Encompass Services to Eliminate Underperforming Operating Units; Company Reports Expected Earnings Shortfall
HOUSTON, Oct. 2 /PRNewswire/ -- Encompass Services Corporation (NYSE: ESR - news) announced today that as part of its continuing integration process, management has identified 11 operating units that it will eliminate due to underperformance or strategic incompatibility. The company will eliminate the units by closing, selling or merging them with other Encompass locations. The units expected to be closed or sold represent approximately $110 million in annual revenue, or less than 3 percent of expected annual revenue.
``Over the past three years, Encompass has acquired almost 150 operating units to quickly become the nation's premier provider of facilities services,'' said Joe Ivey, president and chief executive officer. ``However, in our continuing integration activities, we have raised performance standards significantly higher than when we were acquiring companies. In doing so, we have identified a handful of operating units that have underperformed beyond the normal ebb and flow of business or that simply are not strategic fits. We are taking steps to eliminate their impact on our company.''
Encompass estimates that shutdown costs and operating losses at the eliminated units will have a negative impact of $19 - $21 million on third-quarter operating income. The company expects that these items, combined with lower-than-expected revenues in the Southeastern United States and the Electrical Group's shortfall in attaining all of its aggressive budget targets, will impact its third- and fourth-quarter results.
The company anticipates reporting third-quarter earnings of $.16 - $.18 per diluted share, compared to the current First Call/Thomson Financial consensus estimates of $.42 per diluted share. Excluding the results of the locations to be eliminated, the company estimates it would have third-quarter earnings between $.32 and $.36 per diluted share and earnings before interest, taxes, depreciation and amortization (EBITDA) of $90 - $96 million.
For the fourth quarter, which historically is slower than the third quarter, Encompass estimates it will report earnings of $.25 - $.30 per diluted share, compared to current consensus estimates of $.38 per diluted share. Excluding the results of the locations to be eliminated, the company estimates it would have fourth-quarter earnings between $.30 - $.35 per diluted share and EBITDA of $87 - $95 million.
For the year, excluding the results of the locations to be eliminated, the company estimates it would have pro forma earnings of $1.16 - $1.25 per diluted share and pro forma EBITDA of $335 - $350 million, compared to current Street expectations of $1.31 per diluted share and approximately $355 million, respectively.
``This announcement breaks the string of 11 consecutive quarters in which we have met or exceeded consensus estimates,'' said Ivey. ``This is disappointing, especially coming off a record second-quarter performance. Despite this setback, we believe our long-term outlook remains positive, as company-wide backlogs are at a record high and our integration activities continue to produce a stronger, more cohesive company. The elimination of $110 million in unprofitable revenue better positions us to improve margins and deliver the financial results we expect.''
Encompass expects to report results for its third quarter ending September 30 after the market close on November 6th.
Encompass will host a conference call with a simultaneous webcast on Tuesday, October 3 at 10 a.m. Eastern Time to discuss the outlook for the third and fourth quarters of 2000. To listen to the call live via the Internet, visit the investor relations section of the company's web site at www.encompserv.com at least 15 minutes prior to the call to register, download and install any necessary audio software. A replay will be available for those who cannot listen to the call live. |
