HVAC and electrical contractor Comfort Systems (NYSE:FIX) reported Q1 CY2025 results exceeding the market’s revenue expectations , with sales up 19.1% year on year to $1.83 billion. Its GAAP profit of $4.75 per share was 28.1% above analysts’ consensus estimates.
Brian Lane, Comfort Systems USA’s President and Chief Executive Officer, said, “Our amazing teams across the United States continue to achieve world class performance. We are reporting earnings per share that exceed every past quarter, a remarkable accomplishment given that the first quarter is historically our seasonally weakest period. These results reflect a promising start to 2025. Per share earnings in the first quarter of 2025 was $4.75, more than 75% higher than the spectacular results we achieved in the first quarter of 2024. During the first quarter, we also made substantial payments to a key customer resulting in a long-expected normalization of our working capital.”
Company Overview
Formed through the merger of 12 companies, Comfort Systems (NYSE:FIX) provides mechanical and electrical contracting 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
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Comfort Systems grew its sales at an incredible 21.4% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great 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. Comfort Systems’s annualized revenue growth of 28.6% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. We note Comfort Systems isn’t alone in its success as the Construction and Maintenance Services industry experienced a boom, with many similar businesses also posting double-digit growth.
We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Comfort Systems’s backlog reached $6.89 billion in the latest quarter and averaged 30.5% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Comfort Systems’s products and services but raises concerns about capacity constraints.
This quarter, Comfort Systems reported year-on-year revenue growth of 19.1%, and its $1.83 billion of revenue exceeded Wall Street’s estimates by 4.2%.
Looking ahead, sell-side analysts expect revenue to grow 6.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Comfort Systems has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.5%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Comfort Systems’s operating margin rose by 4.1 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q1, Comfort Systems generated an operating profit margin of 11.4%, up 2.6 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in 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.
Comfort Systems’s EPS grew at an astounding 40.6% compounded annual growth rate over the last five years, higher than its 21.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Diving into Comfort Systems’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Comfort Systems’s operating margin expanded by 4.1 percentage points over the last five years. On top of that, its share count shrank by 3.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Comfort Systems, its two-year annual EPS growth of 66.4% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q1, Comfort Systems reported EPS at $4.75, up from $2.69 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 Comfort Systems’s full-year EPS of $16.67 to grow 11%.
Key Takeaways from Comfort Systems’s Q1 Results
We were impressed by how significantly Comfort Systems blew past analysts’ backlog expectations this quarter. We were also excited its EPS outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid quarter. The stock traded up 10.2% to $415 immediately after reporting.
