenues fell short of the Zacks Consensus Estimate of $1.72 billion.
The company’s total backlog increased 3.6% year over year to $3.64 billion. Meanwhile domestic backlog grew by $138 million, including backlog growth in the U.S. Electrical and Mechanical Construction segments and the U.S. Industrial Services segment. This growth was offset by revenue decline in the U.S. Building Services segment owing to the restructuring of the 2013 service contract portfolio.
Further, backlog growth in the commercial, transportation, healthcare and water/wastewater sectors was offset by deterioration in the industrial, institutional, hospitality and gaming sectors.
Income and Expenses
Gross profit in the quarter came in at $219.6 million compared with $181.5 million in the prior-year quarter. Gross margins also increased to 14.1% from 11.7% last year.
GAAP operating income in the second quarter was $67.7 million or 4.3% of revenues. Also, non-GAAP operating income for the quarter increased 35.8% to $69.7 million or 4.5% of revenues.
The company incurred total selling, general and administrative (SG&A) expenses of approximately $144.9 million in the quarter, up from $138.5 million in the prior-year period. Operating margin also rose to 4.3% from 3.3% in the prior-year quarter.
Balance Sheet
Exiting the quarter, cash and cash equivalents reached approximately $437.1 million compared with $439.8 million at the end of 2013. Long-term debt and capital lease obligations decreased to $326.1 million from $335.3 million as on Dec 31, 2013. Shareowners’ equity stood at $1.53 billion at the end of the quarter, up from $1.46 billion at end-2013.
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 altered its guidance for 2014 revenues to around $6.6 billion from $6.8 billion stated earlier.
The company increased its earnings per share guidance to a band of$2.50 to $2.70 up from its previously stated guidance of $2.45–$2.70 per share. The guidance excludes additional costs due to withdrawal from the U.K. construction market.
Emcor currently has a Zacks Rank #4 (Sell). Some better ranked stocks worth considering include The Andersons, Inc. (ANDE), Ashland Inc. (ASH) and North American Palladium Ltd. (PAL), each carrying a Zacks Rank #2 (Buy).
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