10-QPeriod: Q1 FY2018

EMCOR Group, Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 26, 2018For Securities:EME

Summary

EMCOR Group, Inc. reported solid first-quarter 2018 results, achieving record quarterly revenues, net income attributable to EMCOR Group, Inc., and diluted earnings per common share from continuing operations. Total revenues slightly increased year-over-year to $1.90 billion, driven by growth across most segments, notably United States electrical and mechanical construction and facilities services, and United Kingdom building services. The company's strong revenue performance was supported by $19.4 million in incremental revenue from acquisitions made in 2017. While overall revenues saw a modest uptick, operating income experienced a slight decline due to challenges in the United States industrial services segment, which was negatively impacted by adverse market conditions and the lingering effects of Hurricane Harvey. However, this was partially offset by improved operating performance in the United States electrical and building services segments, and significant growth in the United Kingdom building services segment. The company's net income and diluted EPS were boosted by the recent reduction in the U.S. federal corporate tax rate following the Tax Cuts and Jobs Act legislation.

Financial Highlights

50 data points
Beta

Revenue

$1.90B

14.2% Gross Margin

Net Income

$55.37M

2.9% Net Margin

EPS (Diluted)

$0.94

Total Assets

$3.84B

Cash & Equivalents

$352.44M

Free Cash Flow

-$59.09M

Financial Statements
Beta
Revenue$1.90B
Cost of Revenue$1.63B
Gross Profit$269.12M
SG&A Expenses$191.03M
Operating Income$78.00M
Interest Expense$3.00M
Net Income$55.37M
EPS (Basic)$0.95
EPS (Diluted)$0.94
Shares Outstanding (Basic)58.74M
Shares Outstanding (Diluted)59.06M

Key Highlights

  • 1Record-breaking first quarter for revenues ($1.90 billion), net income attributable to EMCOR Group, Inc. ($55.4 million), and diluted EPS from continuing operations ($0.94).
  • 2Total revenues increased slightly by 0.5% to $1.90 billion, with growth driven by U.S. Electrical Construction & Facilities Services, U.S. Mechanical Construction & Facilities Services, and UK Building Services.
  • 3Acquisitions made in 2017 contributed $19.4 million in incremental revenues, primarily in the U.S. Mechanical and U.S. Building Services segments.
  • 4Operating income saw a slight decrease to $78.7 million (4.1% margin) from $82.8 million (4.4% margin) in the prior year, primarily due to challenging market conditions in the U.S. Industrial Services segment.
  • 5Net income and diluted EPS benefited from the reduction in the U.S. federal corporate tax rate due to the Tax Cuts and Jobs Act.
  • 6The company's backlog remained robust at $3.95 billion as of March 31, 2018, indicating strong future revenue potential.
  • 7EMCOR repurchased $34.5 million of its common stock during the quarter, demonstrating a commitment to returning value to shareholders.

Frequently Asked Questions

EMCOR adopted ASC 606, 'Revenue from Contracts with Customers,' on January 1, 2018, on a modified retrospective basis. The adoption resulted in a minor cumulative effect adjustment to retained earnings of $0.9 million, net of tax. While there were some reclassifications between accounts like contract assets and liabilities, and minor shifts in revenue and operating income recognized compared to pro forma results under previous guidance, the overall impact on the financial statements was not material.

The U.S. Industrial Services segment experienced a significant revenue decrease of $73.4 million compared to the prior year's first quarter. This decline is attributed to continued adverse market conditions, including reduced turnaround activities and a prolonged decrease in demand for new build heat exchangers. The segment's performance was also impacted by Hurricane Harvey in 2017. Management noted that unabsorbed overhead costs due to a lack of significant turnaround projects contributed to a higher SG&A margin.

EMCOR's primary source of liquidity is cash generated from operations. They also maintain a $900 million revolving credit facility to meet short-term needs or seize opportunities. The company believes its current cash, available borrowing capacity, and expected future cash from operations are sufficient for short-term and foreseeable long-term liquidity and capital expenditure requirements. They also continue to fund share repurchases and quarterly dividends from operations.

The Tax Cuts and Jobs Act, enacted in late 2017, significantly reduced the U.S. federal corporate tax rate from 35% to 21%. This reduction led to a revaluation of deferred tax assets and liabilities, resulting in a one-time benefit recorded in 2017. For the first quarter of 2018, the lower tax rate contributed to a substantial decrease in the income tax provision ($20.6 million in Q1 2018 vs. $26.8 million in Q1 2017) and a lower effective tax rate (27.0% in Q1 2018 vs. 33.6% in Q1 2017), thereby boosting net income and diluted earnings per share.