10-QPeriod: Q3 FY2014

EMCOR Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2014

Filed October 28, 2014For Securities:EME

Summary

EMCOR Group, Inc.'s (EME) third-quarter 2014 results show a solid increase in operating income and a stronger operating margin compared to the prior year, driven by improved performance in key segments and a gain on the sale of a building. Despite a slight decrease in overall revenues, the company demonstrated effective cost management and operational improvements. The company continues to benefit from strategic acquisitions, notably RepconStrickland, Inc. (RSI), which contributed significantly to revenue growth in the industrial services segment. EMCOR is also actively managing its capital, evidenced by robust operating cash flow generation and a significant increase in share repurchases, signaling confidence in its financial health and future prospects. The company also reported a growing backlog, indicating a healthy pipeline of future work, which is a positive sign for sustained revenue and profitability.

Financial Highlights

50 data points
Beta

Revenue

$1.57B

14.2% Gross Margin

Net Income

$45.02M

2.9% Net Margin

EPS (Diluted)

$0.67

Total Assets

$3.43B

Cash & Equivalents

$437.45M

Free Cash Flow

$69.35M

Financial Statements
Beta
Revenue$1.57B
Cost of Revenue$1.34B
Gross Profit$222.23M
SG&A Expenses$159.98M
Operating Income$73.60M
Interest Expense$2.40M
Net Income$45.02M
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)66.71M
Shares Outstanding (Diluted)67.42M

Key Highlights

  • 1Operating income increased by 26.8% to $73.6 million for the three months ended September 30, 2014, compared to $58.0 million in the prior year.
  • 2Operating margin improved to 4.7% from 3.6% year-over-year, driven by operational efficiencies and a gain on sale of a building.
  • 3Revenues for the nine months ended September 30, 2014 increased slightly to $4.71 billion from $4.68 billion in the prior year, with notable growth in the United States industrial services segment.
  • 4The company's backlog grew to $3.70 billion as of September 30, 2014, up from $3.34 billion at the end of 2013, indicating a strong pipeline of future projects.
  • 5Net cash provided by operating activities increased significantly to $109.0 million for the first nine months of 2014, up from $68.0 million in the prior year.
  • 6EMCOR repurchased approximately $84.6 million of its common stock during the first nine months of 2014 and received Board authorization for an additional $250.0 million repurchase program.
  • 7The company ceased construction operations in the United Kingdom, and the results are presented as discontinued operations, showing a reduced loss compared to the prior year.

Frequently Asked Questions

The increase in operating income, despite a slight revenue decrease, was driven by a combination of factors. These include an $11.7 million gain from the sale of a building, improved operating performance in key segments like United States industrial services and United States mechanical construction and facilities services, and effective cost management. The company also benefited from the inclusion of recently acquired businesses.

EMCOR is actively managing its capital through strong operating cash flow generation, which increased significantly year-over-year. The company also demonstrated a commitment to shareholder returns through substantial share repurchases, buying back approximately $84.6 million of its common stock in the first nine months of 2014 and authorizing a new $250.0 million repurchase program. Additionally, the company has been paying and intends to continue paying quarterly dividends.

The company's backlog increased to $3.70 billion as of September 30, 2014, which is a positive indicator for future revenue and profitability. This growth, primarily in the United States mechanical and electrical construction segments, suggests a strong pipeline of secured work and provides visibility into future performance.

EMCOR has ceased its UK construction operations due to recurring losses. These operations are now presented as discontinued operations. While they still represent a loss, the overall impact on the company's financial results is diminishing, and the company is focusing resources on its more profitable segments.