10-QPeriod: Q1 FY2011

EMCOR Group, Inc. Quarterly Report for Q1 Ended Mar 31, 2011

Filed April 28, 2011For Securities:EME

Summary

EMCOR Group, Inc. reported its first-quarter 2011 financial results, demonstrating revenue growth driven by acquisitions and organic expansion in its United States facilities services and United Kingdom segments. Total revenues increased by 8.3% to $1.31 billion, a significant rebound from the prior year's decline. While revenue growth was positive, operating income remained flat year-over-year at $42.3 million, leading to a slight compression in operating margins to 3.2% from 3.5% in Q1 2010. This margin pressure is attributed to lower margins in certain segments and the absence of a one-time gain from a venture sale recorded in the prior year. Despite margin pressures, net income attributable to EMCOR Group, Inc. saw a healthy increase of 12.7% to $24.6 million, resulting in diluted earnings per share of $0.36, up from $0.32 in the comparable period of 2010. The company maintained a strong liquidity position with $632.0 million in cash and cash equivalents, although operating cash flow was negative for the quarter, primarily due to working capital changes. EMCOR's backlog also showed a positive trend, increasing to $3.57 billion, indicating future revenue potential.

Financial Highlights

48 data points
Beta

Revenue

$1.27B

12.4% Gross Margin

Net Income

$24.59M

1.9% Net Margin

EPS (Diluted)

$0.36

Total Assets

$2.75B

Cash & Equivalents

$631.98M

Free Cash Flow

-$35.12M

Financial Statements
Beta
Revenue$1.27B
Cost of Revenue$1.11B
Gross Profit$156.71M
SG&A Expenses$113.91M
Operating Income$41.84M
Interest Expense$2.74M
Net Income$24.59M
EPS (Basic)$0.37
EPS (Diluted)$0.36
Shares Outstanding (Basic)66.81M
Shares Outstanding (Diluted)68.58M

Key Highlights

  • 1Revenues increased 8.3% to $1.31 billion in Q1 2011, driven by acquisitions and growth in US Facilities Services and UK operations.
  • 2Operating income remained stable at $42.3 million, but operating margins compressed slightly to 3.2% due to margin pressures in some segments and the absence of a prior-year gain on sale.
  • 3Net income attributable to EMCOR increased by 12.7% to $24.6 million, with diluted EPS rising to $0.36 from $0.32.
  • 4The company made one immaterial acquisition in Q1 2011, expanding its mechanical construction services capabilities.
  • 5Backlog grew to $3.57 billion as of March 31, 2011, signaling potential for future revenue.
  • 6Cash and cash equivalents stood at a robust $632.0 million, though operating cash flow was negative for the quarter, largely due to working capital changes.
  • 7The company successfully settled a significant arbitration claim with John Mowlem Construction plc in the UK.

Frequently Asked Questions

Revenue growth was driven by a combination of factors, including higher organic revenues from the United States facilities services segment (specifically mobile mechanical and industrial services), increased revenues from United Kingdom operations, and contributions from companies acquired in 2010 and early 2011. The United States electrical construction and facilities services segment also saw an increase in revenues.

Operating margins decreased slightly from 3.5% in Q1 2010 to 3.2% in Q1 2011. This was primarily due to lower margins in the United States facilities services segment, partly because the first quarter of 2010 included a $4.5 million pre-tax gain from the sale of a venture interest. Lower margins were also observed in international operations and the organic United States mechanical construction and facilities services segment. Additionally, the resolution of uncertainties on construction projects that benefited the prior year's gross profit did not repeat to the same extent.

EMCOR maintains a strong liquidity position with $632.0 million in cash and cash equivalents as of March 31, 2011. The company has a $550.0 million revolving credit facility, expiring in February 2013, under which it had $150.0 million borrowed at the end of the quarter. While operating cash flow was negative for the quarter due to working capital needs, the company believes its cash balances and credit facility are sufficient for its short-term and foreseeable long-term liquidity needs. The company also has significant contractual obligations and commitments, including those related to its revolving credit facility and operating leases.

The settlement of the arbitration claim with John Mowlem Construction plc on March 31, 2011, brings to a close a long-standing legal matter that originated in 2003. This settlement, which involved mutual releases, removes a significant contingent liability and legal uncertainty for EMCOR Group (UK) plc and the parent company, allowing management to focus resources on core business operations.