10-QPeriod: Q1 FY2010

EMCOR Group, Inc. Quarterly Report for Q1 Ended Mar 31, 2010

Filed April 29, 2010For Securities:EME

Summary

EMCOR Group, Inc. reported a decrease in revenues and net income for the first quarter of 2010 compared to the same period in the prior year, reflecting the ongoing economic slowdown's impact on construction and facilities services demand. Total revenues declined by 13.1% year-over-year to $1.21 billion, while net income attributable to EMCOR Group, Inc. fell to $21.8 million, or $0.32 per diluted share, from $36.8 million, or $0.55 per diluted share, in Q1 2009. The company experienced a notable decline in operating income, down to $42.3 million from $64.3 million, with the operating margin contracting to 3.5% from 4.6%. This was driven by lower gross profit margins in key segments, particularly electrical construction and facilities services, and increased selling, general, and administrative expenses as a percentage of revenue. While the company completed an immaterial acquisition and saw some benefit from foreign currency exchange rates and a gain on sale of an equity investment, these were not enough to offset the broader revenue and profitability pressures. Liquidity remains a focus, with cash and cash equivalents decreasing to $600.6 million from $727.0 million at year-end 2009, primarily due to negative cash flow from operations. EMCOR proactively refinanced its credit facility, increasing capacity to $550 million, and has $150 million drawn on it as of March 31, 2010. The company's backlog stood at $3.29 billion, down from the prior year but showing a slight increase from year-end 2009, indicating a cautious outlook with ongoing selectivity in bidding for profitable work.

Financial Highlights

24 data points
Beta

Revenue

$1.13B

13.6% Gross Margin

Net Income

$21.82M

1.9% Net Margin

EPS (Diluted)

$0.32

Cash & Equivalents

$600.56M

Free Cash Flow

-$73.07M

Financial Statements
Beta
Revenue$1.13B
Cost of Revenue$1.05B
Gross Profit$154.57M
SG&A Expenses$122.80M
Operating Income$42.32M
Interest Expense$3.12M
Net Income$21.82M
EPS (Basic)$0.33
EPS (Diluted)$0.32

Key Highlights

  • 1Revenues decreased 13.1% to $1.21 billion for Q1 2010 compared to $1.39 billion in Q1 2009, reflecting weakened demand in construction and facilities services.
  • 2Net income attributable to EMCOR Group, Inc. declined to $21.8 million ($0.32/share) from $36.8 million ($0.55/share) in the prior year's quarter.
  • 3Operating income decreased by $22.0 million to $42.3 million, and the operating margin compressed to 3.5% from 4.6%, driven by lower gross profit and increased SG&A as a percentage of revenue.
  • 4Cash flow from operations turned negative, showing a use of $79.1 million in Q1 2010, a significant change from the $11.9 million provided in Q1 2009.
  • 5The company secured a new $550 million revolving credit facility, replacing a previous $375 million facility, enhancing its liquidity options.
  • 6Backlog at March 31, 2010, stood at $3.29 billion, down from $3.67 billion a year ago, but slightly up from $3.15 billion at the end of 2009, signaling a cautious market.
  • 7A gain of $4.5 million from the sale of an equity investment was recognized in the United States facilities services segment, partially offsetting lower operating results.

Frequently Asked Questions

The primary driver for the decrease in revenues was the general economic slowdown impacting demand for both construction and facilities services. Specifically, EMCOR saw reduced work on domestic industrial, hospitality, and commercial construction projects, as well as lower revenues from its United States facilities services segment due to discretionary project cutbacks and deferred maintenance.

The company's cash and cash equivalents decreased by approximately $126.4 million during the quarter, ending at $600.6 million. This was largely due to negative cash flow from operating activities. To enhance its liquidity, EMCOR replaced its old revolving credit facility with a new, larger $550 million facility that expires in February 2013, which provides greater borrowing capacity.

The $4.5 million pre-tax gain, recognized in the United States facilities services segment, came from the sale of the company's interest in a venture that produced chilled water. While this provided a positive boost, it was not sufficient to fully offset the overall decline in operating income for the quarter.

The company's backlog at March 31, 2010, was $3.29 billion. While this is down from the prior year, it represents a slight increase from the end of 2009. The backlog has been affected by declining awards in commercial, hospitality, industrial, transportation, and water/wastewater markets, partially offset by increases in healthcare and institutional construction. EMCOR is actively managing its backlog by being selective in bidding to ensure profitable work.