ABM Industries (NYSE: ABM) largely met Wall Street expectations for the quarter, but costs are on the rise and full-year guidance implies some risk of weakness compared to estimates.
Investors are on the defensive, sending ABM shares down 13% as of noon ET.
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Office strength boosts revenue
ABM supplies cleaning, parking, and other services to a wide range of facilities from office buildings to factories and airports. The company earned $0.86 per share in its fiscal second quarter ending April 30, a penny shy of expectations, on revenue that was in line at $2.1 billion.
The quarter marked a return to organic revenue growth thanks to strength in the prime commercial office market. ABM also secured $1.1 billion in new bookings in the first half of its fiscal year, up 11%. Revenue growth was 3.4%, compared to a 3% rise in operating expenses and a 9% rise in selling, general, and administrative expenses.
“We remain constructive on the outlook for our core markets, particularly high-quality office buildings, manufacturing and distribution facilities, commercial aviation, and microgrids,” CEO Scott Salmirs said in a statement. “Further, projects delayed in the second quarter are expected to be realized in the third quarter.”
Is ABM a buy?
The quarter was fine, but investors appear to be reacting to the company leaving in place full-year guidance for earnings of $3.65 to $3.80 per share. At the midpoint that’s below the $3.77 consensus.
Investors came into this earnings season looking for more of an acceleration than what ABM could deliver and given the broader macro uncertainty there appears to be more downside risk than upside in the months to come. A slowdown in manufacturing, or layoffs that eat into office building occupancy, could hit results.
Given the uncertainty, investors are likely wise to move to the sidelines right now.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends ABM Industries. The Motley Fool has a disclosure policy.
