EMCOR Group, Inc. Reports Second Quarter 2013 Results

EMCOR Group, Inc. (NYSE: EME) today reported results for the second quarter ended June 30, 2013.

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.

FINANCIAL HIGHLIGHTS

(In thousands, except share and per share information)

(Unaudited)
 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
         

For the three months ended

June 30,
     

For the six months ended

June 30,
2013       2012 2013       2012
Revenues $ 1,556,753 $ 1,590,035 $ 3,125,154 $ 3,128,556
Cost of sales 1,375,218   1,396,071   2,752,481   2,753,899  
Gross profit 181,535 193,964 372,673 374,657
Selling, general and administrative expenses 139,623 137,675 278,133 272,179
Restructuring expenses 5,813     7,176    
Operating income 36,099 56,289 87,364 102,478
Interest expense (1,764 ) (1,878 ) (3,626 ) (3,653 )
Interest income 270   368   627   784  
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:
Basic 67,095,447 66,749,115 67,102,530 66,717,873
Diluted 68,095,577 67,695,536 68,096,989 67,821,214
 
Dividends declared per common share $ 0.06   $ 0.10   $ 0.06   $ 0.15  
 
 

EMCOR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
 
          June 30,

2013

(Unaudited)
      December 31,

2012
ASSETS
Current assets:
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
Inventories 44,994 50,512
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
Goodwill 566,709 566,588
Identifiable intangible assets, net 332,046 343,748
Other assets 30,083   30,691
Total assets $ 3,105,336   $ 3,107,070
LIABILITIES AND EQUITY
Current liabilities:
Borrowings under revolving credit facility $ $
Current maturities of long-term debt and capital lease obligations 1,812 1,787
Accounts payable 488,414 490,621
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 liabilities 1,697,876   1,749,891
Equity:
Total EMCOR Group, Inc. stockholders’ equity 1,396,400 1,346,080
Noncontrolling interests 11,060   11,099
Total equity 1,407,460   1,357,179
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)
 
          2013       2012
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

consideration agreement
(1,050 ) (20,613 )
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 investing activities (10,393 ) (38,995 )
Cash flows - financing activities:
Repayments of long-term debt (4 ) (37 )
Repayments of capital lease obligations (786 ) (1,310 )
Dividends paid to stockholders (4,027 ) (6,660 )
Repurchase of common stock (4,998 ) (21,189 )
Proceeds from exercise of stock options 1,933 1,909
Payments to satisfy minimum tax withholding (927 ) (733 )
Issuance of common stock under employee stock purchase plan 1,344 1,263
Payments for contingent consideration arrangements (537 ) (5,748 )
Distributions to noncontrolling interests (1,050 ) (1,000 )
Excess tax benefits from share-based compensation 994   5,282  
Net cash used in financing activities (8,058 ) (28,223 )
Effect of exchange rate changes on cash and cash equivalents (4,256 ) 730  
Decrease in cash and cash equivalents (74,918 ) (77,050 )
Cash and cash equivalents at beginning of year 605,303   511,322  
Cash and cash equivalents at end of period $ 530,385   $ 434,272  
 
 

EMCOR GROUP, INC.

SEGMENT INFORMATION

(In thousands) (Unaudited)
 
         

For the three months ended

June 30,
2013       2012
Revenues from unrelated entities:
United States electrical construction and facilities services $ 336,330 $ 295,846
United States mechanical construction and facilities services 583,963 626,617
United States facilities services 527,394   527,733
Total United States operations 1,447,687 1,450,196
United Kingdom construction and facilities services 109,066   139,839
Total worldwide operations $ 1,556,753   $ 1,590,035
 

For the six months ended

June 30,
2013 2012
Revenues from unrelated entities:
United States electrical construction and facilities services $ 643,914 $ 586,383
United States mechanical construction and facilities services 1,125,080 1,200,820
United States facilities services 1,128,094   1,060,623
Total United States operations 2,897,088 2,847,826
United Kingdom construction and facilities services 228,066   280,730
Total worldwide operations $ 3,125,154   $ 3,128,556
 
 

EMCOR GROUP, INC.

SEGMENT INFORMATION

(In thousands) (Unaudited)
 
         

For the three months ended

June 30,
2013       2012
Operating income (loss):
United States electrical construction and facilities services $ 25,236 $ 22,409
United States mechanical construction and facilities services 18,248 29,506
United States facilities services 20,028   16,022  
Total United States operations 63,512 67,937
United Kingdom construction and facilities services (4,537 ) 3,962
Corporate administration (17,063 ) (15,610 )
Restructuring expenses (5,813 )  
Total worldwide operations 36,099 56,289
Other corporate items:
Interest expense (1,764 ) (1,878 )
Interest income 270   368  
Income before income taxes $ 34,605   $ 54,779  
 

For the six months ended

June 30,
2013 2012
Operating income (loss):
United States electrical construction and facilities services $ 44,176 $ 45,975
United States mechanical construction and facilities services 29,388 52,329
United States facilities services 55,655   27,451  
Total United States operations 129,219 125,755
United Kingdom construction and facilities services (3,258 ) 7,444
Corporate administration (31,421 ) (30,721 )
Restructuring expenses (7,176 )  
Total worldwide operations 87,364 102,478
Other corporate items:
Interest expense (3,626 ) (3,653 )
Interest income 627   784  
Income before income taxes $ 84,365   $ 99,609  
 
 

EMCOR GROUP, INC.

