For the traditional office or factory worker, not much thought is given to the behind-the-scenes work being done to maintain facility cleanliness, maintenance, lawn care or parking. Workers show up for a work day to a clean place with working air conditioning and fast internet. The largest operator in the facility management industry is ABM Industries Inc. (ABM, Financial).
The company provides integrated facility solutions, which include janitorial services, facilities engineering, parking services, lawn maintenance and many other related services. Industries in which it operates include general business, aviation, technology, manufacturing and education.
The New York-based company, which was founded in 1909 in San Francisco, currently has a market capitalization of approximately $3 billion.
Company strategy
In December 2021, ABM Industries unveiled a new strategic growth plan called ELEVATE with the goals of enhancing returns for all stakeholders and strengthening its competitive position. This included innovating to provide the company’s clients with new offerings that increase transparency, drive efficiencies and deliver an overall better experience.
The human resource aspect is also an important component where the company’s talent management system is improved to create greater career growth opportunities for all employees. This involves investing in on-demand training and development tools that will improve the connectivity and productivity of the company’s workforce. Lastly, the company plans to expand its use of data and modernize its digital ecosystem to provide clients and employees with cutting-edge analytics, processes and centralized workforce management tools.
Financial review
On Dec. 13, the company reported full-year 2022 results for the period ended Oct. 31, which showed solid growth driven by a post-Covid recovery, particularly in Aviation, as well as strong growth in e-mobility services and solid strong demand in manufacturing and distribution markets. Revenue increased 25%, with 18% coming from acquisitions and 7% coming from organic growth.
Adjusted Ebitda for the year was $498.1 million, an increase of 9.5% from $455 million in fiscal 2021. The adjusted Ebitda margin was 6.6%, compared to 7.6% last year.
The adjusted net income for the year was $247.1 million, or $3.66 per diluted share, which was a 1.5% increase from $243.3 million, or $3.58 per diluted share, in the prior fiscal year. The company experienced higher levels of interest expense this year due to increased borrowings to fund acquisitions.
The company ended the year with $73 million in cash and total debt of $1.4 billion, resulting in a total leverage ratio of 2.6. ABM Industries had total available liquidity of approximately $685.9 million.
During the fourth quarter, the company repurchased 0.6 million shares of its common stock at an average share price of $39.69 for a total cost of $23 million. For the full fiscal year, the company repurchased 2.3 million shares for a total cost of $97.5 million.
In a statement, President and CEO Scott Salmirs commented on the company's performance.
“ABM's strong performance in fiscal 2022 is a testament to our competitive positioning, the capabilities of our team, and the resilience of our business in an evolving and dynamic environment," he said. "Throughout the year, we effectively managed through significant labor shortages and wage inflation, and rapidly rising interest rates, and achieved full year revenue growth of over 25%, driven by acquisitions and 7% organic growth. We also grew net income significantly to $230.4 million and posted an adjusted Ebitda margin of 6.6%, while advancing our ELEVATE initiative, integrating Able, and continuing to allocate capital efficiently."
Valuation
For fiscal 2023, ABM expects GAAP earnings per diluted share of $2.43 to $2.63 and adjusted earnings of $3.40 to $3.60. The adjusted Ebitda margin is anticipated to be in the range of 6.4% to 6.8%, consistent with recent performance. Interest expense is expected to be in the range of $71 million to $74 million for fiscal 2023, an increase of more than $30 million from fiscal 2022 at the midpoint of the forecast.
Consensus analyst earnings per share estimates are $3.52 for this fiscal year and almost $4 for the following year. The enterprise value/Ebitda ratio is approximately 8. These low valuation ratios are indicative of the often cyclical nature of the company’s businesses.
The company currently pays an annualized dividend of 88 cents, which equates to a dividend yield of 2.01%.
Guru trades
Gurus who have purchased ABM's stock recently include Paul Tudor Jones (Trades, Portfolio) and Robert Olstein (Trades, Portfolio), while those who have reduced or sold out of their positions include Hotchkis & Wiley and Chuck Royce (Trades, Portfolio).
Summary
The company continues to face labor-related pressures and finding workers is still a challenge. However, the core janitorial and engineering solutions provide steady earnings and cash flow, which can be reinvested into other adjacent offerings, including technology-related solutions.
ABM survived a difficult period during the Covid-19 pandemic when offices and factories sat empty for long intervals. The company seems to be thriving now and looks to be offering a potentially attractive entry point for long-term investors.
