Limbach (NASDAQ:LMB) Surprises With Strong Q3, Stock Jumps 16.8%

November 05, 2024 at 16:16 PM EST

LMB Cover Image

Building systems company Limbach (NASDAQ: LMB) beat Wall Street’s revenue expectations in Q3 CY2024, with sales up 4.8% year on year to $133.9 million. The company’s full-year revenue guidance of $530 million at the midpoint came in 2.1% above analysts’ estimates. Its GAAP profit of $0.62 per share was also 17% above analysts’ consensus estimates.

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Limbach (LMB) Q3 CY2024 Highlights:

Revenue: $133.9 million vs analyst estimates of $129.5 million (3.4% beat)
EPS: $0.62 vs analyst estimates of $0.53 (17% beat)
EBITDA: $17.33 million vs analyst estimates of $13.35 million (29.8% beat)
The company slightly lifted its revenue guidance for the full year to $530 million at the midpoint from $525 million
EBITDA guidance for the full year is $61.5 million at the midpoint, above analyst estimates of $56.1 million
Gross Margin (GAAP): 27%, up from 24.5% in the same quarter last year
Operating Margin: 8.1%, in line with the same quarter last year
EBITDA Margin: 12.9%, up from 10.2% in the same quarter last year
Free Cash Flow was -$1.85 million, down from $16.95 million in the same quarter last year
Market Capitalization: $829.5 million

“In the third quarter, we continued to execute the three pillars of our strategy with each pillar contributing to our EBITDA growth and gross margin expansion,” said Michael McCann, President and Chief Executive Officer of Limbach Holdings.

Company Overview

Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.

Construction and Maintenance Services

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Limbach’s demand was weak over the last five years as its sales fell by 1.8% annually, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Limbach’s annualized revenue growth of 3.9% over the last two years is above its five-year trend, but we were still disappointed by the results. Limbach Year-On-Year Revenue Growth

This quarter, Limbach reported modest year-on-year revenue growth of 4.8% but beat Wall Street’s estimates by 3.4%.

Looking ahead, sell-side analysts expect revenue to grow 5.9% over the next 12 months, an improvement versus the last two years. While this projection illustrates the market believes its newer products and services will spur better performance, it is still below average for the sector.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Limbach was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.2% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Limbach’s annual operating margin rose by 4.1 percentage points over the last five years.

This quarter, Limbach generated an operating profit margin of 8.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its 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.

Limbach’s EPS grew at an astounding 77.7% compounded annual growth rate over the last five years, higher than its 1.8% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.

We can take a deeper look into Limbach’s earnings to better understand the drivers of its performance. As we mentioned earlier, Limbach’s operating margin was flat this quarter but expanded by 4.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.

For Limbach, its two-year annual EPS growth of 80% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Limbach reported EPS at $0.62, up from $0.61 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 Limbach’s full-year EPS of $2.20 to grow by 9.1%.

Key Takeaways from Limbach’s Q3 Results

Revenue beat, which is a good start. We were further impressed by how significantly Limbach blew past analysts’ EBITDA and EPS expectations this quarter. Looking ahead, we were also glad the company lifted its full year revenue guidance. Additionally, its full-year EBITDA guidance exceeded Wall Street’s estimates. Zooming out, we think this was a very good quarter with few blemishes. The stock traded up 16.8% to $91.16 immediately after reporting.

Limbach had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.

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