netrashetty
Netra Shetty
ABM Industries Incorporated NYSE: ABM is an American corporation involved in outsourced, building maintenance. Wholly owned subsidiaries include ABM Janitorial, Ampco System Parking, ABM Engineering, ABM Security Services (known formerly as American Commercial Security Services), Security Services of America (SSA), Amtech Lighting, and ABM Facility Services.
Founded in 1909 by Morris Rosenberg as a one-man window washing business, they took the name American Building Maintenance in 1913. In 1927, they acquired Easterday Janitorial Supply Company. His sons took over after his death.
They were listed in 1945 on the American Stock Exchange. In 1967, Ampco Auto Parks, which became Ampco System Parking in 1993, became the newest Division of the Company. In 1972 they were listed on the New York Stock Exchange.
Through a series of mergers and acquisitions, ABM had revenues above $2 billion as of 2001. The company and its CEO Henrik Slipsager were featured in the second season of the CBS reality show Undercover Boss.
Founded in 1909 and headquartered in San Francisco, California, ABM Industries Incorporated (ABM) provides engineering, janitorial, lighting, parking, and security services to thousands of commercial, industrial, institutional, and retail facilities across the United States as well as Puerto Rico and British Columbia, Canada. The company has a broad and diverse customer base, with no one customer accounting for more than 5% of the company's revenue. The company employs over 105,000 people. Following the sale of all of the operating assets of the company's wholly-owned subsidiary, CommAir Mechanical Services (Mechanical), in the third quarter of FY05, the segment was classified as a discontinued operation. Additionally, the facility services were included in the Engineering segment. As a result, the company now conducts business through the following five segments:
ABM Janitorial (57% of fiscal 2007 revenue) provides a wide range of basic janitorial services for a variety of facilities.
Ampco System Parking (17%) provides parking services. Earlier, the company operated approximately 1,600 parking lots and garages in 29 states. With the acquisition of HealthCare Parking Systems of America, Inc. in second quarter 2007, the company offers parking services in 39 states at approximately 1,800 parking lots and garages under both on-airport and off-airport parking facilities.
American Commercial Security (ACSS) and Security Services of America (SSA) (11%) offer security services providing security guards, electronic monitoring for detection of fires, life safety systems and access control devices, and security consulting services to a wide range of businesses.
ABM Engineering (11%) provides engineering services designed to maintain equipment at optimal efficiency for customers, such as high-rise office buildings, schools, computer centers, shopping malls, manufacturing facilities, museums, and universities.
Amtech Lighting (4%) provides lighting services, such as relamping, fixture cleaning, and periodic lighting maintenance services to a variety of commercial, industrial, and retail facilities.
ABM Industries' top line growth remains affected by the decline in commercial office building occupancy and rental rates in the U.S., which in turn has reduced demand and created pricing pressures for building maintenance and other services provided by the company. Commercial rents will continue to dip in 2010, and thus we do not expect ABM Industries to deliver a turnaround in the next two quarters.
ABM Industries is depends on acquisitions for growth. However, ABM Industries has been relatively quiet on the acquisition front over the past two years. The last significant deal (OneSource) came in 2007. The company made one small acquisition during 2008 and another during 2009. The company's failure to make new acquisitions on a regular basis will hamper its growth rate. A slowdown in acquisition activity may not only lead to lower revenues, but also lower margins, as revenues associated with acquired operations generally have higher margins than new revenues through internal growth.
ABM Industries has embedded higher employment insurance costs in its fiscal 2010 guidance. The company, however, expects this to be somewhat mitigated by an increase in revenues. Given the weak demand scenario, the expectation of higher revenues seems a bit optimistic. If increases in revenue are not adequate to cover the increase in costs, ABM Industries will miss its guidance.
The Security Services segment needs greater scale in order to harvest structural margin improvement and improve profitability. We remain cautious on the ability of the segment to realize significant margin improvement in the absence of a meaningful acquisition.
Accounts receivable make up approximately one-third of ABM Industries' balance sheet. Deterioration in economic conditions could have an adverse impact on ABM Industries' ability to collect accounts due from its customers, resulting in a negative impact on the company's financial results and operating cash flow.
Given the low cost of entry into the facility services business, ABM Industries faces intense competition from local and national players. Also, the company faces indirect competition from building owners or tenants, who perform one or more of these services internally in order to cut down costs, especially in the areas where external services are subject to sales tax. These strong competitive pressures could limit the company's success rate in bidding for profitable businesses and its ability to increase prices in accordance with the rising costs.
RISKS
ABM Industries' strategy entails growth through acquisitions as well as through internal means. Even though the company has not made any significant acquisitions of late, it continues to look for opportunities to further expand its customer base and enter new markets through acquisitions. A large acquisition could be accretive to earnings growth and would be a distinct positive for the stock.
Despite the adverse impact of the weak economic conditions on its top-line, ABM Industries continues to post strong operating profits. The company drives profits through aggressive cost containment, successful integration of acquisitions and elimination of less profitable businesses. ABM is aggressively managing its bottom line and credit risk by scaling back or eliminating less profitable contracts. While these measures contributed to modestly lower revenues, they also led to higher profit margins and a stronger client base.
