Shares in facility solution provider ABM Industries (ABM 0.52%) fell by 13.9% in the week to Friday morning. The decline follows a disappointing fiscal first-quarter earnings report on Wednesday.
Introducing ABM Industries
From its origins in window washing, ABM has become a leading provider of facility solutions (including commercial janitorial services, lighting, and mechanical and electrical solutions) to customers spanning business and industry through to manufacturing, aviation, and education. Business and industry is by far its largest end market, comprising 48% of sales in the first quarter, and here the company has run up against challenges relating to the impact the pandemic had on work habits, with workers reluctant to go back to the office.
Why the stock sold off
Its first-quarter earnings for the period ended Jan. 31 were satisfactory, and with confidence, management raised the low end of its full-year earnings-per-share (EPS) guidance range from $3.60 to $3.80 to a new range of $3.65 to $3.80.
However, the real issue negatively impacting investors was the quarter’s $100 million cash outflow. Negative cash flow is never a good sign, not least in a company with a market cap of $2.93 billion and debt of $1.59 billion.
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Management attributed it to implementing a new enterprise resource planning (ERP) IT system, which led to a cautious approach to invoicing in the quarter and subsequent delays that pressured cash flow.
What’s next for ABM Industries?
Corporate history is littered with ERP implementation failures, and it’s understandable if investors took a “sell first” approach to the news. On the other hand, invoices will be sent out throughout the year, and workers returning to offices create a potential tailwind for the company. ABM is an interesting stock for enterprising investors.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Abm Industries. The Motley Fool has a disclosure policy.
