Why Is Emcor Group (EME) Down 26.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Emcor Group (EME). Shares have lost about 26.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Emcor Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

EMCOR Q4 Earnings & Revenues Beat, 2020 View Strong

EMCOR Group Inc. reported solid results in fourth-quarter 2019, wherein the top and bottom lines surpassed the respective Zacks Consensus Estimate, and improved year over year. The solid performance was mainly driven by strong project execution across the business and cost discipline.

The company reported adjusted earnings of $1.54 per share, which topped the consensus mark of $1.50 by 2.7% and increased 11.6% from the year-ago quarter. The improvement was driven by strong revenue growth across the board and disciplined project execution.

Revenues during the quarter totaled $2.4 billion, surpassing the consensus mark of $2.36 billion by 2.1%. Also, the reported figure grew 7.8% year over year, driven by solid segmental growth.

Segment Details

The U.S. Construction segment recorded revenue improvement of 9.9% year over year, supported by project wins across key market sectors and geographies.

Within U.S. Construction, the U.S. Electrical Construction and facilities services segment reported revenue growth of 5.7% year over year. Also, the U.S. Mechanical Construction and facilities services segment reported revenue growth of 12.7% from a year ago.

Revenues in the U.S. Building Services segment maintained robust momentum during the quarter, as is evident from double-digit revenue growth of 10.9%. The solid improvement was driven by strong mechanical services division and a number of large contract wins in the commercial site-based services division. The U.S. Industrial Services unit’s revenues, however, declined 4.3% year over year.

The U.K. Building Services segment’s revenues increased 3.6% year over year.

Operating Highlights

Selling, general and administrative expenses — as a percentage of revenues — were 10%, up 10 basis points (bps) from the prior-year period.

Non-GAAP operating income (excluding impairment loss on identifiable intangible assets) totaled $122.9 million during the quarter, 8.1% higher than the prior-year period, supported by its focus on cost discipline and execution. Yet, adjusted operating margin of 5.1% was almost in line with the prior-year period.

Liquidity & Cash Flow

As of Dec 31, 2019, the company had cash and cash equivalents of $358.8 million compared with $363.9 million at 2018-end. Long-term debt and finance lease obligations totaled $244.1 million, down from $254.8 million recorded on Dec 31, 2018.

In 2019, EMCOR provided $355.7 million cash to operating activities compared with $271 million a year ago.

2019 Highlights

Adjusted earnings in the full year were recorded at $5.75 per share, up 17.1% year over year. The reported figure surpassed the consensus estimate of $5.72 by 0.5%. Revenues also grew 12.8% from the year-ago period, backed by 9.3% organic growth. The uptick was mainly due to broad-based improvement across the business, underscored by double-digit growth in each of the domestic segments.

2020 Guidance

Buoyed by favorable project mix and the assumption that the current market conditions will continue, EMCOR provided strong earnings as well as revenue guidance.

It projects revenues for 2020 in the range of $9.5-$9.7 billion. The consensus estimate for 2020 revenues is currently pegged at $9.67 billion. The company expects earnings within $5.60-$6.30 per share compared with the consensus mark of $5.94.

Importantly, it anticipates robust project pipeline and sustained growth in the non-residential construction market in 2020.

On Feb 15, 2020, EMCOR found a RYUK ransomware attack infecting some of its systems with malware. However, as a precaution, it has promptly shut down certain IT systems to help detect the problem. Notably, the company’s full-year 2020 guidance reflects some financial impact of the ransomware attack.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Emcor Group has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Emcor Group has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.