EMCOR Group, Inc. Reports Second Quarter 2013 Results
EMCOR Group, Inc. Reports Second Quarter 2013 Results
- Exiting the UK Construction Market -
- Domestic Backlog as of June 30, 2013 Increases 9.4% to $3.32 Billion -
- Company Updates 2013 Guidance -
For the second quarter of 2013, net income attributable to EMCOR was $21.0 million, or $0.31 per diluted share. Excluding several one-time charges discussed below, non-GAAP net income was $32.9 million, or $0.48 per diluted share, compared to non-GAAP net income of $34.0 million, or $0.50 per diluted share, in the second quarter of 2012. Revenues in the second quarter of 2013 totaled $1.56 billion, compared to revenues of $1.59 billion in the year ago period.
Operating income for the second quarter of 2013 was $36.1 million, or 2.3% of revenues, which included operating losses and expenses aggregating approximately $13.8 million (including restructuring expenses of $5.8 million) primarily relating to the Company's decision to withdraw from the UK construction market. Additionally, included in the quarter's operating income are transaction expenses of $1.4 million associated with the Company's previously announced agreement to acquire RepconStrickland, Inc. Excluding all of these losses and expense items, the Company's non-GAAP operating income for the second quarter of 2013 was $51.3 million, or 3.3% of revenues, compared to non-GAAP operating income in the 2012 second quarter of $57.1 million, or 3.7% of revenues, as adjusted for 2012 UK construction operating losses.
Please see the attached tables for a reconciliation of non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share to the comparable GAAP figures.
Due to recurring losses over the last several years in the construction operations of our UK segment and our negative assessment of construction market conditions in the UK for the foreseeable future, we determined, and announced during the quarter ended June 30, 2013 our decision, to completely withdraw from the UK construction market.
Selling, general and administrative expenses were $139.6 million, or 9.0% of revenues, in the second quarter of 2013, compared to $137.7 million, or 8.7% of revenues, in the year ago period.
The Company's income tax rate as reported in the 2013 second quarter was 38.5%, compared to an income tax rate of 38.3% in the year ago period.
Backlog as of June 30, 2013 was $3.51 billion, an increase of 6.9% from $3.28 billion at the end of the 2012 second quarter. Continued backlog growth in the industrial sector combined with backlog growth in the transportation and hospitality/gaming sectors more than offset backlog declines in the commercial, institutional and water/wastewater sectors. Total Company industrial backlog increased $264 million, or 59.9%, from the year ago period to $705 million, which is an all-time high, while commercial backlog decreased $35 million, or 3.5%, from year ago levels to $952 million. Backlog growth in the Company's domestic operations for the quarter of $285 million more than offset a backlog decline of $58 million related to the Company's decision to withdraw from the UK construction market. Total backlog increased 4.1% from $3.37 billion on December 31, 2012.
Tony Guzzi, President and Chief Executive Officer of EMCOR Group commented, "This was a transformational quarter for the Company. We made significant progress toward our strategic goals with the announcement of a major acquisition in RepconStrickland and the decision to withdraw from the UK construction market and focus only on facilities services there. Domestically, electrical construction continued to demonstrate strong growth and facilities services generated solid margin contribution growth driven by better performance from our mechanical and site-based services business. This performance was offset by losses incurred by one of our subsidiaries located in the southeastern U.S. within our U.S. mechanical construction and facilities services segment. Additionally, the impact of sequestration on our government-related business has had a greater negative effect than we originally anticipated. Aside from those issues, we are pleased with the underlying performance of our businesses, which was in-line with our expectations and bodes well for the future."
Mr. Guzzi continued, "On June 17th, we announced a significant transaction to further strengthen our facilities services business and build on the momentum we are seeing in the refinery and petrochemical markets through the acquisition of RepconStrickland. We expect the transaction to close within the next week. RepconStrickland is a premier provider of turnaround and specialty services and will enhance our position in industrial services and energy sectors. We look forward to capitalizing on the significant opportunities this transaction provides in the second half of 2013 and beyond."
Mr. Guzzi concluded, "While challenging overall market conditions are expected to persist and issues related to sequestration will likely continue for the foreseeable future, we are confident that the strategic moves we've undertaken in recent years and during this quarter position us well to succeed over the long-term with improved profitability and growth prospects. Looking ahead to the second half of 2013, we remain on track to meet our expectations for the year. It is important to note that the anticipated upturn in the non-residential cycle has not yet fully occurred, and we will face challenging comparisons in the second half of the year given the major projects that were completed in 2012. Despite these headwinds, we are confident about our prospects for the remainder of the year based on earnings growth exhibited in both our electrical construction and facilities services businesses, our history of strong operating cash flows, and the strength of our overall backlog. Our long-term focus continues to be on areas that we can control, including prudent cost discipline, opportunistic contract bidding and investing in growth."
Revenues for the first six months totaled $3.13 billion, approximately level compared to $3.13 billion for the first six months of 2012.
Net income attributable to EMCOR for the first half of 2013 was $51.2 million, or $0.75 per diluted share. Excluding losses associated with the withdrawal from the UK construction market, transaction expenses associated with the pending acquisition of RepconStrickland and restructuring expenses in the second quarter of 2013, non-GAAP net income was $67.1 million, or $0.99 per diluted share, compared to non-GAAP net income of $62.1 million, or $0.92 per diluted share, in the year ago period as adjusted for 2012 UK construction losses.
