10-QPeriod: Q2 FY2018

EMCOR Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 26, 2018For Securities:EME

Summary

EMCOR Group, Inc. reported strong financial performance for the second quarter of 2018, setting new records for quarterly revenues, operating income, net income attributable to EMCOR Group, Inc., and diluted earnings per common share from continuing operations. Revenues increased by 3.1% year-over-year to $1.95 billion, driven by growth across most reporting segments, particularly in United States electrical and building services, and the United Kingdom building services. The company successfully navigated a more challenging environment in its United States industrial services segment. Profitability also saw a significant boost, with operating income up 7.8% to $99.7 million and operating margin improving to 5.1%. This improvement was supported by better operating performance across segments and the positive impact of the Tax Cuts and Jobs Act, which reduced the corporate tax rate. The company's robust backlog of $3.67 billion in remaining performance obligations provides a solid foundation for future revenue generation. Despite a notable decrease in operating cash flow for the first six months of 2018 compared to the prior year, attributed to working capital timing and increased payments, EMCOR maintains adequate liquidity through its operating cash flow and revolving credit facility.

Financial Highlights

50 data points
Beta

Revenue

$1.95B

14.9% Gross Margin

Net Income

$70.82M

3.6% Net Margin

EPS (Diluted)

$1.21

Total Assets

$3.87B

Cash & Equivalents

$306.62M

Free Cash Flow

$26.44M

Financial Statements
Beta
Revenue$1.95B
Cost of Revenue$1.66B
Gross Profit$290.84M
SG&A Expenses$189.91M
Operating Income$99.66M
Interest Expense$3.46M
Net Income$70.82M
EPS (Basic)$1.22
EPS (Diluted)$1.21
Shares Outstanding (Basic)58.33M
Shares Outstanding (Diluted)58.67M

Key Highlights

  • 1Achieved record quarterly revenues of $1.95 billion, a 3.1% increase year-over-year.
  • 2Operating income rose 7.8% to $99.7 million, with an improved operating margin of 5.1%.
  • 3Net income attributable to EMCOR Group, Inc. increased significantly to $70.8 million, benefiting from operational improvements and the lower U.S. federal corporate tax rate.
  • 4Diluted earnings per share from continuing operations reached $1.21, a substantial increase from $0.95 in the prior year quarter.
  • 5The company ended the quarter with a strong backlog of remaining performance obligations totaling $3.67 billion.
  • 6The adoption of ASC 606 (Revenue from Contracts with Customers) on January 1, 2018, was managed effectively with immaterial cumulative adjustments to retained earnings.
  • 7EMCOR continued its share repurchase program, buying back shares worth approximately $60.5 million in the first six months of 2018.

Frequently Asked Questions

Revenue growth was primarily driven by increased revenues across most reporting segments, including United States electrical construction and facilities services, United States building services, and United Kingdom building services. Incremental revenues from recently acquired companies also contributed to the overall increase.

EMCOR adopted ASC 606 on January 1, 2018, on a modified retrospective basis. The adoption resulted in a minor cumulative adjustment to retained earnings of $0.9 million, net of tax, and reclassified 'Costs and estimated earnings in excess of billings on uncompleted contracts' to 'Contract assets' and 'Billings in excess of costs and estimated earnings on uncompleted contracts' to 'Contract liabilities'. The overall impact on financial statements was not material.

EMCOR's remaining performance obligations stood at $3.67 billion as of June 30, 2018. This substantial backlog, which increased from the previous quarter, indicates strong demand for the company's services and provides a solid foundation for future revenue generation across its various segments.

The enactment of the Tax Cuts and Jobs Act, which reduced the U.S. federal corporate tax rate from 35% to 21%, had a positive impact on EMCOR's net income. This reduction in tax rates contributed to the significant increase in net income and diluted earnings per share observed in the second quarter of 2018.