ABM Industries Inc. (ABM) recently reported fiscal first-quarter earnings of 27 cents per share, which is below the Zacks Consensus Estimate of 32 cents, but higher than the prior year earnings of 25 cents per share. Despite lower year-over-year revenues in three of four segments, ABM managed to post higher profits in the quarter through aggressive cost control measures.
Total revenue in the quarter declined 2.0% year-over-year to $869.9 million. The company’s sales are directly dependent on commercial real estate occupancy levels. The economic slowdown has resulted in declining commercial office building occupancy and rental rates, which in turn has resulted in lower revenue for ABM.
The company witnessed revenue declines in three of four segments. Janitorial segment’s revenue dropped 4.0%, while Parking and Security segments posted revenue declines of 2.7% and 2.3%, respectively. Quarterly revenue in the Engineering segment increased 15.7% compared to last year. The year-over-year increase in revenue was mostly due to easier comparisons along with stabilizing demand.
Despite the adverse impact of the weak economic conditions on its revenue, ABM continues to post higher operating profits. The company continues to drive profits through aggressive cost containment.
ABM reiterated its fiscal 2010 earnings guidance in the range of $1.35 to $1.45 per share, compared to $1.33 reported in fiscal 2009. The guidance excludes the additional costs associated with the implementation of new information technology systems and other one time items. Including these costs, the company estimates FY10 earnings in the range of $1.25 to $1.35 per share. Given the improving economy and its existing sales pipeline, ABM expects to post revenue growth in the second half of fiscal 2010.
We maintain a Neutral recommendation on the stock.
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