10-QPeriod: Q3 FY2010

EMCOR Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 2, 2010For Securities:EME

Summary

EMCOR Group, Inc. reported a challenging third quarter for 2010, marked by a significant decline in revenues and a substantial net loss. Revenues for the three months ended September 30, 2010, decreased by 6.9% to $1.28 billion compared to the prior year, while the nine-month period saw revenues drop by 9.7% to $3.77 billion. This revenue decline was attributed to softer demand across most segments, particularly in industrial, commercial, and hospitality construction projects, exacerbated by the ongoing economic slowdown. The most impactful event was the recognition of a non-cash impairment charge of $226.2 million, comprising $210.6 million for goodwill and $15.6 million for trade names, primarily within the United States facilities services segment. This charge, driven by lower forecasted revenues and operating margins due to challenging industry conditions in oil and petrochemical markets, resulted in a net loss attributable to EMCOR Group, Inc. of $175.6 million for the quarter, or $2.64 per diluted share, a stark contrast to the $39.9 million net income and $0.61 per diluted share in the same period last year. Investors should closely monitor the company's ability to navigate these economic headwinds and recover profitability in its key segments.

Financial Highlights

46 data points
Beta

Revenue

$1.22B

14.1% Gross Margin

Net Income

-$175.63M

-14.4% Net Margin

EPS (Diluted)

$-2.64

Total Assets

$2.63B

Cash & Equivalents

$641.11M

Free Cash Flow

$44.45M

Financial Statements
Beta
Revenue$1.22B
Cost of Revenue$1.05B
Gross Profit$171.44M
SG&A Expenses$113.32M
Operating Income-$168.18M
Interest Expense$3.16M
Net Income-$175.63M
EPS (Basic)$-2.64
EPS (Diluted)$-2.64
Shares Outstanding (Basic)66.40M
Shares Outstanding (Diluted)66.40M

Key Highlights

  • 1Significant revenue decline in Q3 2010, down 6.9% year-over-year to $1.28 billion, reflecting broad economic weakness impacting construction and services.
  • 2Substantial net loss of $175.6 million ($2.64 per diluted share) for Q3 2010, a sharp reversal from a net income of $39.9 million ($0.59 per diluted share) in Q3 2009.
  • 3Major non-cash impairment charge of $226.2 million recorded ($210.6M goodwill, $15.6M trade names) in the U.S. Facilities Services segment due to declining forecasts.
  • 4Year-to-date operating activities used $30.6 million in cash, compared to providing $272.2 million in the prior year period, highlighting cash flow pressures.
  • 5Backlog decreased to $3.14 billion from $3.39 billion year-over-year, indicating weaker new contract awards.
  • 6New $550 million revolving credit facility established in February 2010, providing financial flexibility, with $150 million drawn as of September 30, 2010.

Frequently Asked Questions

The significant net loss of $175.6 million was primarily driven by a substantial non-cash impairment charge of $226.2 million related to goodwill and identifiable intangible assets (trade names) within the United States facilities services segment. This impairment was necessitated by revised, lower forecasts for revenue and operating margins due to challenging industry conditions, particularly in the oil and petrochemical markets.

Revenues for the three months ended September 30, 2010, decreased by 6.9% to $1.28 billion compared to $1.37 billion in the same period of 2009. This decline was attributed to lower work volumes across most business segments, including United States electrical and mechanical construction and facilities services, and international operations, largely due to the ongoing economic slowdown and a selective bidding strategy.

EMCOR's cash and cash equivalents decreased to $641.1 million as of September 30, 2010, from $727.0 million at the end of 2009. The company used $30.6 million in cash from operating activities during the first nine months of 2010, a reversal from the positive cash flow in the prior year. However, EMCOR has a $550 million revolving credit facility, of which $150 million was drawn as of September 30, 2010, providing a source of liquidity. The company believes its current cash, borrowing capacity, and expected operating cash flow will be sufficient for short-term and foreseeable long-term liquidity needs.

EMCOR's backlog stood at $3.14 billion as of September 30, 2010, a decrease from $3.39 billion a year earlier. The reduction is primarily due to a decline in new contract awards in the commercial, healthcare, water/wastewater, industrial, hospitality, and transportation construction markets, reflecting the broader economic slowdown impacting demand for new projects.