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Why Is ABM Industries (ABM) Down 30.9% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for ABM Industries (ABM). Shares have lost about 30.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ABM Industries 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 drivers.

ABM Industries Q1 Earnings Top Estimates

ABM Industries reported strong first-quarter fiscal 2020 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.

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Adjusted earnings from continuing operations came in at 39 cents per share, which outpaced the consensus mark as well as the year-ago quarter’s reported figure by 25.8%. The bottom line benefited from higher margin revenue mix primarily within the Business & Industry segment and lower interest related to the company's reduced leverage profile, which were, however, partially offset by its ongoing investments to optimize operational and technological infrastructure.

Total revenues of $1.61 billion beat the consensus estimate as well as the year-ago quarter by 0.3%. The top line benefited from the Technical Solutions segment, which was partially offset by lower retention stemming from fiscal 2019, including the loss of lower margin contracts, primarily within the Aviation and Business & Industry segments.

Revenues by Segment

Business & Industry revenues (51% of total revenues) decreased 1% year over year to $820.9 million. Aviation revenues (15%) decreased 5.4% year over year to $238.7 million. Technology & Manufacturing revenues (15%) declined 0.9% year over year to $233.9 million. Education revenues (13%) of $208 million decreased 0.5% from the prior-year quarter. Technical Solutions revenues (10%) increased 22.4% year over year to $142 million.

Operating Results

Adjusted EBITDA of $68.8 million was flat year over year. Also, adjusted EBITDA margin of 4.3% came in line with the year-ago quarter. Adjusted income from continuing operations was $26.2 million, up 25.9% year over year. Operating expenses decreased 0.8% from the year-ago quarter to $1.43 billion. Selling, general and administrative expenses increased 4.4% from the year-ago quarter to $117.6 million.

Balance Sheet & Cash Flow

ABM Industries exited first-quarter fiscal 2020 with cash and cash equivalents of $69.8 million compared with $58.5 million at the end of the prior quarter. Long-term debt was $786.3 million compared with $744.2 million at the end of the prior quarter. Net cash used in operating activities totaled $34.3 million in the reported quarter. Free cash flow came in at $45.8 million.

Dividend Payout & Share Repurchases

ABM Industries paid out a quarterly cash dividend of 18.5 cents per share, leading to $12.3 million of total dividend payout in the reported quarter. Additionally, the company’s board of directors announced a cash dividend of 18.5 cents per share, payable on May 4, 2020, to its shareholders of record as of Apr 2. This marks the 216th consecutive quarterly cash dividend declared by the company. ABM Industries did not repurchase any of its shares during the reported quarter. As of Jan 31, 2020, the company had $150 million authorized shares available for repurchase under its share repurchase program.

Fiscal 2020 Guidance

ABM Industries reaffirmed its fiscal 2020 guidance. The company continues to expect adjusted income from continuing operations in the range of $1.90-$2.10 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -25.86% due to these changes.

VGM Scores

At this time, ABM Industries has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ABM Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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