ABM Industries Inc. - 10-Q Summary (Period Ended April 30, 2009)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended April 30, 2009, and the six months ended April 30, 2009. ABM Industries Inc. provides janitorial, parking, security, and engineering services. The Lighting division was sold in October 2008 and is reported as discontinued operations. The company is a large accelerated filer with 51,343,011 shares of common stock outstanding as of May 29, 2009.
Key Financial Metrics
| Metric | Three Months Ended Apr 30, 2009 | Six Months Ended Apr 30, 2009 |
|---|---|---|
| Revenues | $855.7 million | $1,743.2 million |
| Operating Profit | $22.6 million | $48.6 million |
| Net Income | $12.8 million | $27.0 million |
| Diluted EPS | $0.25 | $0.52 |
| Operating Cash Flow | N/A | $67.2 million |
| Cash and Equivalents | $0 | $0 |
| Working Capital | $260.3 million | $260.3 million |
| Debt (Line of Credit) | $182.0 million outstanding | $182.0 million outstanding |
| Available Credit | $149.5 million | $149.5 million |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 5.6% ($50.6 million) for the quarter and 2.8% ($51.0 million) for the six months compared to the prior year periods. This was driven by a weak economic environment, reduced service scope, and price compression. A portion of the decline in the Parking segment relates to reduced reimbursable expenses, which does not impact operating profit.
- Profitability Improvement: Despite revenue declines, Net Income increased 15.4% for the quarter and 54.8% for the six months. This was primarily due to realized synergies from the OneSource acquisition, lower interest expense (down 67% for the quarter), and a $9.6 million legal settlement received in January 2009 related to workers' compensation claims management.
- Segment Performance: The Janitorial segment saw a 16.9% increase in operating profit for the quarter due to synergies. The Engineering segment saw revenue declines due to contract losses, though operating profit remained relatively stable.
- Insurance Reserves: A $1.0 million favorable adjustment to self-insurance reserves was recorded in the current quarter, compared to a $7.2 million adjustment in the prior year quarter.
Guidance, Outlook, and Risks
- Outlook: Management expects to realize between $45.0 million and $50.0 million in synergies in fiscal 2009 from the OneSource acquisition. The company believes cash from operations and its $450 million line of credit are sufficient for long-term needs.
- Recent Acquisition: On May 1, 2009, the company acquired assets of Control Building Services, Inc., and others for $15.0 million in cash plus up to $1.6 million in contingent consideration.
- Risks and Contingencies:
- Economic Sensitivity: Continued weak economic conditions may lead to further reductions in service levels and contract losses.
- Auction Rate Securities: The company holds $19.5 million in auction rate securities with failed auctions. While not currently deemed other-than-temporarily impaired, further declines in fair value could occur.
- IT Transition: The company is transitioning IT services from IBM, incurring costs and facing potential disruptions.
- Legal: $5.2 million is accrued for probable legal losses; actual losses could exceed estimates.
Investor Verification Checklist
- Verify the sustainability of operating profit growth given the 5.6% revenue decline in the quarter.
- Monitor the status and fair value of the $19.5 million investment in auction rate securities.
- Assess the impact of the $12.7 million increase in IT costs on future margins.
- Review the collection status of trade accounts receivable, noting $46.6 million is over 90 days past due.
- Confirm the realization of the projected $45-$50 million in OneSource synergies for the full fiscal year.