Tags: EMCOR | earnings | growth | EME

EMCOR Seeks to Regain Earnings Growth

By    |   Tuesday, 03 April 2012 10:28 AM

EMCOR Group (EME) is a leader in the construction of electrical and mechanical systems, a major company in its industry that has tried regain sustained earnings growth since its revenues peaked in 2008.

The Norwalk, Conn., company designs and installs electric power transmission networks and large-scale heating and cooling equipment as well as on-premises electrical systems and lighting, fire safety and security systems, and voice and data communications capacity.

Multifaceted EMCOR serves commercial and industrial customers as well as utilities and governmental institutions through 70-plus operating units. It has more than 24,000 employees and has offices in the United States, Canada and the United Kingdom.

The company is in recovery mode. In the fourth quarter it reported net income of 53 cents per diluted share on revenues of $1.52 billion. Revenues were up up 16.7 percent from a year ago. For the full year, net income came to $1.78 per diluted share on revenues of $5.61 billion, up 15.7 percent from a year before.

For the full year, however, the company reported a net loss of $1.30 per diluted share, after considering impairment charges and gains from the sale of Middle East operations.

Most of the company's revenues from electrical and mechanical projects involve competitive bidding for contracts, often against smaller competitors. Among its biggest competitors in this fragmented field are Integrated Electrical Services (IESC) and Comfort Systems USA (FIX).

Most analysts following EMCOR in late February recommended buying its stock, and the rest had assigned hold ratings to the stock.

Two analysts at Moody's Investors Service assigned the firm's Ba1 rating to EMCOR's $750 million senior secured revolving credit facility, and they reiterated Ba1 ratings for the company's corporate family and probability of default.

Pension exposure

Moody's analysts Joseph A. Snider and Brian Oak also said in their Dec. 5 report on EMCOR that its ratings outlook remained stable. The Moody's analysts said EMCOR's credit ratings could improve if its "end markets enter an expansionary phase and the company is able to show sustainable year-over-year sales growth and margin improvement."

Snider and Oak also noted that EMCOR's "strong reported metrics take a sizable haircut after the balance sheet debt is adjusted to account for the company's large multi-employer pension plan exposure."

Emcor next reports on May 24.

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