ABM (ABM)

Facility services provider ABM Industries (NYSE:ABM) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 4.6% year on year to $2.11 billion. Its non-GAAP profit of $0.86 per share was in line with analysts’ consensus estimates.

Company Overview

With roots dating back to 1909 as a window washing company, ABM Industries (NYSE:ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.

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 services providers such as Aramark (NYSE:ARMK), Sodexo (OTC:SDXAY), ISS A/S (CPH:ISS), and EMCOR Group (NYSE:EME), as well as numerous regional and specialized service providers in each of its business segments.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $8.50 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’s 5.8% annualized revenue growth over the last five years was decent. This shows its offerings generated slightly more demand than the average business services company, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. ABM’s recent performance 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 dig further into 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 2.9% 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 reported modest year-on-year revenue growth of 4.6% but beat Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to grow 2.3% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

ABM was profitable over the last five years but held back by its large cost base. Its average operating margin of 4% was weak for a business services business.

Analyzing the trend in its profitability, ABM’s operating margin decreased by 3 percentage points 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. ABM’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, ABM generated an operating margin profit margin of 3.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

ABM’s EPS grew at a solid 9.7% compounded annual growth rate over the last five years, higher than its 5.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into ABM’s earnings to better understand the drivers 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 Q1, ABM reported EPS at $0.86, down from $0.87 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects ABM’s full-year EPS of $3.57 to grow 8.3%.

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 poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.2%, lousy for a business services business.

Taking a step back, we can see that ABM’s margin dropped by 8.3 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 broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 4.3 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

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 9.4%, 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. On average, ABM’s ROIC decreased by 2.3 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

ABM reported $58.7 million of cash and $1.67 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 $502.6 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 $42.1 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’ organic revenue expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance slightly missed. Still, this print had some key positives. The stock remained flat at $51 immediately after reporting.

Updated: July 9, 2025 at 11:45 PM EDT

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

We cheer for all companies making their customers lives easier, but in the case of ABM, we’ll be cheering from the sidelines. 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 12.6x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $58.20 on the company (compared to the current share price of $48.87).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.