ABM Industries Inc. (ABM) reported fiscal fourth quarter 2011 ending October 31 adjusted EPS of 37 cents, ahead of the Zacks Consensus Estimate by a penny. Results declined 14% year over year from 41 cents earned in the prior-year quarter mainly due to increased labor expense from one additional workday as well as higher taxes from the reduced availability of employment-based tax credits compared to the year-ago quarter.
Including Items impacting comparability, EPS in the quarter was 33 cents compared with 41 cents in the year-ago quarter.
Operational Update
In the fourth quarter, revenue increased 20% year over year to $1.081 billion. The improvement largely stemmed from contribution from the acquisitions. The top line outperformed the Zacks Consensus Estimate of $1.077 billion.
Operating expense jumped 19% year over year to $960 million impacted by increased labor expense from one additional workday. Selling, general and administrative expenses increased 40% to $82 million. Operating profit declined 6.5% year over year to $33.4 million in the quarter.
Segmental Performance
Janitorial: Revenue from the segment inched up 1% year over year to $597 million during the fourth quarter of fiscal 2011. Operating profit at the segment dropped 8% year over year to $36 million due to high labor costs.
Engineering: Revenue from the segment increased at a whopping rate of 149% year over year to $241 million. Operating profit was up 41% year over year to $9.2 million driven by contributions from Linc operations acquired in the first quarter of 2011.
Parking: Revenue from the segment rose 19% year over year to $153 million during the quarter. Operating profit at the segment increased 11% year over year to $7.4 million.
Security: Revenue from the segment rose 3% to $89.7 million while operating profit dipped 7% to $2.96 million, both year over year.
Fiscal 2011 Performance
The company reported adjusted EPS of $1.39 compared with $1.34 in the previous year, beating the Zacks Consensus Estimate of $1.37. Including Items impacting comparability, EPS in fiscal 2011 stood at $1.27 compared with $1.21 in fiscal 2010. Results were within the company’s guided range of $1.32 to $1.42 for pro forma and $1.23 to $1.33 for GAAP EPS.
Revenues increased 21.5% to $4.25 billion in the year, outpacing the Zacks Consensus Estimate of $4.37 billion.
Financial Position
The company ended fiscal 2011 with cash and cash equivalents of $26.5 million, lower than $39.4 million at fiscal 2010 end. Cash from operating activities increased to $74.2 million in the year from $67.8 million in the previous year.
Dividend
The board of directors of ABM Industries also declared a first quarter cash dividend of 14.5 cents per share, payable on February 6, 2011, to stockholders of record as on January 5, 2012. This reflects a 4% increase over the prior dividend.
Guidance
The company guided its fiscal 2012 adjusted earnings to a range of $1.40 to $1.50 per share and GAAP earnings to a range of $1.26 to $1.36.
The company’s negative organic growth for eight straight quarters has leveled out in 2011. The Linc Group acquisition has added significant scale to ABM’s engineering business and gives it a better growth profile. However, a significant portion of Linc’s revenues has been affected by federal budget delays.
We retain our Neutral recommendation on ABM Industries. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the stock over the near term.
