abm

Euro-ABM: a view from Moscow

Russia is going to acquaint NATO with its view of the Europe-based air defense system developed by the US. On June 8th, at a sitting of the Russia-NATO Council in Brussels, Defense Minister Anatoly Serdyukov will try to persuade his colleagues in the alliance to accept Russia’s proposal to sign a legally binding treaty saying that the Euro-ABM system is not directed against Russia.

Russia is naturally seeking firm guarantees that the missile shield being deployed in Europe is not going to be targeted against the country’s interests. Only a legally binding treaty which covers the finest details can do this, Moscow believes. In Brussels, Anatoly Serdyukov will do his best to convey the Russian stance to NATO, given that it changed considerably over the last few months, Chairman of the State Duma’s Foreign Affairs Committee Konstantin Kosachev said:

"If we thoroughly consider the reports of experts currently involved in the negotiation process, there seems to be no escaping the curious conclusion that the US stand remains unchanged, while our position is evolving, and we aim to eventually propose to our partners a structure that would be attractive and workable. At an early stage of this negotiation process, Russia tended to deny the idea of any US or joint European ABM system emerging in Europe, whereas now Russia does not oppose the stand of the European negotiators and only seeks to clear up all the details of the system under construction to make sure that it is not targeted against its interests," Konstantin Kosachev pointed out.

The developing air defense system in Eastern Europe and the Baltic states is designed to protect the US and its NATO allies from attacks from Iraq, Iran, Libya and Syria. Moscow, displeased with the idea of installing American interceptors near Russian borders, suggested the establishment of a joint missile defense shield. The main thing is that each participating side will be responsible for its own security section, pursuant to an initiative articulated by President Dmitry Medvedev at last year’s NATO Summit in Lisbon.

Washington and Brussels have so far failed to provide an official response to the Russian initiative. Meanwhile, the US continues deploying its ABM elements in Europe, without regard for Moscow. Russia, in its turn, believes that a joint missile defense system would be a more logical step:

"In response to our proposals to do something together, we are always told that this runs counter to the North Atlantic Treaty, the principles of collective security and allied obligations of NATO member states. All of our efforts to point out that those obligations refer to a different epoch and different threats, are being overlooked. This can only imply that Russia is still considered a threat, not an ally," Konstantin Kosachev stressed.

One should not expect any breakthroughs in this round of talks. So far, all appeals for cooperation from the Russian side have only come up against indifference on the part of the US. We failed to reach a common view but it is still essential to maintain a constructive approach and not switch to confrontational rhetoric, Konstantin Kosachev said in conclusion.

Mixed 2Q Results For ABM

ABM Industries Inc. (NYSE:ABM) reported second quarter of fiscal 2011 results, delivering a GAAP EPS of 26 cents compared with 16 cents in the year-ago quarter. The quarter noted some special items, which negatively affected earnings per share to the extent of 2 cents. Excluding these items, adjusted EPS in the reported quarter amounted to 28 cents versus 23 cents in the year-earlier quarter, surpassing the Zacks Consensus Estimate by a penny.
The earnings increased mainly due to a $4.7 million after-tax increase in Divisional operating profit and $2.3 million after-tax benefit from lower labor expense. These benefits were partially offset by higher tax expense and fuel costs.
During the quarter, net sales increased approximately 24% year over year to $1.06 billion, falling behind the Zacks Consensus Estimate of $1.07 billion. Revenues in the quarter mainly improved due to a $200 million contribution from the acquisitions made in 2010.
Costs and Margins
Costs of sales during the quarter were up 23% year over year to $949.6 million. Selling, general and administrative expenses increased 20% year over year to $78.3 million. Operating profit increased at a whopping rate of 70.4% year over year to $26.5 million. Consequently, operating margins increased 70 basis points year over year to 2.5% during the quarter.
Segmental Performance
Janitorial: Net sales of the segment increased 4.2% year over year to $590.2 million during second quarter of fiscal 2011. Operating profit of the segment rose 21.1% year over year to $34.9 million.
Engineering: During the quarter, net sales of the segment increased at a whopping rate of 143.9% year over year to $229.2 million. Operating profit was up 36.2% year over year to $6.8 million.
Parking: Net sales of the segment rose 36.9% year over year to $156.2 million, during the quarter. However, operating profit of the segment declined 5.6% year over year to $4.9 million.
Security: During the quarter, net sales of the segment rose 4.2% on a  year -over- year basis to $84 million; while the operating profit declined 4.7% on a year-over-year basis to $0.90 million.
Corporate: Net sales of the segment decreased 28% substantially to $0.37 million, during the quarter. However, the segment’s operating loss improved to $21.7 million compared with $24.5 million in the prior-year quarter.
Financial Position
Cash and cash equivalents of the company decreased to $23.3 million as of April 30, 2011, from $39.4 million as of October 31, 2010. Cash provided from operating activities also decreased to $31.9 million at the end of second quarter of fiscal 2011, from $53.2 million, during the same period in fiscal 2010. ABM also announced a third quarter cash dividend of 14 cents per share, payable on August 1, 2011, to stockholders of record on July 7, 2011.
Guidance
The company reaffirmed its guidance which projects GAAP EPS in the range of $1.23 to $1.33 and adjusted EPS in the range of $1.43 to $1.53.
Our Take
Even though revenues have shown an improvement in the first quarter, they mostly came from acquisitions. ABM Industries’ acquisition driven growth strategy has its own inherent risks. A slowdown in acquisitions could lead to a slower growth rate, constant or lower margins, as well as lower revenue growth. Further, the process of integration may create unforeseen difficulties and expenses. We await the company’s return to solid organic growth.
ABM Industries operates through its subsidiaries and is the leading provider of facility services in the United States. The company provides janitorial, facility, engineering, parking and security services for thousands of commercial, industrial, institutional and retail facilities across the United States, Puerto Rico and British Columbia, Canada.
The company’s business services include ABM Janitorial Services, ABM Facility Services, ABM Engineering Services, Ampco System Parking and ABM Security Services. It competes with privately-held ARAMARK Corporation, Central Parking Corporation and UNICCO Service Company. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

