10-QPeriod: Q2 FY2010

EMCOR Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 29, 2010For Securities:EME

Summary

EMCOR Group, Inc.'s (EME) Form 10-Q for the period ending June 30, 2010, indicates a challenging quarter marked by declining revenues and profitability compared to the prior year. This downturn is attributed to the continued economic uncertainty impacting the private nonresidential building and refinery markets. Revenues decreased by 10.3% for the quarter and 8.5% year-to-date, with operating income declining significantly due to lower gross profit margins and a substantial $19.9 million non-cash impairment charge related to trade names within the United States Facilities Services segment. Despite these headwinds, the company highlighted a gain from the sale of its Middle East venture and a reduction in selling, general, and administrative expenses stemming from staff downsizing in 2009. The company also renegotiated its revolving credit facility, increasing its capacity to $550 million, and prepaid its $300 million term loan using borrowings from the new facility and cash on hand. While liquidity appears sufficient, management notes the ongoing reliance on contract performance and market demand, particularly in non-residential construction, as key factors for future performance. Investors should note the increased debt issuance costs and the impact of the impairment charge on the current quarter's results.

Financial Highlights

45 data points
Beta

Revenue

$1.20B

13.9% Gross Margin

Net Income

$27.14M

2.3% Net Margin

EPS (Diluted)

$0.40

Total Assets

$2.82B

Cash & Equivalents

$599.94M

Free Cash Flow

-$1.14M

Financial Statements
Beta
Revenue$1.20B
Cost of Revenue$1.10B
Gross Profit$166.03M
SG&A Expenses$120.72M
Operating Income$34.95M
Interest Expense$3.05M
Net Income$27.14M
EPS (Basic)$0.41
EPS (Diluted)$0.40
Shares Outstanding (Basic)66.31M
Shares Outstanding (Diluted)67.97M

Key Highlights

  • 1Revenues declined by 10.3% to $1.28 billion for the three months ended June 30, 2010, compared to $1.42 billion in the prior year period.
  • 2Operating income significantly decreased to $34.9 million from $74.9 million in the same period last year.
  • 3A substantial non-cash impairment charge of $19.9 million was recorded for identifiable intangible assets (trade names), impacting profitability.
  • 4The company reported a $7.9 million pre-tax gain on the sale of its equity interest in its Middle East venture.
  • 5Net cash used in operating activities was $80.3 million for the six months ended June 30, 2010, a reversal from the $138.3 million provided in the prior year period.
  • 6EMCOR replaced its old revolving credit facility with a new $550 million facility and prepaid its $300 million term loan.
  • 7Backlog at June 30, 2010, was $3.15 billion, a slight decrease from $3.40 billion at June 30, 2009.

Frequently Asked Questions

The primary reason cited for the decline is the continued uncertainty in the overall economy, specifically impacting the private nonresidential building and refinery markets. This led to a decrease in work performed on domestic industrial, hospitality, and commercial construction projects, as well as a decline in revenues from the United States Facilities Services segment.

EMCOR recorded a $19.9 million non-cash impairment charge for identifiable intangible assets, specifically trade names associated with certain prior year acquisitions within its United States Facilities Services segment. This charge significantly reduced operating income and profitability for the quarter.

EMCOR replaced its prior revolving credit facility with an amended and restated $550 million facility expiring in February 2013. Additionally, the company prepaid its $300 million term loan in February 2010 using funds drawn from the new revolving credit facility and cash on hand. As of June 30, 2010, there were $150 million in borrowings outstanding under the new facility.

The company's backlog stood at $3.15 billion as of June 30, 2010, a slight decrease from $3.40 billion a year prior. While the backlog indicates a level of future revenue, the decline, particularly in the electrical and mechanical construction segments, reflects decreased awards in several key markets due to the economic slowdown. The company's management notes that visibility into certain end-user markets makes forecasting challenging.