10-QPeriod: Q3 FY2008

EMCOR Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 23, 2008For Securities:EME

Summary

EMCOR Group, Inc. reported strong performance in the third quarter of 2008, exceeding prior records for revenues, gross profit, operating income, and net income. This growth was driven by contributions from recent acquisitions, improved performance in the United Kingdom segment, and increased revenues from electrical construction and facilities services operations in the U.S. For the nine months ended September 30, 2008, EMCOR saw significant revenue growth compared to the prior year, largely due to acquisitions and increased work in key U.S. markets. The company's backlog remained strong, although slightly down year-over-year, reflecting continued demand in industrial, transportation, and healthcare projects. EMCOR's balance sheet showed increased cash and equivalents, with a significant increase in net cash provided by operating activities.

Key Highlights

  • 1Total revenues for the nine months ended September 30, 2008 increased to $5.1 billion, up from $4.2 billion in the same period of 2007.
  • 2Operating income for the nine months ended September 30, 2008 more than doubled to $201.6 million, compared to $113.7 million in 2007.
  • 3Net income for the nine months ended September 30, 2008 rose to $121.9 million, a significant increase from $76.5 million in the prior year.
  • 4Diluted earnings per share from continuing operations for the nine months ended September 30, 2008 were $1.82, up from $1.11 in 2007.
  • 5The company's backlog at September 30, 2008 was $4.42 billion, a slight decrease from $4.48 billion at September 30, 2007.
  • 6Cash and cash equivalents increased to $340.8 million at September 30, 2008, from $251.6 million at December 31, 2007.
  • 7Acquisitions played a significant role in revenue growth, with three companies acquired in the first nine months of 2008 for $41.5 million.

Frequently Asked Questions

EMCOR's revenue growth was primarily driven by the inclusion of three companies acquired during the first nine months of 2008, contributing $41.5 million in aggregate purchase price. Additionally, increased construction work in the U.S. for hospitality and healthcare markets, and higher activity in the company's U.S. facilities services operations, particularly mobile mechanical services, also contributed significantly to revenue increases.

EMCOR's backlog at September 30, 2008, stood at $4.42 billion, a slight decrease from $4.48 billion at September 30, 2007. While the overall backlog declined slightly, this was attributed to contract cancellations and a decrease in commercial and hospitality contracts. However, this was partially offset by increased awards in industrial, transportation, healthcare, and water/wastewater construction projects. The continued strength in these areas suggests ongoing revenue generation opportunities, though the slight decrease warrants monitoring.

EMCOR's financial health appears robust. Cash and cash equivalents increased to $340.8 million as of September 30, 2008, up from $251.6 million at the end of 2007. Net cash provided by operating activities for the nine months ended September 30, 2008, was $199.7 million, a substantial increase from $132.7 million in the prior year. The company also has a $375 million revolving credit facility, with no borrowings outstanding as of the reporting date, indicating strong liquidity.

EMCOR is involved in a legal proceeding related to a wastewater treatment facility construction project (the 'UOSA Action'). Following a jury verdict in May 2008 and subsequent court decisions, a net award of approximately $1.3 million was made to UOSA, with EMCOR responsible for roughly half. The Joint Venture is appealing this decision. While currently not deemed material enough to significantly impact the company's overall financial position, any unfavorable resolution of this appeal could have a negative impact, as noted by the company's management.