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Specialty construction contractor company EMCOR (NYSE:EME) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue up 20.4% year on year to $3.67 billion. The company's full-year revenue guidance of $14.75 billion at the midpoint also came in 2.7% above analysts' estimates. It made a GAAP profit of $5.25 per share, improving from its profit of $2.95 per share in the same quarter last year.
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EMCOR (EME) Q2 CY2024 Highlights:
- Revenue: $3.67 billion vs analyst estimates of $3.53 billion (3.9% beat)
- EPS: $5.25 vs analyst estimates of $3.68 (42.9% beat)
- Raised full-year revenue and EPS guidance to $14.75 billion and $19.50 per share from $14.25 billion and $16.00 per share
- Gross Margin (GAAP): 18.7%, up from 16.1% in the same quarter last year
- Free Cash Flow of $260.4 million, up 133% from the previous quarter
- Market Capitalization: $16.76 billion
Through its network of over 70 subsidiaries, EMCOR (NYSE:EME) provides electrical, mechanical, and building construction and services
Engineering and Design ServicesCompanies providing engineering and design services boast ever-evolving technical expertise. Compared to their counterparts who manufacture and sell physical products, these companies can also pivot faster to more trending areas due to their smaller physical asset bases. Green energy and water conservation, for example, are current themes driving incremental demand in this space. On the other hand, those providing engineering and design services are at the whim of construction and infrastructure project volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Thankfully, EMCOR's 9.4% annualized revenue growth over the last five years was solid. This is encouraging because it shows EMCOR was more successful in expanding than most industrials companies.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. EMCOR's annualized revenue growth of 14.6% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
We can better understand the company's revenue dynamics by analyzing its most important segments, Mechanical Construction and Facilities Services and Building Services , which are 45.1% and 21.3% of revenue. Over the last two years, EMCOR's Mechanical Construction and Facilities Services revenue (design, integration, installation) averaged 19.9% year-on-year growth while its Building Services revenue (maintenance, electrical, plumbing) averaged 11.5% growth.
This quarter, EMCOR reported remarkable year-on-year revenue growth of 20.4%, and its $3.67 billion of revenue topped Wall Street estimates by 3.9%. We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates. This signals EMCOR could be a hidden gem because it doesn't get attention from professional brokers.
Operating Margin Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
EMCOR was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 5.7%. This isn't too surprising given its low gross margin as a starting point.
On the bright side, EMCOR's annual operating margin rose by 5.7 percentage points over the last five years.
In Q2, EMCOR generated an operating profit margin of 9.1%, up 2.6 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.
EPS Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
EMCOR's EPS grew at an astounding 26.1% compounded annual growth rate over the last five years, higher than its 9.4% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into EMCOR's earnings quality to better understand the drivers of its performance. As we mentioned earlier, EMCOR's operating margin expanded by 5.7 percentage points over the last five years. On top of that, its share count shrank by 16.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For EMCOR, its two-year annual EPS growth of 56.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, EMCOR reported EPS at $5.25, up from $2.95 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts' consensus projections, but there is insufficient data. This signals EMCOR could be a hidden gem because it doesn't have much coverage among professional brokers.
Key Takeaways from EMCOR's Q2 Results We were impressed by how significantly EMCOR blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates and it meaningfully raised its full-year revenue and EPS guidance. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock remained flat at $359.80 immediately following the results.
