ABM Industries Incorporated: High-Demand Service For Reopening Businesses

ABM Industries Is A Reopening Play For Dividend Growth Investors

In a world where businesses are dealing with the ramifications of COVID-19 and ramping up for a widespread economic reopening ABM Industries Incorporated (NYSE:ABM) is one of the better positioned for early gains. The company is akin to Cintas in that it provides business support services. The difference is that ABM Industries is a facilities services specialist where Cintas (NASDAQ:CTAS) is focused on uniforms and safety. Ultimately, they are both great plays and make a good match but that's not the point today. The bottom line, businesses that have been cutting back on maintenance, repairs, upgrades, or had their business in mothballs are going to need a lot of help getting back up to speed and that is already seen in ABM Industries results.

Scott Salmirs, President and Chief Executive Officer of ABM Industries commented for the press release “Our strong performance for the first quarter underscores our clients’ focus on protecting their people and spaces. Revenue performance exceeded our expectations as we saw an acceleration of higher-margin, Work Orders for virus protection, and EnhancedClean™ services. Effective labor management also remained a critical component of our results as we navigated the hybrid occupancy environment across our Industry Groups. Our industry-leading execution during these challenging times led to record first-quarter profit and earnings results.”

ABM Industries Has A Great First Quarter

ABM Industries was not immune to the virus and has yet to emerge from its effects but there are rays of light at the end of the tunnel. Not only did the company’s revenue accelerate from the fiscal 4th quarter to the fiscal 1st but it also beat consensus and came with positive guidance. On the top line, the $1.49 billion is up $0.01 billion sequentially or 67 basis points and $0.01 better than the consensus. The uptick in revenue is due to increased demand for COVID-related services that are expected to continue well into the second half of the year.

Moving down the report, the details get even better. The company has been working hard to control cash flow, manage labor costs, and strengthen the balance sheet and that is all seen in the results. The company’s operating profit improved 139.5% YOY, cash from operations increased 231% YOY, and FCF is up 186% to $38.7 million and all in a quarter that typically experiences cash burn. On the bottom line, the GAAP EPS of $1.10 beat by $0.52 and is up168% YOY while the adjusted $1.01 beat by $0.42.

And then there is the guidance. The company is expecting to see EPS in the range of $3.00 to $3.25 for fiscal 2021 which is well above the consensus. The analysts were expecting EPS in the range of $2.65 adjusted or up about 9% YOY. In our view, the guidance will likely turn out to be cautious because we think the economic rebound in 2021 is going to be quite vigorous.

ABM Is Committed To Dividend Growth

ABM Industries is one of those company’s that appears to be very committed to its dividend and dividend growth. The company has only been increasing the payout for 10 years but is set up to continue for the next 10 at least. At face value, the 1.6% yield is only about 23% of this year’s earnings and likely to get lower as the year progresses. Add to that a very strong balance sheet with ample cash, low debt, high liquidity, a sub 1.5X FCF leverage ratio, and the odds of an 11th increase become very high.

The quality of ABM Industries’ business, dividend, and balance sheet can be seen in the charts. The stock posted a strong recovery from the 2020 lows and has since moved up to set a new all-time high. The FQ1 results have the stock up nearly 8.0% and trading at another new high that we think will not be the last.