ABM Industries raises fiscal 2026 free cash flow guidance to $210 million

ABM Industries (ABM) raised its fiscal 2026 reported free cash flow guidance to $210 million, up from the previously provided $185 million. The increase follows a first nine-month fiscal 2026 free cash flow of $199.6 million, a significant jump from $42.4 million in the prior-year period. Management attributed the improvement to working-capital management and ERP stabilization.

The company’s leverage ratio fell to 2.9X in the third quarter of fiscal 2026, down from 3.2X in the second quarter. This sequential improvement allowed ABM to reach its below-3X leverage target one quarter earlier than planned.

ABM is expanding its footprint in high-growth infrastructure markets, specifically semiconductors, microgrids, and data centers. In the first nine months of fiscal 2026, these businesses generated nearly $775 million in revenues, accounting for more than 11% of the company's total top line. Revenues in these segments increased 26% organically year over year and approximately 40% when including the WGNSTAR acquisition, while maintaining double-digit blended operating margins. Semiconductor revenues rose 65% organically, microgrids increased 17%, and data centers grew 8%.

The WGNSTAR buyout, which closed in February, contributed $76.9 million to revenues in the first nine months of fiscal 2026. Client-base expansions and this acquisition drove Management & Development (M&D) revenues up 17.6% year over year in the fiscal third quarter. This growth comprised 7.8% organic growth and 9.9% acquisition-related growth.

Despite gains in infrastructure, ABM faces headwinds in its Business & Industry segment. Revenues in this area declined 2.6% year over year in the third quarter of fiscal 2026, reflecting a large U.K. client exit and continued West Coast softness. Management anticipates this revenue trend will persist into the fourth quarter and does not expect the segment to return to organic growth until around mid-fiscal 2027.

The company ended the third quarter of fiscal 2026 with $1.8 billion in total borrowings, a sequential decrease from $1.9 billion in the second quarter. However, interest expenses increased year over year to $29.5 million in the third quarter from $25.3 million, reflecting higher average debt following the WGNSTAR acquisition. For the first nine months, interest expenses rose 13.2% year over year to $81.6 million from $72.1 million.

Zacks Investment Research currently assigns ABM a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for ABM's fiscal 2026 revenues is $9.2 billion, implying 5.3% year-over-year growth, with earnings per share expected to jump 16.3% to $4. For fiscal 2027, anticipated revenue growth is 3%, with earnings per share expected to increase 7.5% to $4.3.