Stockholders v EMCOR Group, Inc.
EMCOR Group Stock Falls Precipitously After Late Poor Expectation Disclosures
Several class actions have been filed against construction and facilities services firm EMCOR Group, Inc. (NYSE:EME) and certain of its officers and directors by stockholders who purchased the company's common stock between April 9, 2003, and October 2, 2003. The actions claim that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.
The action alleges that the defendants issued numerous statements to the market concerning EMCOR's financial results, all of which failed to disclose and misrepresented the following adverse facts: (1) that the company's newly acquired contact backlog from its Consolidated Engineering Services, Inc., acquisition contained a high proportion of public sector work and quasi-public sector construction projects which tended to less profitable than private sector work; (2) that this change in mix of work materially impaired EMCOR's ability to generate profits because private sector work typically generated higher gross margins; (3) that the company's Selling General and Administrative expenses, related to its facilities management business, would not earn the same level of revenues as it did in its construction business; and (4) that, as a result, the defendants lacked a reasonable basis for their positive statements about EMCOR and their earnings projections.
On October 2, 2003, EMCOR provided financial guidance for the second half of 2003 and updated its financial guidance for the 2003 full-year period. Based on current market conditions, the company expected revenue for the second half of 2003 to be between $2.25 billion and $2.35 billion, and diluted earnings per share to be between $0.90 and $1.01. The company expected these results to be slightly weighted towards the 2003 fourth quarter. In light of these expectations, EMCOR's guidance for the 2003 full-year period was for revenue of between $4.4 billion and $4.6 billion, in line with previous estimates, and diluted earnings per share of between $1.65 and $1.75. Contract backlog at September 30, 2003, was anticipated to be approximately $3.1 billion versus $2.9 billion as of that date and December 31, 2002. EMCOR's financial guidance reflected continued solid revenue growth as a result of its leading position in its markets, and profitable results from all of its North American operations.
In contrast to these positive statements, gross profits allegedly continued to be restrained by the high proportion of public sector work within backlog, continued recessionary conditions in most of EMCOR's markets, and a reduced level of private sector, discretionary, small project work. EMCOR's expected results for the second half of 2003 also reflected the impact of the slower-than-anticipated return to profitability of its U.K. subsidiary, due to reorganization charges at that subsidiary and to U.K. market conditions. When this adverse news at the market, shares of EMCOR fell $8.66 per share, or 20%, to close at $34.79 per share.
If you purchased securities issued by EMCOR during the applicable period, you may request appointment by the court as a lead plaintiff if you do so by June 4, 2004. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the court must determine that your claim is typical of the claims of other class members, and that you will adequately represent the class. Under certain circumstances, one or more class members may together serve as lead plaintiffs. Your ability to share in any recovery is not affected by the decision whether or not to serve as a lead plaintiff. You may retain any counsel of your choice to serve as you in this action, or you may choose to do nothing, and remain in the class as a silent member.