Healthy cash flow generation enabled ABM Industries to increase its quarterly dividend payout on a regular basis over the past several years. The company's current quarterly dividend of $0.135 per share is 4% higher than last year. Also, the company uses its cash flows for debt repayment and business expansion. The company reduced its debt by $57.5 million in fiscal 2009 and by $27.5 million in the first half of fiscal 2010.
Founded in 1909 by Morris Rosenberg as a one-man window washing business, they took the name American Building Maintenance in 1913. In 1927, they acquired Easterday Janitorial Supply Company. His sons took over after his death.
They were listed in 1945 on the American Stock Exchange. In 1967, Ampco Auto Parks, which became Ampco System Parking in 1993, became the newest Division of the Company. In 1972 they were listed on the New York Stock Exchange.
Through a series of mergers and acquisitions, ABM had revenues above $2 billion as of 2001. The company and its CEO Henrik Slipsager were featured in the second season of the CBS reality show Undercover Boss.
Founded in 1909 and headquartered in San Francisco, California, ABM Industries Incorporated (ABM) provides engineering, janitorial, lighting, parking, and security services to thousands of commercial, industrial, institutional, and retail facilities across the United States as well as Puerto Rico and British Columbia, Canada. The company has a broad and diverse customer base, with no one customer accounting for more than 5% of the company's revenue. The company employs over 105,000 people. Following the sale of all of the operating assets of the company's wholly-owned subsidiary, CommAir Mechanical Services (Mechanical), in the third quarter of FY05, the segment was classified as a discontinued operation. Additionally, the facility services were included in the Engineering segment. As a result, the company now conducts business through the following five segments:
ABM Janitorial (57% of fiscal 2007 revenue) provides a wide range of basic janitorial services for a variety of facilities.
Ampco System Parking (17%) provides parking services. Earlier, the company operated approximately 1,600 parking lots and garages in 29 states. With the acquisition of HealthCare Parking Systems of America, Inc. in second quarter 2007, the company offers parking services in 39 states at approximately 1,800 parking lots and garages under both on-airport and off-airport parking facilities.
American Commercial Security (ACSS) and Security Services of America (SSA) (11%) offer security services providing security guards, electronic monitoring for detection of fires, life safety systems and access control devices, and security consulting services to a wide range of businesses.
ABM Engineering (11%) provides engineering services designed to maintain equipment at optimal efficiency for customers, such as high-rise office buildings, schools, computer centers, shopping malls, manufacturing facilities, museums, and universities.
Amtech Lighting (4%) provides lighting services, such as relamping, fixture cleaning, and periodic lighting maintenance services to a variety of commercial, industrial, and retail facilities.
ABM Industries' top line growth remains affected by the decline in commercial office building occupancy and rental rates in the U.S., which in turn has reduced demand and created pricing pressures for building maintenance and other services provided by the company. Commercial rents will continue to dip in 2010, and thus we do not expect ABM Industries to deliver a turnaround in the next two quarters.
ABM Industries is depends on acquisitions for growth. However, ABM Industries has been relatively quiet on the acquisition front over the past two years. The last significant deal (OneSource) came in 2007. The company made one small acquisition during 2008 and another during 2009. The company's failure to make new acquisitions on a regular basis will hamper its growth rate. A slowdown in acquisition activity may not only lead to lower revenues, but also lower margins, as revenues associated with acquired operations generally have higher margins than new revenues through internal growth.
ABM Industries has embedded higher employment insurance costs in its fiscal 2010 guidance. The company, however, expects this to be somewhat mitigated by an increase in revenues. Given the weak demand scenario, the expectation of higher revenues seems a bit optimistic. If increases in revenue are not adequate to cover the increase in costs, ABM Industries will miss its guidance.
The Security Services segment needs greater scale in order to harvest structural margin improvement and improve profitability. We remain cautious on the ability of the segment to realize significant margin improvement in the absence of a meaningful acquisition.
Accounts receivable make up approximately one-third of ABM Industries' balance sheet. Deterioration in economic conditions could have an adverse impact on ABM Industries' ability to collect accounts due from its customers, resulting in a negative impact on the company's financial results and operating cash flow.
Given the low cost of entry into the facility services business, ABM Industries faces intense competition from local and national players. Also, the company faces indirect competition from building owners or tenants, who perform one or more of these services internally in order to cut down costs, especially in the areas where external services are subject to sales tax. These strong competitive pressures could limit the company's success rate in bidding for profitable businesses and its ability to increase prices in accordance with the rising costs.
RISKS
ABM Industries' strategy entails growth through acquisitions as well as through internal means. Even though the company has not made any significant acquisitions of late, it continues to look for opportunities to further expand its customer base and enter new markets through acquisitions. A large acquisition could be accretive to earnings growth and would be a distinct positive for the stock.
Despite the adverse impact of the weak economic conditions on its top-line, ABM Industries continues to post strong operating profits. The company drives profits through aggressive cost containment, successful integration of acquisitions and elimination of less profitable businesses. ABM is aggressively managing its bottom line and credit risk by scaling back or eliminating less profitable contracts. While these measures contributed to modestly lower revenues, they also led to higher profit margins and a stronger client base.
Healthy cash flow generation enabled ABM Industries to increase its quarterly dividend payout on a regular basis over the past several years. The company's current quarterly dividend of $0.135 per share is 4% higher than last year. Also, the company uses its cash flows for debt repayment and business expansion. The company reduced its debt by $57.5 million in fiscal 2009 and by $27.5 million in the first half of fiscal 2010.
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