EMCOR Group, Inc. :EME-US: Earnings Analysis: Q3, 2016 By the Numbers : November 2, 2016

EMCOR Group, Inc. reports financial results for the quarter ended September 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.

Highlights

  • Summary numbers: Revenues of USD 1,923.17 million, Net Earnings of USD 51.94 million.
  • Gross margins widened from 13.85% to 13.93% compared to the same period last year, operating (EBITDA) margins now 5.57% from 5.21%.
  • Year-on-year change in operating cash flow of -20.18% 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:

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 1699.13 1777.83 1744.97 1933.42 1923.17
Revenue Growth (%YOY) 8.45 3.68 9.8 16.99 13.19
Earnings (mil) 41.79 50.39 34.43 56.48 51.94
Earnings Growth (%YOY) -8.42 16.99 3.69 20.26 24.27
Net Margin (%) 2.46 2.83 1.97 2.92 2.7
EPS 0.66 0.81 0.56 0.9 0.84
Return on Equity (%) 11.19 13.46 9.29 14.96 13.32
Return on Assets (%) 4.84 5.73 3.94 6.23 5.4

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Market Share Versus Profits

Revenues History
Earnings History

EME-US‘s change in revenue this period compared to the same period last year of 13.19% 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 -0.53% and earnings by -8.04% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 13.85% to 13.93% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 5.21% to 5.57% compared to the same period last year. For comparison, gross margins were 14.15% and EBITDA margins were 6.01% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

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.

Gross Margin History
Working Capital Days History

EME-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 36.66 days from 36.68 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

EME-US‘s change in operating cash flow of -20.18% 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.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 4.14% to 4.50% and (2) one-time items. The company’s pretax margins are now 4.30% compared to 4.00% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for EMCOR Group, Inc.

Company Profile

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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