Sign in

You're signed outSign in or to get full access.

AI

ABM INDUSTRIES INC /DE/ (ABM)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 delivered resilient organic growth and strong cash generation: revenue rose 1.7% YoY to $2,018.2M, adjusted EBITDA margin was 6.5%, and free cash flow reached $101.4M .
  • GAAP EPS fell to $0.69 and adjusted EPS to $0.87, primarily due to the absence of a $12.6M prior-year Aviation project and higher planned corporate investments; B&I, M&D, and Technical Solutions offset part of the headwind .
  • Guidance raised: FY2024 adjusted EPS to $3.40–$3.50; adjusted EBITDA margin unchanged at 6.2%–6.5%; interest expense $82–$86M; normalized tax rate 29%–30% .
  • Strategic momentum in data centers/electrification: record first-half new bookings >$1B and acquisition of Quality Uptime to expand mission-critical power services; management highlighted higher-margin opportunities and margin expansion path via ELEVATE .

What Went Well and What Went Wrong

  • What Went Well
    • Cash generation outperformed: operating cash flow $117.0M and free cash flow $101.4M, aided by working capital discipline and lower ELEVATE/integration spend .
    • Segment execution: B&I margins up on mix/price/cost actions; Aviation and Technical Solutions grew mid-single digits with improved labor utilization and favorable mix; adjusted EPS held at $0.87 despite headwinds .
    • Strategic positioning: “We expect to further leverage our investments and strong free cash flow to self-fund growth and pursue margin expansion opportunities... while... building long-term stockholder value” — CEO Scott Salmirs .
  • What Went Wrong
    • Earnings compression: GAAP net income down 15.7% YoY to $43.8M and GAAP EPS down to $0.69 due mainly to the prior-year Aviation project not repeating and higher corporate investment levels .
    • Aviation YoY operating profit decline due to the lapping of the parking project; segment operating profit fell to $13.1M vs. $23.6M last year .
    • M&D outlook: management flagged a client “rebalancing” that will pressure H2; expect segment down in Q3 and Q4 before returning to a stronger trajectory in 2025+ .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Revenues ($USD Millions)$2,092.9 $2,069.6 $2,018.2
GAAP Diluted EPS ($USD)$0.96 $0.70 $0.69
Adjusted EPS ($USD)$1.01 $0.86 $0.87
Adjusted EBITDA ($USD Millions)$144.2 $116.7 $125.3
Adjusted EBITDA Margin % (excl. mgmt reimbursement)7.2% 5.9% 6.5%
Net Income ($USD Millions)$62.8 $44.7 $43.8
Net Income Margin %3.0% 2.2% 2.2%

Segment revenues

Segment Revenues ($USD Millions)Q4 2023Q1 2024Q2 2024
Business & Industry$1,033.0 $1,033.1 $989.6
Manufacturing & Distribution$391.2 $400.9 $388.6
Education$229.8 $220.1 $225.6
Aviation$248.2 $249.5 $238.2
Technical Solutions$190.8 $165.9 $176.2
Total$2,092.9 $2,069.6 $2,018.2

Segment operating profit

Segment Operating Profit ($USD Millions)Q4 2023Q1 2024Q2 2024
Business & Industry$84.6 $79.6 $77.6
Manufacturing & Distribution$42.0 $41.3 $43.6
Education$10.2 $12.7 $11.5
Aviation$16.4 $9.7 $13.1
Technical Solutions$24.4 $6.6 $17.0
Corporate$(70.0) $(74.7) $(79.7)
Total Operating Profit$106.4 $74.1 $81.3

KPIs and balance/capital

KPIQ4 2023Q1 2024Q2 2024
Net Cash from Operating Activities ($USD Millions)$139.1 $(0.1) $117.0
Free Cash Flow ($USD Millions)$121.2 $(13.7) $101.4
Total Indebtedness ($USD Millions)$1,385.7 $1,410.8 $1,351.4
Leverage Ratio (Total debt / pro forma adj. EBITDA)2.3x 2.4x 2.3x
Available Liquidity ($USD Millions)$552.5 $507.8 $561.8
Cash & Cash Equivalents ($USD Millions)$69.5 $58.0 $60.7
Shares Repurchased (Units)2.7M 0 555,461
Dividend per Share ($USD)$0.225 declared $0.225 declared $0.225 declared

