ABM Industries (ABM) Misses Q3 EPS by 2c; Approves $200M Common Buyback; Announces Strategic Initiative

ABM Industries (NYSE: ABM) reported Q3 EPS of $0.47, $0.02 worse than the analyst estimate of $0.49. Revenue for the quarter came in at $1.35 billion versus the consensus estimate of $1.33 billion.

The ABM Board of Directors has authorized a $200 million share repurchase program. The Company intends to repurchase its common shares from time to time in open market purchases or privately negotiated transactions and may make all or part of the repurchases pursuant to Rule 10b5-1 plans. The timing of repurchases will depend upon several factors, including market and business conditions, share price and availability and other factors at the Company’s discretion, and the share repurchase program may be suspended or discontinued at any time without prior notice. As of August 26, 2015, the Company had approximately 56 million shares outstanding.

Guidance:

ABM Industries sees FY2015 EPS of $1.75-$1.80, versus the consensus of $1.80.

Strategic Transaction:

ABM also announced that its Board of Directors has approved a comprehensive strategy and transformation initiative to drive long-term profitable growth and enhance shareholder value. The initiative will focus ABM on its core strengths and most profitable businesses, and align its business operations to deliver unique industry and client solutions.

As previously announced in June 2015, the Company underwent a comprehensive strategic review with the assistance of the Boston Consulting Group to develop a long-term strategic plan for the business. As part of this process, ABM identified several key priorities designed to differentiate ABM in the marketplace, improve its margin profile and accelerate revenue growth. These priorities include:

• Profitable Growth: Growing by focusing on industries and solutions where ABM can distinguish itself on service and quality and drive profitable, margin-accretive growth. ABM will initially focus on key verticals where it has or can build a competitive advantage, including Business & Industry, Aviation, Healthcare, Education, and HighTech.
• Organizational Realignment: Aligning business operations to better support specific industries and deliver excellence in client solutions, including a transition to an integrated end-market verticals focus, simplified organizational structure and a consolidation of certain shared services. The Company expects the majority of the organizational changes to be in place by the end of the second quarter of fiscal 2016.
• Consistent Excellence: Implementing best practices in account management and labor management across the organization, as well as developing a more integrated approach for continuous improvement in its safety program, including driving initiatives to help reduce future insurance claim frequency and severity.
• Cost Optimization: Leveraging the Company’s scale to manage costs more efficiently and effectively, including supplier consolidation and process and procurement enhancement.
• Talent Development: Creating greater opportunities and career paths for ABM employees by further developing the Company’s talent management system capabilities.
• Capital Allocation Focus: Announcing a $200 million share repurchase program, a dividend consistent with current practice, and an increased focus on specific financial performance metrics.

“We know that to compete effectively and continue creating value for our shareholders, the ABM of the future must be fundamentally different from the ABM that exists today,” said Scott Salmirs, president and chief executive officer, ABM. “Executing this strategy will enhance the quality of our client solutions and position ABM to become the undisputed leader in providing exceptional facility solutions and deliver sustainable top and bottom-line growth.

“Our long-term strategic vision sets out our plan for the next five years. This 2020 Vision has three primary phases. The first phase of the transformation is focused on implementing the operating structure that will enable the organization to increase efficiency and effectiveness necessary for growth and cost reduction. Phase two of the transformation will encompass the realization of the cost savings from procurement, account management and other organizational changes as well as an increased focus on driving growth under the realigned verticals structure. The final phase will be aimed at accelerating growth from our new vertical alignment and account planning systems, while continuously implementing additional cost savings initiatives. We look forward to providing more detail on the 2020 Vision at our investor day in October,” Salmirs said.

The Company anticipates pre-tax restructuring charges ranging from $45 million to $60 million. The majority of these restructuring charges will be incurred through the third quarter of fiscal 2016 and are primarily for severance, project fees, and the potential write-down of certain investments. The Company expects the majority of the organizational benefits to be realized by the end of the first half of fiscal 2016. Once the strategy and realignment is fully implemented by the second half of fiscal 2017, the Company expects annualized run-rate for operational benefits of $40 million to $50 million.

“While we are still in the early stages of implementing our comprehensive strategy and transformation initiative”, Salmirs said, “today’s announcement reinforces our ongoing commitment to further strengthen our financial performance and positions ABM for long-term profitable growth and the enhancement of shareholder value.”

The Company also reviewed all service lines and internal investments to assess whether ABM is best positioned to continue to competitively offer value added services to customers over the long-term. As a result of this process, despite its strong underlying fundamentals, the Company has determined that it will explore strategic alternatives for its Security business that may include a partnership, sale or other strategic transaction.

ABM’s review of strategic alternatives for its Security business is only in its beginning stages. As such, at this point, ABM cannot assess whether any particular strategic alternative for the Security business will be pursued or, if so, upon what terms and conditions or the timing thereof.

ABM plans to further discuss its strategy and transformation initiative during its investor meeting at the end of October 2015.

For earnings history and earnings-related data on ABM Industries (ABM) click here.

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