Record revenue was accompanied by significant profit growth
ABM Industries’ revenue in the third fiscal quarter reached a record $2.317 billion, up 4.2% year-over-year from $2.224 billion. Approximately half of the growth came from organic growth of 2.1%, and another 2.1% came from acquisitions, primarily the integration of WGNSTAR. Net income rose 19% from $41.8 million to $49.7 million, while diluted earnings per share increased from $0.67 to $0.84. Adjusted earnings improved even more significantly. Adjusted net income reached $61.5 million, compared to $51.7 million a year ago, and adjusted earnings per share rose 27% from $0.82 to $1.04. Adjusted EBITDA increased by 11% from $125.8 million to $139.6 million, and total operating income rose by 9.6% to $91.5 million. Higher operating profits across individual segments, lower corporate expenses, and a lower tax burden contributed to the profit growth, while higher interest expenses related to the acquisition of WGNSTAR acted as a negative factor. At the same time, the number of diluted shares outstanding fell from approximately 62.8 million to 59.3 million, so earnings per share were also supported by previous share buybacks.
Aviation and Manufacturing & Distribution Drive Growth; Business & Industry Remains Under Pressure
Performance varied across ABM’s segments during the quarter. The largest segment, Business & Industry, saw revenue decline by 2.6% to $1.012 billion, primarily due to the termination of a partnership with a major client in the United Kingdom and weaker performance on the U.S. West Coast. However, despite lower revenue, the segment’s operating profit rose by 1.5% to $75 million, reflecting the positive impact of cost savings and the exit from less profitable contracts. Manufacturing & Distribution reported revenue of $481 million and year-over-year growth of 17.6%, while operating profit rose 11.4% to $40.5 million. Growth was driven by new contracts, technology clients, and the acquisition of WGNSTAR. The Aviation segment increased revenue by 12.5% to $328.1 million, thanks to strong demand for air travel and the gradual ramp-up of a contract at London’s Heathrow Airport. However, Aviation’s operating profit fell by 6.9% to $18.4 million, as airlines face higher fuel costs and seek to reduce costs for outsourced services. The Education segment remained stable with revenue of $235.8 million and 0.3% growth, while Technical Solutions increased revenue by 4.2% to $259.9 million. This segment could have grown more significantly, but some projects from a major client were postponed to the fourth quarter. The segments' combined operating margin reached 7.7%, which was essentially unchanged year-over-year but improved by 40 basis points compared to the previous quarter.
Strong cash flow is accelerating debt reduction
One of the most notable aspects of ABM’s results was cash generation, particularly when looking at the first nine months of the fiscal year. Operating cash flow reached $146.8 million in the third quarter, and free cash flow amounted to $128.4 million. The quarterly result itself was lower than a year ago, when free cash flow reached $150.2 million; however, a significantly larger change is evident for the entire period since the beginning of the year. In the first nine months of the fiscal year, ABM generated operating cash flow of $275 million, compared to just $101 million in the same period of the previous year. Free cash flow rose from $42.4 million to $199.6 million, representing an improvement of more than $157 million. The company attributes this development primarily to better working capital management and the stabilization of its ERP system, the implementation of which had previously negatively impacted cash flows. Stronger cash flow allows ABM to reduce its financial leverage more quickly following the acquisition of WGNSTAR. At the end of the third quarter, the company had total debt of approximately $1.8 billion, and its debt-to-equity ratio stood at 2.9 times. It had $605.8 million in liquidity, including $110.5 million in cash. ABM also entered into a new $300 million accounts receivable financing program, which is intended to expand financing options and, according to the company, offers more favorable rates than its existing revolving credit facility.
Higher outlook and technology markets drove the stock up nearly 8%
Following a strong quarter, management revised its full-year outlook and provided investors with a more specific view of the areas expected to drive growth in the coming years. ABM now expects adjusted earnings per share for the full fiscal year 2026 to range from $3.95 to $4.10, compared to the previous range of $3.85 to $4.15, which represents a higher midpoint of the expected range. Organic revenue growth is expected to remain between 3% and 4%, and management anticipates it will be near the upper end of the range. Total revenue growth, including acquisitions, is expected to head toward the upper end of the 4% to 5% range. The company also raised its free cash flow outlook from approximately $185 million to $210 million and now expects operating cash flow to be around $300 million. A weaker point is the outlook for the segment operating margin, which was lowered from the original 7.8% to 8.0% to 7.7% to 7.8%. However, investors were also drawn to the rapidly growing technology sectors. Semiconductors, microgrids, and data centers generated nearly $775 million in revenue during the first nine months, grew organically by 26%, and now account for more than 11% of ABM’s total revenue. The semiconductor business alone grew organically by 65%, and when WGNSTAR is included, its revenue more than doubled. The results and improved outlook sparked a strong market reaction. ABM shares closed at approximately $50.71 on September 8, representing a one-day gain of 7.79%. The market thus responded positively, particularly to earnings growth, strong cash generation, and the improved outlook, although future performance will also depend on the company’s ability to restore growth at Technical Solutions and improve margins in Aviation. [2]
ABM Industries Stock Performance Over the Past Five Years*
[1,2] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements do not guarantee future results. They involve risks and other uncertainties that are difficult to predict. Actual results may differ materially from those expressed or implied in any forward-looking statements.
* Past performance is no guarantee of future results.
Sources:
https://www.benzinga.com/news/26/09/61657916/full-transcript-abm-indus-q3-2026-earnings-call