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY2024$3.30–$3.45 $3.40–$3.50 Raised
Adjusted EBITDA Margin %FY20246.2%–6.5% 6.2%–6.5% Maintained
Interest Expense ($USD Millions)FY2024$82–$86 $82–$86 Maintained
Normalized Tax Rate %FY202429%–30% 29%–30% Maintained
Normalized Free Cash Flow ($USD Millions)FY2024$240–$270 $240–$270; likely upper end Bias higher
Quarterly DividendOngoing$0.225 declared $0.225 declared Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Data centers / mission-critical powerBacklog EV/microgrids ~60%; strong interest despite BES softness Acquisition of Quality Uptime; expected to double mission-critical revenue; focus on higher-margin data center services Strengthening
Electrification / Microgrids$180M multi-year microgrid win; ATS backlog >$590M; 2/3 actionable in-year ATS margins improved on favorable mix; microgrid startups ongoing Improving
Permitting / project timingQ4 saw legacy closeouts; RavenVolt timing choppy; permitting/weather drive variability ATS margin expected similar in back half; variability persists but labor utilization better Easing, variable
Commercial real estate (B&I)Expect low single-digit declines in 2024–2025; Class A focus offsets Low single-digit decline remains base case; return-to-office sentiment improving Gradual improvement
ELEVATE / ERP & workforce techProgram extended with ramping benefits; cost $200–$250M Digital transformation supporting margin enhancement; scaling tech across org Progressing
Pricing & labor costsWage increases 4%–5%; recover 75%–80% Pricing/mix actions support margins; wage pressure moderating Moderating
Regional activitySunbelt growth; coast lagging return-to-office More uniform; SF activity improving with AI; coasts seeing more office return Broadening

Management Commentary

  • “ABM’s service breadth, people, and customer focus... have enabled us to perform well in challenging market conditions. Going forward, we expect to further leverage our investments and strong free cash flow to self-fund growth and pursue margin expansion opportunities...” — Scott Salmirs, CEO .
  • “We generate these returns by delivering a core suite of essential facility services... These markets... have low volatility through a business cycle... that helps us to provide a level of predictability to our results.” — Scott Salmirs .
  • “We booked over $1 billion in new sales during the first half of the year, a record... Aviation won major contracts at Boston Logan and Phoenix Sky Harbor; Education won an APS contract with Utica University.” — Scott Salmirs .

Q&A Highlights

  • M&D outlook: H2 softness from a large client rebalancing; management still views M&D as a future double-digit top/bottom-line group beyond the next two quarters .
  • Data centers opportunity: Cross-segment capabilities (UPS/power, cooling, engineering) with higher-margin profiles; strategic focus to scale organically and via M&A .
  • B&I trajectory: Low single-digit declines remain base case; improving return-to-office sentiment; Class A exposure supports resilience .
  • Cadence/seasonality: EPS expected balanced between Q3 and Q4; ATS typically back-half weighted, offset near term by M&D reset .
  • Capital returns & FCF: Q2 buybacks (~555k shares) primarily anti-dilutive; FY normalized FCF tracking to upper end of $240–$270M .

Estimates Context

  • S&P Global consensus estimates for Q2 FY2024 were not retrievable at this time due to provider limit errors; accordingly, comparisons vs consensus are unavailable. Management characterized Q2 results as “slightly better than our expectations heading into the quarter” .

Key Takeaways for Investors

  • Mix-driven resilience: Despite CRE headwinds, B&I margins expanded on mix/price/cost controls; adjusted EPS steady sequentially at $0.87 — supportive of FY EPS raise .
  • Cash generation is a differentiator: $101.4M FCF in Q2 and leverage at 2.3x provide capacity for opportunistic buybacks and strategic M&A (e.g., Quality Uptime) .
  • Secular growth vectors: Electrification, microgrids, and data centers drive higher-margin opportunities; bookings >$1B in H1 indicate pipeline strength into H2 and FY2025 .
  • Near-term watch items: M&D client rebalancing likely pressures H2; Aviation comps normalize without last year’s project boost; ATS margins volatile quarter-to-quarter on project timing .
  • ELEVATE execution: ERP/workforce tech rollout continues; expect operational efficiencies and procurement benefits to provide multi-year margin expansion tailwinds .
  • Dividend and buybacks: Quarterly dividend maintained at $0.225; buybacks used anti-dilutively with potential opportunistic activity given FCF/leverage profile .
  • Trading implications: Near-term narrative anchored on cash/FCF strength and raised EPS guide versus H2 M&D reset; medium-term thesis levered to data centers/electrification and ELEVATE-driven margin lift .