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Why ABM Industries Stock Popped 20% on Thursday

By Rich Smith – Updated Jun 18, 2020 at 4:36PM

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If not for a pretty huge charge to earnings, the janitorial services company would have been profitable.

What happened

On a modestly down day for the stock market, shares of janitorial services company ABM Industries (ABM -2.47%) broke from the pack and climbed 20% on Thursday on the back of a much better-than-expected earnings report.

Analysts had predicted that ABM's second-quarter earnings, released after close of trading on Wednesday, would show earnings per share of $0.29 on a pro forma basis, on sales of $1.49 billion. That sales estimate was pretty much on the mark (Q2 sales rounded up closer to $1.5 billion), but ABM said its pro forma profit for the quarter was about twice what Wall Street had expected, at $0.60 per share.  

Stock up arrow rising over 2020

Image source: Getty Images.

So what

That's the good news. Now here's the bad:  Based on generally accepted accounting principles (GAAP), ABM actually lost $2.05 per diluted share in the second quarter, hurt by a pre-tax noncash impairment charge of $172.8 million related to goodwill and intangible assets. Sales, while meeting expectations, were still down 6% year over year. 

But the best news of all in the second quarter, I'd say, is the fact that ABM generated positive free cash flow of $154.6 million, "reflecting one of the strongest quarterly performances by the Company," management said.

Now what

On March 26, ABM withdrew its previously issued fiscal 2020 guidance due to uncertainty caused by the COVID-19 pandemic. Still, as CEO Scott Salmirs pointed out, because of the coronavirus, "there is a higher degree of awareness for professional sanitization, hygiene, and safety" and ABM has a "proprietary EnhancedClean offering" that promises customers "a holistic, programmatic and specialized approach to cleaning and sanitizing as they develop their plans to reopen."

I think that's going to be an attractive proposition for those customers, and just the kind of service needed to keep ABM's free cash flowing strongly for as long as this pandemic lasts.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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ABM Industries Incorporated
$38.26 (-2.47%) $0.97

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