EMCOR Group, Inc. reports financial results for the quarter ended June 30, 2016.
We analyze the earnings along side the following peers of EMCOR Group, Inc. – Comfort Systems USA, Inc. and United Technologies Corporation (FIX-US and UTX-US) that have also reported for this period.
- Summary numbers: Revenues of USD 1,933.42 million, Net Earnings of USD 56.48 million.
- Gross margins narrowed from 14.49% to 14.15% compared to the same period last year, operating (EBITDA) margins now 6.01% from 5.86%.
- Year-on-year change in operating cash flow of 622.64% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
- Earnings growth from operating margin improvements as well as one-time items.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:
|Relevant Numbers (Quarterly)|
|Revenue Growth (%YOY)||6.07||8.45||3.68||9.8||16.99|
|Earnings Growth (%YOY)||17.66||-8.42||16.99||3.69||20.26|
|Net Margin (%)||2.84||2.46||2.83||1.97||2.92|
|Return on Equity (%)||12.92||11.19||13.46||9.29||14.96|
|Return on Assets (%)||5.58||4.84||5.73||3.94||6.23|
Access our Ratings and Scores for EMCOR Group, Inc.
Market Share Versus Profits
EME-US‘s change in revenue this period compared to the same period last year of 16.99% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that EME-US is holding onto its market share. Also, for comparison purposes, revenues changed by 10.80% and earnings by 64.04% compared to the immediate last period.
Earnings Growth Analysis
The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 5.86% to 6.01%. For comparison, gross margins were 12.79% and EBITDA margins were 4.33% in the last period.
Gross Margin Trend
Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.
EME-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 33.19 days from 35.19 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.
Cash Versus Earnings – Sustainable Performance?
EME-US‘s change in operating cash flow of 622.64% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.
The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 4.73% to 4.95% and (2) one-time items. The company’s pretax margins are now 4.62% compared to 4.58% for the same period last year.
Access our Ratings and Scores for EMCOR Group, Inc.
EMCOR Group, Inc. provides electrical and mechanical construction and facilities services. The company provides services to commercial, industrial, utility, and institutional customers. It designs, integrates, installs, starts-up, operates, and maintains various electrical and mechanical systems. The company operates through the following segments: United States Electrical Construction & Facilities Services, United States Mechanical Construction & Facilities Services, United States Building Services, United States industrial services and United Kingdom Building Services. The United States Electrical Construction & Facilities Services segment is involved in electrical power transmission and distribution, premises electrical and lighting systems, and low-voltage systems. The United States Mechanical Construction & Facilities Services segment provides systems for heating, ventilation, air conditioning, refrigeration and clean-room process ventilation, fire protection, plumbing, process and high-purity piping, controls and filtration, water and wastewater treatment and central plant heating and cooling, cranes and rigging, mill righting, steel fabrication, erection, and welding. The United States Building Services and United Kingdom Building Services segments principally consist of those operations which provide a portfolio of services needed to support the operation and maintenance of customers facilities, including commercial and government site-based operations and maintenance; facility maintenance and services, including reception, security and catering services; outage services to utilities and industrial plants; military base operations support services; mobile maintenance and services; floor care and janitorial services; landscaping, lot sweeping and snow removal; facilities management; vendor management; call center services; installation and support for building systems; program development, management and maintenance for energy systems; technical consulting and diagnostic services; infrastructure and building projects for federal, state and local governmental agencies and bodies; and small modification and retrofit projects, which services are not generally related to customers construction programs. The United States Industrial Services segment principally consists of those operations which provide industrial maintenance and services, including those for refineries and petrochemical plants, including on-site repairs, maintenance and service of heat exchangers, towers, vessels and piping; design, manufacturing, repair and hydro blast cleaning of shell and tube heat exchangers and related equipment; refinery turnaround planning and engineering services; specialty welding services; overhaul and maintenance of critical process units in refineries and petrochemical plants; and specialty technical services for refineries and petrochemical plants. The company was founded in 1987 and is headquartered in Norwalk, CT.
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