Good morning. My name is Adam, and I'll be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group second quarter 2019 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you, Ms. Jamie Baird with FTI Consulting, you may begin.
Thank you, Adam, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2019 second quarter results, which were reported earlier this morning. I would like to turn the call over to Kevin Matz, Executive Vice President, Shared Services, who will introduce management. Kevin, please go ahead.
Thank you, Jamie, and good morning, everyone. Welcome to EMCOR Group's earnings conference call for the second quarter of 2019. My, where has the year gone already? For those of you who are accessing the call via the internet and our website, welcome to you as well. We hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on slide two. This presentation and discussion contains forward-looking statements and certain non-GAAP financial information. Page two describes in detail the forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Slide three depicts the executives who are with me to discuss the quarter and six-month results. They are Tony Guzzi, Chairman, President, and Chief Executive Officer.
Mark Pompa, our Executive Vice President, Chief Financial Officer, and Treasurer, and our Senior Vice President and General Counsel, Maxine Mauricio. For call participants not accessing the conference call via the internet, this presentation, including the slides, will be archived in the investor relations sections of our website under presentations. You can find us at emcorgroup.com. With that said, please let me turn the call over to Tony. Tony?
Thanks, Kevin. Good morning. Thanks to everyone for joining our call. Up front here, I'm going to speak to pages four through six. We had a great first half of 2019 at EMCOR across all of our reporting segments. Our team is executing well with precision and focus. As a result, we are delivering great results in end markets that continue to provide great opportunities for us. I am going to focus my discussion today on our second quarter results. Mark will cover second quarter and year-to-date performance in more detail in his commentary. Mark will follow me. In his commentary, we'll talk about a slew of records that we set in the quarter. Suffice it to say, it was a record quarter on many metrics. We had terrific performance in the second quarter.
Revenues grew to $2.32 billion, which is 19% overall revenue growth and 15.2% organic revenue growth. All reporting segments had strong organic revenue growth in the quarter. We earned $1.49 in diluted earnings per share from continued operations, posted 5.2% operating income margins, had good SG&A leverage at 9.7% of revenues, and have strong remaining performance obligations of $4.23 billion, which represents strong growth of 15.1% versus the year ago period, 6.5% versus year-end 2018, and 1.7% versus the first quarter of 2019, despite our exceptional organic revenue growth. We are also pleased with the results of our recent acquisitions. The companies we have acquired are contributing to EMCOR's overall success. They are opening new markets for us, new opportunities for us, and providing us with new capabilities. At the reporting segment level, we have performed well in all reporting segments in the quarter.
Our Electrical and Mechanical Construction segments continue the strong performance that we have seen for at least the last eight quarters. We have strong organic revenue growth, good acquisition integration, and solid margin conversion and operating income growth from an already strong base of earnings. Our Electrical Construction segment had a great quarter, and our Mechanical Construction segment also performed well against a very difficult set of comparisons versus the year ago period. The year is progressing much stronger than we had expected, driven by excellent performance in the commercial market, data centers, and manufacturing and industrial, and steady performance in other end markets like institutional and water and wastewater. We also had a nice increase in our short-duration projects. Our operating income margins remain strong at 7.0% on a combined basis, which shows continued excellent execution.
We are at the front end of several large projects, and as a result, like most large projects, our margin recognition is tempered until we have completed some of the work, especially the labor, and gain more comfort in our original estimate. We like our current mix of work and our remaining performance obligations. We like the velocity in our short-duration work, that gives us confidence in the continued strong performance in these segments. Our team, which extends down through our subsidiary leadership, knows how to select, estimate, win, and most importantly, execute across a range of project types and sizes, as well as end market sectors. Our Building Services segment team had another outstanding quarter. We made 5.3% operating income margins and grew operating income almost 25% on revenue growth of 13.6%. The team continues to successfully integrate acquisitions into our operations.
Five quarters ago, we said we needed to execute well on several large contract wins in our commercial site-based business. We are. We have strong performance in our mechanical services business as we continue to see strong demand for retrofit, energy retrofit, control system upgrades, and repair service across most geographic markets. Our government business continues to operate well despite having a small reduction in revenues, and our energy services manufacturing business continues to see strong demand as we execute on some complex maintenance and project opportunities. Our team in building services is focused on expanding our customer relationships, winning new business, and continuing to offer our customers innovative project approaches and solutions. You know what? It's nice to see growth return to the segment over the last few quarters. Our industrial services segment had a strong quarter as the business continues to strengthen and regain its market-leading position.
We are at 5.4% operating income margins and had excellent revenue growth overall of 60.6%, led by our field services operations. We executed several large turnarounds in the quarter, and we were able to showcase what makes our team excel. We perform complex work that requires the deployment of a large, highly skilled workforce on a compressed schedule under the most demanding conditions. Our shop business continues to operate well and has a good mix of work between new build, cleaning, and repair work. Over the past 12 months, reaching back to the third quarter of 2018, we now have a 12-month period of improved performance.