ABM INDUSTRIES (ABM): Free Stock Analysis Report

 

 Mixed 2Q Results for ABM

 

ABM Industries Inc. (ABM - Analyst Report) reported second quarter of fiscal 2011 results, delivering a GAAP EPS of 26 cents compared with 16 cents in the year-ago quarter. The quarter noted some special items, which negatively affected earnings per share to the extent of 2 cents. Excluding these items, adjusted EPS in the reported quarter amounted to 28 cents versus 23 cents in the year-earlier quarter, surpassing the Zacks Consensus Estimate by a penny.

The earnings increased mainly due to a $4.7 million after-tax increase in Divisional operating profit and $2.3 million after-tax benefit from lower labor expense. These benefits were partially offset by higher tax expense and fuel costs.

During the quarter, net sales increased approximately 24% year over year to $1.06 billion, falling behind the Zacks Consensus Estimate of $1.07 billion. Revenues in the quarter mainly improved due to a $200 million contribution from the acquisitions made in 2010.

Costs and Margins

Costs of sales during the quarter were up 23% year over year to $949.6 million. Selling, general and administrative expenses increased 20% year over year to $78.3 million. Operating profit increased at a whopping rate of 70.4% year over year to $26.5 million. Consequently, operating margins increased 70 basis points year over year to 2.5% during the quarter.

Segmental Performance

Janitorial: Net sales of the segment increased 4.2% year over year to $590.2 million during second quarter of fiscal 2011. Operating profit of the segment rose 21.1% year over year to $34.9 million.

Engineering: During the quarter, net sales of the segment increased at a whopping rate of 143.9% year over year to $229.2 million. Operating profit was up 36.2% year over year to $6.8 million.

Parking: Net sales of the segment rose 36.9% year over year to $156.2 million, during the quarter. However, operating profit of the segment declined 5.6% year over year to $4.9 million.

Security: During the quarter, net sales of the segment rose 4.2% on a  year -over- year basis to $84 million; while the operating profit declined 4.7% on a year-over-year basis to $0.90 million.

Corporate: Net sales of the segment decreased 28% substantially to $0.37 million, during the quarter. However, the segment’s operating loss improved to $21.7 million compared with $24.5 million in the prior-year quarter.

Financial Position

Cash and cash equivalents of the company decreased to $23.3 million as of April 30, 2011, from $39.4 million as of October 31, 2010. Cash provided from operating activities also decreased to $31.9 million at the end of second quarter of fiscal 2011, from $53.2 million, during the same period in fiscal 2010. ABM also announced a third quarter cash dividend of 14 cents per share, payable on August 1, 2011, to stockholders of record on July 7, 2011.

Guidance

The company reaffirmed its guidance which projects GAAP EPS in the range of $1.23 to $1.33 and adjusted EPS in the range of $1.43 to $1.53.

Our Take

Even though revenues have shown an improvement in the first quarter, they mostly came from acquisitions. ABM Industries’ acquisition driven growth strategy has its own inherent risks. A slowdown in acquisitions could lead to a slower growth rate, constant or lower margins, as well as lower revenue growth. Further, the process of integration may create unforeseen difficulties and expenses. We await the company’s return to solid organic growth.

ABM Industries operates through its subsidiaries and is the leading provider of facility services in the United States. The company provides janitorial, facility, engineering, parking and security services for thousands of commercial, industrial, institutional and retail facilities across the United States, Puerto Rico and British Columbia, Canada.

The company’s business services include ABM Janitorial Services, ABM Facility Services, ABM Engineering Services, Ampco System Parking and ABM Security Services. It competes with privately-held ARAMARK Corporation, Central Parking Corporation and UNICCO Service Company. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.