ABM (ABM)

Facility services provider ABM Industries (NYSE:ABM) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 2.2% year on year to $2.11 billion. Its non-GAAP profit of $0.87 per share was 11.4% above analysts’ consensus estimates.

Company Overview

Founded over a century ago in 1909 and evolving from a window cleaning company into a comprehensive service provider, ABM Industries (NYSE:ABM) provides integrated facility services, infrastructure solutions, and mobility services across various industries.

Growing regulatory pressure on environmental compliance and increasing corporate ESG commitments should buoy the sector for years to come. On the other hand, environmental regulations continue to evolve, and this may require costly upgrades, volatility in commodity waste and recycling markets, and labor shortages in industrial services. As for digitization, a theme that is impacting nearly every industry, the increasing use of data, analytics, and automation will give rise to improved efficiency of operations. Conversely, though, the benefits of digitization also come with challenges of integrating new technologies into legacy systems.

ABM Industries competes with other facility service providers including Aramark (NYSE: ARMK), Cintas Corporation (NASDAQ: CTAS), ServiceMaster (privately held), and ISS A/S (traded on Copenhagen Stock Exchange), as well as numerous regional and specialized service providers in each of its market segments.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $8.40 billion in revenue over the past 12 months, ABM is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, ABM grew its sales at a decent 5.3% compounded annual growth rate over the last five years. This shows its offerings generated slightly more demand than the average business services company, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. ABM’s recent history shows its demand has slowed as its annualized revenue growth of 3.4% over the last two years was below its five-year trend.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, ABM’s organic revenue averaged 2.7% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, ABM grew its revenue by 2.2% year on year, and its $2.11 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not catalyze better top-line performance yet.

ABM was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.5% was weak for a business services business.

Looking at the trend in its profitability, ABM’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, ABM generated an operating profit margin of 3.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

ABM’s EPS grew at a remarkable 11.1% compounded annual growth rate over the last five years, higher than its 5.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

Diving into the nuances of ABM’s earnings can give us a better understanding of its performance. A five-year view shows that ABM has repurchased its stock, shrinking its share count by 6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q4, ABM reported EPS at $0.87, up from $0.86 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects ABM’s full-year EPS of $3.59 to grow 6.4%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

ABM has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.6%, subpar for a business services business.

Taking a step back, we can see that ABM’s margin dropped by 7.9 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.

ABM burned through $122.9 million of cash in Q4, equivalent to a negative 5.8% margin. The company’s cash burn increased from $13.7 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

ABM historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.5%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, ABM’s ROIC averaged 2.4 percentage point increases each year. This is a good sign, and we hope the company can continue improving.

ABM reported $59 million of cash and $1.66 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $502 million of EBITDA over the last 12 months, we view ABM’s 3.2× net-debt-to-EBITDA ratio as safe. We also see its $40.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing ABM beat analysts’ EPS expectations this quarter. We were also happy its organic revenue was in line with Wall Street’s estimates. Overall, this quarter had some key positives. The market seemed to focus on the negatives, and the stock traded down 2% to $48.80 immediately following the results.

Updated: May 10, 2025 at 11:22 PM EDT

Before deciding whether to buy ABM or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We see the value of companies helping consumers, but in the case of ABM, we’re out. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last five years. And while the company’s scale and strong customer awareness give it negotiating power, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

ABM’s P/E ratio based on the next 12 months is 13.3x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $57.50 on the company (compared to the current share price of $50.72).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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