ABM Industries Inc. (ABM) reported fiscal third quarter 2011 ending July 31 earnings of 51 cents per share, comfortably surpassing the Zacks Consensus Estimate by 4 cents. Results also improved 21% year over year from 42 cents earned in the prior year quarter. Net income increased 27% year over year to $27.9 million in the quarter under review.
The improvement stemmed from higher segment operating profit driven by acquisitions, re-measurement of certain unrecognized tax benefits and settlement of dispute related to an acquisition. However, higher share-based compensation expense and higher interest expense somewhat dwarfed the positives.
Operational Update
In the fiscal third quarter, revenue increased approximately 23.8% year over year to $1.08 billion. The improvement largely stemmed from contribution from the acquisitions made in 2010. Top line however failed to meet the Zacks Consensus Estimate of $1.1 billion.
Total expense jumped 24% year over year to $1.04 billion, due to the increase in operating and selling, general and administrative expenses and higher amortization of intangible assets.
Operating profit increased 15% year over year to $40.7 million in the quarter. Interest income in the quarter increased more than threefold to $4.1 million.
Segmental Performance
Janitorial: Revenue from the segment increased 4.1% year over year to $598.7 million during the third quarter of fiscal 2011. Operating profit of the segment rose 4.6% year over year to $40.1 million.
Engineering: Revenue from the segment increased at a whopping rate of 150.3% year over year to $236.2 million. Operating profit was up 61.5% year over year to $9.9 million driven by contributions from Linc operations acquired in the first quarter of 2011.
Parking: Revenue from the segment rose 34.2% year over year to $153.3 million, during the quarter. Operating profit of the segment increased 23.1% year over year to $7.2 million.
Security: Revenue from the segment rose 3.3% on a year-over-year basis to $87.7 million; while operating profit surged 38.8% on a year-over-year basis to $2.8 million.
Corporate: Segment revenue was $0.28 million compared with $0.32 million in the prior year quarter. Segment operating loss widened to $19.3 million in the quarter from $17.0 million in the prior-year quarter.
Financial Position
The company exited the quarter with cash and cash equivalents of $39.6 million, a trifle higher than $39.4 million at fiscal 2010 end.
Cash from operating activities increased to $51.0 million in the third quarter, up from $35.2 million, in the year ago quarter.
Dividend
The board of directors of ABM Industries also declared a fourth quarter cash dividend of 14 cents per share, payable on November 7, 2011, to stockholders of record as on October 6, 2011.
Guidance
The company guided its fiscal 2011 adjusted earnings to a range of $1.32 to $1.42 per share and GAAP earnings to a range of $1.23 to $1.33.
We retain our Neutral recommendation on ABM Industries. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
