Please ensure Javascript is enabled for purposes of website accessibility

Why ABM Industries Stock Popped 20% on Thursday

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

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

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.