RECONCILIATION OF 2013 AND 2012 OPERATING INCOME
(In thousands) (Unaudited)
 
In our press release, we provide actual 2013 and 2012 second quarter and year-to-date June 30, 2013 and 2012 operating income. The following table provides a reconciliation between 2013 and 2012 operating income based on non-GAAP measures to the most direct comparable GAAP measures.
 
         

For the three months ended

June 30,
     

For the six months ended

June 30,
2013       2012 2013       2012
GAAP operating income $ 36,099 $ 56,289 $ 87,364 $ 102,478
 

Transaction expenses related to the pending

acquisition of RepconStrickland, Inc.
1,361 1,361
 
EMCOR UK construction operating losses 8,023 765 11,910 1,946
 
EMCOR UK restructuring expenses 5,801     7,126  
 

Non-GAAP operating income, excluding

RepconStrickland acquisition expenses, UK losses

and UK restructuring expenses
$ 51,284   $ 57,054   $ 107,761   $ 104,424
 
 

EMCOR GROUP, INC.

RECONCILIATION OF 2013 AND 2012 NET INCOME
(In thousands) (Unaudited)
 
In our press release, we provide actual 2013 and 2012 second quarter and year-to-date June 30, 2013 and 2012 net income attributable to EMCOR Group, Inc. The following table provides a reconciliation between 2013 and 2012 net income attributable to EMCOR Group, Inc. based on non-GAAP measures to the most direct comparable GAAP measures.
 
         

For the three months ended

June 30,
     

For the six months ended

June 30,
2013       2012 2013       2012
GAAP net income attributable to EMCOR Group, Inc. $ 21,014 $ 33,448 $ 51,181 $ 60,593
 

Transaction expenses related to the pending

acquisition of RepconStrickland, Inc. (1)
1,301 1,301
 
EMCOR UK construction losses (2) 6,158 577 9,141 1,469
 
EMCOR UK restructuring expenses (3) 4,452     5,469  
 

Non-GAAP net income attributable to EMCOR Group,

Inc., excluding RepconStrickland transaction

expenses, UK losses and UK restructuring expenses
$ 32,925   $ 34,025   $ 67,092   $ 62,062
 
(1)   Amount is net of tax effect of $0.1 million in the quarter and $0.1 million in the six-month period.
 
(2) Amount is net of tax effect of $1.9 million in the 2013 quarter and $2.8 million in the 2013 six-month period.
Amount is net of tax effect of $0.2 million in the 2012 quarter and $0.5 million in the 2012 six-month period.
 
(3) Amount is net of tax effect of $1.3 million in the quarter and $1.7 million in the six-month period.
 
 

EMCOR GROUP, INC.

RECONCILIATION OF 2013 AND 2012 DILUTED EARNINGS PER SHARE FIGURES
(Unaudited)
 
In our press release, we provide actual 2013 and 2012 second quarter and year-to-date June 30, 2013 and 2012 diluted earnings per share. The following table provides a reconciliation between 2013 and 2012 EPS based on non-GAAP measures to the most direct comparable GAAP measures.
 
         

For the three months ended

June 30,
     

For the six months ended

June 30,
2013       2012 2013       2012
GAAP diluted earnings per common share $ 0.31 $ 0.49 $ 0.75 $ 0.89
 

Transaction expenses related to the pending

acquisition of RepconStrickland, Inc. (1)
0.02 0.02
 
EMCOR UK construction losses (2) 0.09 0.01 0.13 0.02
 
EMCOR UK restructuring expenses (3) 0.07 0.08
 

Non-GAAP diluted earnings per common share,

excluding RepconStrickland transaction expenses,

UK losses and UK restructuring expenses
$ 0.48 $ 0.50 $ 0.99 $ 0.92
 
(1)   Amount is net of tax effect of $0.1 million in the quarter and $0.1 million in the six-month period.
 
(2) Amount is net of tax effect of $1.9 million in the 2013 quarter and $2.8 million in the 2013 six-month period.
Amount is net of tax effect of $0.2 million in the 2012 quarter and $0.5 million in the 2012 six-month period.
 
(3) Amount is net of tax effect of $1.3 million in the quarter and $1.7 million in the six-month period.

Copyright Business Wire 2010

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