ABM Industries (NYSE: ABM) reported Q2 EPS of $0.47, $0.04 better than the analyst estimate of $0.43. Revenue for the quarter came in at $1.58 billion versus the consensus estimate of $1.55 billion.

Scott Salmirs, President and Chief Executive Officer of ABM Industries, commented, "The second quarter demonstrated meaningful operational progress as we continued with the integration of GCA and our 2020 Vision initiatives. We achieved organic growth of 4.5%, higher free cash flow generation and delivered on our GCA-related synergies."

Second Quarter Summary

• Total revenue growth of 20.6% to $1,580.8 million, partially reflecting new bookings of approximately $460 million in annualized revenues for the first half of fiscal 2018.
• Revenue related to the 2017 acquisition of GCA Services Group ("GCA") of $256.4 million, predominantly reflected in the Education, Technology & Manufacturing, and Business & Industry segments.
• Organic revenue growth of 4.5% primarily driven by organic growth of 6.8% in Business & Industry and 3.9% in Aviation.
• Lower Technical Solutions revenue and operating profit continues to reflect the timing of backlog realization.
• Income from continuing operations of $25.4 million, or $0.38 per diluted share, was impacted by higher amortization, interest expense and higher share count related to GCA versus last year.
• Adjusted income from continuing operations of $31.2 million, or $0.47 per diluted share, resulting in a 12.1% increase versus adjusted income from continuing operations last year.
• Adjusted EBITDA increased 37.3% to $83.0 million compared to $60.5 million, reflecting the Company's GCA acquisition in 2017. These results led to an adjusted EBITDA margin of 5.3% versus 4.6% last year.
• Net cash provided by operating activities increased to $99.6 million for the quarter, reflecting better working capital management and the contribution from GCA.
• GCA-related synergies on track to deliver an annualized run-rate of approximately $30.0 million compared to the previously announced range of $20 million to $30 million by fiscal 2019.
• Overall results reflect the absence of Government Services, which was sold on May 31, 2017.

Guidance

The Company is updating its outlook for fiscal 2018 to reflect higher than expected wage inflation and personnel costs driven by the current labor environment. As a result, the Company now expects GAAP income from continuing operations of $1.73 to $1.83 per diluted share. Excluding items impacting comparability, adjusted income from continuing operations is expected to be in the range of $1.85 to $1.95 per diluted share for the 2018 fiscal year. The Company's guidance only includes the discrete tax items related to the 2018 Work Opportunity Tax Credits and anticipated excess tax benefits on stock-based awards.

Mr. Salmirs concluded, "Over the next 12 to 18 months, we will be focused on pursuing several avenues to reduce the labor pressures we expect to see over the near term, while continuing our investment in sales, back-office processes and technology. We remain acutely focused on our longer term goals, which include higher revenue growth, enhanced margins, and greater free cash flow generation. The core fundamentals of our 2020 Vision remain intact and the acquisition of GCA has further strengthened our long term financial and operational position in the marketplace. Our business model remains resilient and there continue to be market opportunities in all of our industry group customer segments that are currently serviced by small regional players or in-house providers that do not have the long term cost advantage of our scale. I believe with the investments we are making, we are developing significant competitive advantages for our platform."

GUIDANCE:

ABM Industries sees FY2018 EPS of $1.85-$1.95, versus the consensus of $1.94.

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