10-QPeriod: Q2 FY2014

EMCOR Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 29, 2014For Securities:EME

Summary

EMCOR Group, Inc. (EME) reported its second-quarter and year-to-date results for the period ending June 30, 2014. The company demonstrated a significant improvement in profitability, with operating income increasing by 87.5% to $67.7 million for the quarter and by 57.0% to $137.1 million for the six-month period, compared to the prior year. This enhanced operating performance was driven by improved gross margins across most segments and strong revenue growth in the United States Industrial Services segment, largely due to the acquisition of RepconStrickland, Inc. (RSI) in the previous year. Financially, EMCOR maintained a solid liquidity position with $437.1 million in cash and cash equivalents. While total assets saw a slight decrease, current assets also declined, primarily due to a reduction in accounts receivable. The company's debt levels remained manageable, with the Term Loan balance at $341.3 million. Investors will note the continued strategic acquisitions and disciplined operational execution, which are contributing to improved financial results and a healthy backlog of $3.64 billion, providing visibility for future revenue.

Financial Highlights

50 data points
Beta

Revenue

$1.55B

14.2% Gross Margin

Net Income

$39.91M

2.6% Net Margin

EPS (Diluted)

$0.59

Total Assets

$3.40B

Cash & Equivalents

$437.12M

Free Cash Flow

$63.96M

Financial Statements
Beta
Revenue$1.55B
Cost of Revenue$1.33B
Gross Profit$220.24M
SG&A Expenses$150.41M
Operating Income$69.66M
Interest Expense$2.24M
Net Income$39.91M
EPS (Basic)$0.59
EPS (Diluted)$0.59
Shares Outstanding (Basic)67.29M
Shares Outstanding (Diluted)68.00M

Key Highlights

  • 1Operating income significantly increased by 87.5% to $67.7 million for the quarter and 57.0% to $137.1 million for the six months ended June 30, 2014, year-over-year.
  • 2Revenue for the second quarter remained stable at approximately $1.56 billion, while the six-month revenue increased by 1.0% to $3.16 billion, driven by acquisitions and the strong performance of the US Industrial Services segment.
  • 3Gross profit margin improved to 14.1% for the quarter and 13.8% for the six months, up from 11.7% and 11.9% respectively in the prior year, indicating better project execution and pricing.
  • 4The US Industrial Services segment experienced substantial revenue growth of 124.6% for the quarter and 82.3% for the six months, largely attributable to the RSI acquisition.
  • 5The company maintained a strong cash position with $437.1 million in cash and cash equivalents as of June 30, 2014.
  • 6Total backlog increased to $3.64 billion as of June 30, 2014, up from $3.51 billion in the prior year, suggesting a healthy demand for EMCOR's services.
  • 7Shareholders received increased dividends, with a declared amount of $0.08 per share for the quarter, reflecting confidence in the company's financial health.

Frequently Asked Questions

EMCOR's improved profitability was primarily driven by a significant increase in operating income, stemming from higher gross profit margins across most segments and strong revenue growth in the United States Industrial Services segment. The positive impact of acquisitions made in 2013, particularly RepconStrickland, Inc. (RSI), also contributed significantly. Additionally, a reduction in restructuring expenses compared to the prior year's second quarter aided the bottom line.

Overall revenues remained relatively flat for the quarter but saw a slight increase year-to-date. The United States Industrial Services segment showed exceptional growth, significantly boosted by acquisitions. The United States Mechanical Construction and Facilities Services segment experienced a decrease in revenue, partly due to a planned reduction in scope and declines in manufacturing and institutional projects, though this was offset by growth in healthcare and hospitality. The United Kingdom segment also saw a revenue decrease due to the company's withdrawal from the UK construction market.

EMCOR maintains a strong liquidity position, with cash and cash equivalents totaling $437.1 million as of June 30, 2014. The company has a manageable debt profile with a Term Loan balance of $341.3 million. The backlog of $3.64 billion provides good visibility into future revenues, supporting its financial stability. The company also continues to return capital to shareholders through dividends and share repurchases.

EMCOR is involved in several legal matters, including a class action lawsuit concerning independent contractor classification and claims related to an explosion incident. The company believes it has strong defenses and does not expect these to have a material adverse effect. Restructuring expenses have decreased significantly compared to the prior year, mainly related to the previously announced withdrawal from the UK construction market, with remaining obligations expected to be paid in 2014.