Operating income in the first half of 2013 was $87.4 million, or 2.8% of revenues. Excluding the items mentioned in the immediately preceding paragraph, non-GAAP operating income for the 2013 six-month period was $107.8 million, or 3.5% of revenues, compared to non-GAAP operating income of $104.4 million, or 3.4% of revenues, in the prior year period.
Please see the attached tables for a reconciliation of non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share to the comparable GAAP figures
For the first six months of 2013, SG&A totaled $278.1 million, or 8.9% of revenues, compared to $272.2 million, or 8.7% of revenues, in the first half of 2012.
The Company noted that, based on the current size and mix of its backlog and assuming the continuation of current market conditions, it now expects to generate revenues in 2013 of approximately $6.6 billion, and now expects non-GAAP diluted earnings per share for 2013 of $2.15 to $2.40, excluding the above-mentioned expenses associated with the withdrawal from the UK construction market, transaction expenses from the pending RepconStrickland acquisition and restructuring expenses. Including these items, the Company expects to generate GAAP diluted earnings per share of $1.80 to $2.05.
EMCOR Group, Inc. is a Fortune 500 worldwide leader in mechanical and electrical construction services, energy infrastructure and facilities services. This press release and other press releases may be viewed at the Company's Web site at www.emcorgroup.com.
EMCOR Group's second quarter conference call will be available live via internet broadcast today, Thursday, July 25, at 10:30 AM Eastern Daylight Time. You can access the live call through the Home Page of the Company's Web site at www.emcorgroup.com.
This release may contain certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Any such comments are based upon information available to EMCOR management and its perception thereof, as of this date, and EMCOR assumes no obligation to update any such forward-looking statements. These forward-looking statements may include statements regarding market opportunities, market share growth, gross profit, backlog mix, projects with varying profit margins, and selling, general and administrative expenses. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly these statements are no guarantee of future performance. Such risk and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for EMCOR's services, adverse business conditions, availability of adequate levels of surety bonding, increased competition, unfavorable labor productivity and mix of business. Certain of the risks and factors associated with EMCOR's business are also discussed in the Company's 2012 Form 10-K and in other reports filed from time to time with the Securities and Exchange Commission. All these risks and factors should be taken into account in evaluating any forward-looking statements.
EMCOR GROUP, INC.
(In thousands, except share and per share information)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
For the six months ended
|Cost of sales||1,375,218||1,396,071||2,752,481||2,753,899|
|Selling, general and administrative expenses||139,623||137,675||278,133||272,179|
|Income before income taxes||34,605||54,779||84,365||99,609|
|Income tax provision||13,131||20,799||32,173||37,821|
|Net income including noncontrolling interests||21,474||33,980||52,192||61,788|
|Less: Net income attributable to noncontrolling interests||(460||)||(532||)||(1,011||)||(1,195||)|
|Net income attributable to EMCOR Group, Inc.||$||21,014||$||33,448||$||51,181||$||60,593|
|Basic earnings per common share||$||0.31||$||0.50||$||0.76||$||0.91|
|Diluted earnings per common share||$||0.31||$||0.49||$||0.75||$||0.89|
|Weighted average shares of common stock outstanding:|
|Dividends declared per common share||$||0.06||$||0.10||$||0.06||$||0.15|
EMCOR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|Cash and cash equivalents||$||530,385||$||605,303|
|Accounts receivable, net||1,293,160||1,221,956|
|Costs and estimated earnings in excess of billings on uncompleted contracts||109,820||93,061|
|Prepaid expenses and other||80,338||73,621|
|Total current assets||2,058,697||2,044,453|
|Investments, notes and other long-term receivables||4,239||4,959|
|Property, plant & equipment, net||113,562||116,631|
|Identifiable intangible assets, net||332,046||343,748|
|LIABILITIES AND EQUITY|
|Borrowings under revolving credit facility||$||—||$||—|
|Current maturities of long-term debt and capital lease obligations||1,812||1,787|
|Billings in excess of costs and estimated earnings on uncompleted contracts||399,454||383,527|
|Accrued payroll and benefits||205,324||224,555|
|Other accrued expenses and liabilities||156,621||194,029|
|Total current liabilities||1,251,625||1,294,519|
|Borrowings under revolving credit facility||150,000||150,000|
|Long-term debt and capital lease obligations||3,369||4,112|
|Other long-term obligations||292,882||301,260|
|Total EMCOR Group, Inc. stockholders' equity||1,396,400||1,346,080|
|Total liabilities and equity||$||3,105,336||$||3,107,070|
EMCOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2013 and 2012
(In thousands) (Unaudited)
|Cash flows - operating activities:|
|Net income including noncontrolling interests||$||52,192||$||61,788|
|Depreciation and amortization||16,895||14,768|
|Amortization of identifiable intangible assets||12,687||14,930|
|Deferred income taxes||(436||)||1,479|
|Excess tax benefits from share-based compensation||(994||)||(5,282||)|
|Equity income from unconsolidated entities||(240||)||(414||)|
|Other non-cash items||2,062||4,478|
|Distributions from unconsolidated entities||634||866|
|Changes in operating assets and liabilities, excluding the effect of businesses acquired||(135,011||)||(103,175||)|
|Net cash used in operating activities||(52,211||)||(10,562||)|
|Cash flows - investing activities:|
Payments for acquisitions of businesses, net of cash acquired, and related contingent
|Proceeds from sale of property, plant and equipment||861||719|
|Purchase of property, plant and equipment||(14,820||)||(19,012||)|
|Purchase of short-term investments||—||(17,782||)|
|Maturity of short-term investments||4,616||17,693|
|Net cash used in
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