ABM Industries Inc. (ABM) reported first-quarter 2011 adjusted earnings per share (EPS) of 22 cents per share, falling 19% short of the Zacks Consensus Estimate as well as the prior-year quarter EPS of 27 cents.

The EPS in the reported quarter excluded acquisition costs, after-tax transaction costs associated with The Linc Group acquisition and costs for litigation contingency. The prior-year figure excluded acquisition costs and charges related to the company’s corporate initiatives. Excluding these items, EPS in the quarter was 16 cents versus 24 cents in the year-ago quarter.

Total revenue in the quarter under review increased 18.3% year over year to $1,029.2 million but lagged the Zacks Consensus Estimate of $1,057 million. The year-over-year growth in revenues was driven by improved performance across all its segments. Further, the businesses acquired during the year – Diversco, L&R Parking companies and The Linc Group – augmented sales in the quarter.

The Engineering segment led the performance with a growth of 97.8% year over year to $192.6 million on sales generated by The Linc Group, which contributed more than $93 million in revenues. The Parking segment posed a growth of 35.8% to reach segment revenues of $152.9 million driven by sales contributions from the L&R companies.

The Security segment’s revenue increased 6.2% to $88.8 million, which included more than $3 million in sales from Diversco. The Janitorial segment’s revenues inched up 3.2% to $594.6 million.

Operating expenses upped 19% year over year to $927.8 million. As a percentage of revenues, expenses increased 20 basis points to 90.1%. Selling, general and administrative (SG&A) expenses increased 26% year over year to $79.2 million. As a percentage of revenues, SG&A increased 50 basis points to 7.7%.

The company reported an operating profit of $16.9 million, down 23.8% year over year. The Engineering segment was the only one to post a year-over-year operating profit increase. The segment’s operating income improved 41.2% year over year to $7.4 million in the reported quarter reflecting accretion from the Linc business. Operating profit at the Security segment dipped 3.3% year over year to $1.3 million.

The Parking segment’s operating income decreased 5.8% year over year to $4.7 million affected by snow and weather -related costs. The Janitorial segment’s operating income was $29.9 million, down 11.6% year over year due to an additional working day, higher state unemployment insurance expense and unanticipated costs associated with snow removal which impacted certain clients.

Financial Update

The balance of cash and cash equivalents at the end of the first quarter was $31.4 million compared with $39.4 million as of fiscal 2010 end. Cash from continuing operations in the first quarter 2011 was $0.26 million compared with a usage of $12.2 million in the prior-year quarter.

At the end of the reported quarter, the line of credit balance totaled $430 million, higher than $140.5 million at the end of fiscal 2010.

Dividend

The board of directors declared a second-quarter cash dividend of 14 cents per common share to stockholders of record as of April, 2011. The dividend will be paid on May 2, 2011. This dividend will mark the company’s 80th consecutive quarterly cash dividend.

Full-Year 2011 Guidance

ABM Industries expects sales generated by the newly-acquired businesses along with a return to organic growth to continue to produce year-over-year revenue gains for the 2011 fiscal year. Management reiterated its fiscal 2011 EPS guidance range of $1.43 to $1.53. Including transaction and integration costs, management expects EPS to be in the range of $1.23 to $1.33.

Our Take

ABM Industries’ top-line has been under pressure due to sagging commercial office building occupancy and rental rates in the U.S. Even though revenues showed an improvement in the quarter they mostly came from acquisitions. We await the company’s return to organic growth. We currently have a Zacks #4 Rank (short-term Sell recommendation) on the stock.

ABM Industries operates through its subsidiaries and is the leading provider of facility services in the United States. The company provides janitorial, facility, engineering, parking and security services for thousands of commercial, industrial, institutional and retail facilities across the United States, Puerto Rico and British Columbia, Canada.

Its business services include ABM Janitorial Services, ABM Facility Services, ABM Engineering Services, Ampco System Parking and ABM Security Services. It competes with privately -held ARAMARK Corporation, Central Parking Corporation and UNICCO Service Company.

 
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