10-QPeriod: Q2 FY2017

EMCOR Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 27, 2017For Securities:EME

Summary

EMCOR Group, Inc. reported solid financial results for the second quarter and the first half of 2017, demonstrating resilience despite a slight revenue dip in the quarter. The company saw an increase in operating income and margins across most segments, bolstered by strong performance in its domestic construction divisions and the successful integration of recent acquisitions. A notable event during the period was the recovery of certain disputed contract costs, which significantly boosted performance in the mechanical construction segment. Financially, EMCOR maintained a healthy backlog of over $4 billion, indicating robust future project pipelines. While overall revenues saw a modest decline in the quarter, this was primarily due to softer performance in the industrial services and UK building services segments, partly offset by growth in commercial construction driven by telecommunication projects. The company's strategic acquisitions continue to contribute positively to revenue and operating income, signaling effective integration and growth strategies. Investors can take comfort in EMCOR's consistent operational execution and strategic M&A activities.

Financial Highlights

50 data points
Beta

Revenue

$1.90B

14.5% Gross Margin

Net Income

$56.76M

3.0% Net Margin

EPS (Diluted)

$0.95

Total Assets

$3.85B

Cash & Equivalents

$385.40M

Free Cash Flow

$106.57M

Financial Statements
Beta
Revenue$1.90B
Cost of Revenue$1.62B
Gross Profit$274.50M
SG&A Expenses$181.75M
Operating Income$92.41M
Interest Expense$3.07M
Net Income$56.76M
EPS (Basic)$0.96
EPS (Diluted)$0.95
Shares Outstanding (Basic)59.29M
Shares Outstanding (Diluted)59.64M

Key Highlights

  • 1Revenues for the six months ended June 30, 2017 increased to $3.79 billion from $3.68 billion in the prior year period, while Q2 2017 revenues slightly decreased by 1.9% to $1.90 billion.
  • 2Operating income increased to $92.8 million for Q2 2017 and $175.6 million for the first six months, up from $92.3 million and $147.9 million in the respective prior year periods.
  • 3Operating margin improved to 4.9% for Q2 2017 and 4.6% for the first six months, an increase from 4.8% and 4.0% respectively in the prior year periods.
  • 4The backlog grew to $4.10 billion as of June 30, 2017, compared to $3.90 billion at the end of 2016 and $3.81 billion a year prior, indicating strong future revenue potential.
  • 5Acquisitions made in 2016 and 2017 contributed $44.0 million in incremental revenues and $1.5 million in incremental operating income in Q2 2017.
  • 6The company repurchased approximately $63.4 million of its common stock during 2017, with $102.1 million remaining authorization for future repurchases as of June 30, 2017.
  • 7Net cash provided by operating activities significantly improved to $102.9 million for the first six months of 2017, compared to $47.8 million in the same period of 2016.

Frequently Asked Questions

The slight decrease in Q2 2017 revenues was primarily due to lower demand in the United States industrial services segment (reduced specialty services and turnaround activities) and decreases in the United States building services and United Kingdom building services segments. These were partially offset by increased revenues in domestic construction segments, driven by commercial market growth in telecommunication projects and activity in healthcare and manufacturing sectors. Acquisitions also contributed $44.0 million in incremental revenues.

Acquisitions completed in 2016 and 2017, particularly those within the United States electrical, mechanical construction, and building services segments, are contributing positively. In Q2 2017, these acquisitions generated $44.0 million in incremental revenues and $1.5 million in incremental operating income, demonstrating successful integration and a positive impact on financial performance.

The recovery of $11.6 million in contract costs previously disputed on a project completed in the prior year significantly boosted the United States mechanical construction and facilities services segment. This recovery directly contributed to higher gross profit and operating income, favorably impacting the segment's margins and the company's overall consolidated operating margin by 0.6% for Q2 2017.

EMCOR has a revolving credit facility and a term loan under its 2016 Credit Agreement, totaling approximately $417.4 million outstanding as of June 30, 2017. The company was in compliance with its covenants. Net cash used in financing activities for the first half of 2017 was largely due to stock repurchases ($65.7 million), while the prior year period saw net cash provided by financing activities driven by borrowings under the revolving credit facility ($220.0 million). The company continues to fund dividends and share repurchases from operations.