Stock Story -
Building systems company Limbach (NASDAQ:LMB) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 2.1% year on year to $122.2 million. The company's full-year revenue guidance of $525 million at the midpoint came in 1.8% above analysts' estimates. It made a GAAP profit of $0.50 per share, improving from its profit of $0.46 per share in the same quarter last year.
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Limbach (LMB) Q2 CY2024 Highlights:
- Revenue: $122.2 million vs analyst estimates of $122.7 million (small miss)
- EPS: $0.50 vs analyst estimates of $0.37 (35.1% beat)
- The company slightly lifted its revenue guidance for the full year from $520 million to $525 million at the midpoint
- EBITDA guidance for the full year is $56.5 million at the midpoint, above analyst estimates of $52 million
- Gross Margin (GAAP): 27.4%, up from 22.8% in the same quarter last year
- Adjusted EBITDA Margin: 11.3%, up from 7.4% in the same quarter last year
- Free Cash Flow of $19.64 million is up from -$6.49 million in the previous quarter
- Market Capitalization: $587 million
Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.
Construction and Maintenance ServicesConstruction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Limbach's demand was weak over the last five years as its sales fell by 1.7% annually, a rough starting point for our analysis.
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. Limbach's annualized revenue growth of 2.5% over the last two years is above its five-year trend, but we were still disappointed by the results.
This quarter, Limbach reported a rather uninspiring 2.1% year-on-year revenue decline to $122.2 million of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.2% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Limbach was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 3.8%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, Limbach's annual operating margin rose by 4.7 percentage points over the last five years
In Q2, Limbach generated an operating profit margin of 6.7%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Limbach's EPS grew at an astounding 25.2% compounded annual growth rate over the last five years, higher than its 1.7% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.
Diving into the nuances of Limbach's earnings can give us a better understanding of its performance. As we mentioned earlier, Limbach's operating margin was flat this quarter but expanded by 4.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Limbach, its two-year annual EPS growth of 74.5% 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, Limbach reported EPS at $0.50, up from $0.46 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Limbach to perform poorly. Analysts are projecting its EPS of $2.19 in the last year to shrink by 3.4% to $2.12.
Key Takeaways from Limbach's Q2 Results We were impressed by how significantly Limbach blew past analysts' EPS expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street's estimates. On the other hand, its revenue unfortunately missed. Zooming out, we think this was a solid quarter. The stock remained flat at $56.25 immediately after reporting.
