Encompass Reports Solid Earnings for First Quarter 2001; Results In Line With Previously Announced Guidance
HOUSTON, May 7 /PRNewswire/ -- Encompass Services Corporation (NYSE: ESR) today reported financial results for the first quarter ended March 31, 2001 that were consistent with guidance previously issued by the company.
Led by double-digit revenue increases in its Electrical Technologies, Mechanical Services and Global Technologies groups, Encompass increased total revenues by 9 percent over the prior-year period.
Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 5.5 percent to $66.3 million during the recent quarter, compared to $62.9 million in first-quarter 2000. On 1.1 million more weighted average shares outstanding, Encompass reported net income available to common shareholders of $8.8 million, or $.14 per diluted share, on revenues of $1.06 billion. By comparison, a year ago, the company reported proforma net income of $9.3 million, or $.15 per diluted share, on revenues of $966.5 million. Cash earnings per diluted share for the first quarter were $.27, compared to $.27 during the same period last year.
"Achieving our first-quarter financial targets in a slowing economy was an impressive accomplishment," said Joe Ivey, Encompass president and chief executive officer. "Our repeat customers, geographic diversity and service offering variety combined once again to deliver solid results."
Encompass Accelerates Integration, Reduces Costs in Light of Environment
"Despite this strong performance, we remain guarded about the near-term economic environment," said Ivey. "While many of our markets show promising signs of renewed activity in the second half of the year, others, particularly technology-oriented businesses, are experiencing an increase in project deferrals and contract cancellations.
"In response to this economic fluidity, we are taking steps to reduce our cost structure to a level appropriate to our external environment," Ivey explained. "In addition to deferring and canceling some discretionary initiatives, we have accelerated the cost savings and workforce reductions that are components of our integration plan. We will complete the majority of these in the second quarter, instead of spreading them over subsequent periods."
Encompass announced a reduction of more than $30 million in budgeted company-wide selling, general and administrative (SG&A) expenses for the balance of the year, more than half of which is a workforce reduction of more than 500 positions. Encompass has also cut its planned capital expenditures by $15 million, or 25 percent, for the balance of the year. The majority of these cuts relate to non-revenue-producing assets. Additionally, the company eliminated approximately 1,500 direct labor positions in the first quarter and will continue to quickly adjust its variable cost structure to adapt to changing market conditions.
"While we are prudently and selectively reducing costs, we continue to invest in the strategic initiatives announced last year to accelerate our integration and make us more effective," said Ivey. "These include our strategic information systems plan, national marketing initiatives and the Encompass Leadership Institute. We believe these will generate long-term benefits for Encompass shareholders."
The company's purchasing initiative, originally scheduled to be rolled out over the next 12 to 18 months, is being fast tracked for implementation across all regions by the end of 2001. It involves consolidating the number of suppliers Encompass uses nationwide and aggressively leveraging the company's purchasing volumes to secure significant logistical synergies, reducing the total cost of procurement. The company estimates that once its purchasing initiatives are fully implemented, the resulting cost savings could total $20 - $25 million annually.
Integration Update
"Our operational integration is proceeding on schedule," added Ivey. "The leadership teams at each of our 22 regions in the Electrical Technologies and Mechanical Services groups are in place, and we are now integrating the back- office functions within each region. Also, more and more of our locations have moved fully into the third phase of our nationwide branding initiative, which involves going to the market strictly as Encompass. The Encompass brand is now prominent throughout a large portion of the United States, including key markets in Texas, California and the Southeast."
Operational Highlights
During the first quarter, Encompass recorded several notable achievements:
-- Encompass Cleaning Systems signed new agreements worth more than
20 million in annual revenues to provide janitorial services at more
than 600 locations for customers including Haggen Food and Pharmacy,
H-E-B grocery stores, Massachusetts Bay Transportation Authority,
Raytheon, Regions Bank and Toys R Us.
-- Encompass Global Technologies signed contracts worth more than
6 million annually to provide services to multi-site customers
including Bass Pro Shops and AFN Communications. Encompass will
provide electrical and mechanical preventive maintenance for 10 Bass
Pro Shops' Outdoor World stores. Global Technologies will also provide
due diligence and design/build services for a portion of AFN
Communications' rollout of 56 point-of-presence sites. AFN
Communications is a facilities-based network service provider that
supplies reliable, high-capacity transport services to underserved
secondary and tertiary markets as well as primary population centers.
-- Encompass Electrical Technologies signed an $18-million agreement to
provide electrical construction and installation services for Reliant
Stadium in Houston, future home of the National Football League's
32nd franchise, the Houston Texans.
-- Revenues from national accounts, in which services are purchased from a
central location and delivered by multiple Encompass business units to
geographically dispersed, multi-site customers, totaled more than
100 million.
Second-Quarter and Full-Year Outlook
"We anticipate that the economy will remain sluggish throughout the second quarter and stage a modest recovery in the second half of the year," said Ivey. "We believe we have taken the necessary steps to effectively manage our company in this uncertain environment."
The company has experienced increased collection difficulties for some of its high-tech receivables, which account for a current exposure of approximately $15 million, or less than 2 percent of total receivables. Although Encompass believes it is adequately reserved for these receivables today, further deterioration of business conditions in the technology sector might necessitate incurring a charge to earnings for some portion of these receivables in subsequent quarters.
Encompass expects to report diluted earnings per share of $.22 - $.27 and EBITDA of $75 - $82 million for the second quarter, which ends June 30. This outlook is based on an anticipated reduction of $150 million - $200 million primarily in technology-related revenue for the rest of the year. These projections also include second-quarter severance charges of less than $2 million related to work force reductions, but exclude any charges against allowance for bad debt for the technology exposure mentioned above.
Based on a combination of the SG&A reductions announced today and an anticipated upturn in business activity during the second half of the year, Encompass confirmed its previous guidance for the full year of earnings of $1.15 - $1.20 per diluted share and EBITDA of $348 - $355 million. These projections also exclude any unusual charges for the technology exposure mentioned above.
Conference Call and Webcast Information
The company will host a conference call and Webcast to discuss the results on Tuesday, May 8, at 10 a.m. EDT. The Webcast will include a presentation by members of senior management.
To participate in the call, dial 1-800-218-0530 five to ten minutes before the call begins and ask for the Encompass Services conference. To view the presentation during the call, visit the company's Web site at www.encompserv.com at least 10 minutes prior to the call to pre-register, test connections and download any necessary complimentary software.
Participants who do not wish to ask questions during the call are encouraged to listen to the audio and view the presentation via the Webcast.
A replay of the call will be available from Tuesday, May 8 at noon EDT until Tuesday, May 15, at 7 p.m. EDT. To access the replay, dial 1-800-405-2236 and use passcode number 323997.
The call and presentation also will be archived on the company's Web site. |