Our industrial services team is rebuilding our margin base a piece at a time, as demand patterns have stabilized after a rough period in late 2017 and early 2018 with the Hurricane Harvey disruption, which caused a recalibration of planned maintenance activities. Our U.K. team continues its track record of success with 4.9% operating income margin, strong implementation of contract wins, excellent performance on our facility management contracts, and strong project growth and execution. We have a good pipeline of significant new business development opportunities in the U.K. We are positioned well to win our fair share of those opportunities. With all that said, we believe we have the best team in the business across all our reporting segments and here at corporate. We focus on the task at hand and win for our customers, employees, and shareholders. You know what?
We win the right way with a values-driven culture of mission first, people always. With that summary on what was a terrific quarter, I will turn it over to Mark for a detailed financial review of our quarter end and year-to-date and second quarter 2019 performance. Mark?
Thank you, Tony. Good morning to everyone participating on the call today. For those accessing this presentation via the webcast, we are now on slide seven. Over the next several slides, I will supplement Tony's opening commentary on EMCOR's second quarter performance, as well as provide an update on our year-to-date results through June 30th. All financial information referenced is derived from our consolidated financial statements included in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier this morning. Let's revisit our second quarter performance. Consolidated revenues of $2.32 billion are up $370.3 million, or 19%, over Q2 2018.
Our second quarter results include $72.8 million of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by EMCOR in last year's second quarter. Acquisition revenues positively impacted both our U.S. Electrical Construction and U.S. Building Services segments. Excluding the impact of businesses acquired, second quarter consolidated revenues increased approximately $297.5 million, or a strong 15.2%. Consistent with the last several quarters, all of EMCOR's reportable segments generated revenue growth, and our $2.32 billion of consolidated revenues represents both a Q2 record as well as an all-time quarterly revenue record for EMCOR. U.S. Electrical Construction revenues of $569.4 million increased $89.9 million or 18.7% from Q2 2018.
Excluding acquisition revenues of $44.7 million, this segment's quarterly revenues grew organically 9.4% quarter-over-quarter. Revenue gains within the commercial market sector, inclusive of project activities within the telecommunications sub-market sector, as well as revenue growth within the manufacturing market sector, were partially offset by revenue declines within the transportation, healthcare, and hospitality market sectors due to the completion or substantial completion of certain large projects during 2018. The electrical construction segment's quarterly revenues of $569.4 million represent an all-time quarterly high for this segment. U.S. mechanical construction revenues of $823.1 million increased $99.2 million or 13.7% from quarter two 2018. This segment's revenue growth was broad-based across all market sectors, with the exception of the hospitality and institutional market sectors.
This quarterly segment revenue performance represents an all-time quarterly record for our U.S. Mechanical Construction segment, consistent with the previous segment. EMCOR's total domestic construction business second quarter revenues of $1.39 billion increased $189.1 million or 15.7%, of which 12% of such growth was generated from organic activities. U.S. Building Services quarterly revenues of $523.7 million increased $62.7 million or 13.6%. Excluding acquisition revenues of $28.1 million, this segment's revenues increased $34.5 million or 7.5%. Revenue growth was experienced across all divisions within the segment other than government services, due to reduced levels of IDIQ project activity resulting from both a smaller contract base as well as overall reduced spending levels.
This segment, like both of our U.S. construction segments, achieved an all-time quarterly revenue record during the second quarter of 2019. United States industrial services revenues of $295.4 million increased from $111.5 million, or almost 61%, primarily as a result of higher field services activities, as this segment has seen a resumption in demand for their services, which resulted in an extended spring turnaround season. As a reminder, the first six months of 2018 were negatively impacted by the residual effects of 2017's Hurricane Harvey. United Kingdom building services revenues of $112.6 million increased $7 million or 6.7% quarter-over-quarter, as this segment is executing against a maintenance contract base of diversified customers with strong demand for follow-on project work. This segment's quarterly revenue growth was despite the continued headwinds of a weakening pound sterling, which negatively impacted quarterly revenues by $6.6 million. Please turn to slide eight.
Selling general and administrative expenses of $226.2 million represent 9.7% of revenues and reflect an increase of $36.3 million from quarter two 2018. SG&A for the second quarter includes approximately $9.5 million of incremental expenses inclusive of intangible asset amortization from businesses acquired, resulting in an organic quarter-over-quarter increase of approximately $26.8 million. As has been a common theme over the last several quarters, with the continued achievement of record operating performance, the organic increase in SG&A is primarily due to higher employment costs as a result of increased headcount to support the strong organic revenue growth across all of our reportable segments, as well as increased incentive compensation expense necessitated by our expectations for increased year-over-year profitability. In addition, we continue to absorb higher information technology costs as a result of certain initiatives which are currently in process.
Reported operating income for the quarter of $120 million represents 5.2% of revenues and compares to $99.7 million, or 5.1% of revenues in 2018's second quarter. This represents a $20.3 million, or 20.4% increase with a slight improvement in operating margin. All of our reportable segments have experienced increases in operating income and operating margin quarter-over-quarter, other than our U.S. Mechanical Construction Services segment. Additionally, our consolidated second quarter 2019 operating income of approximately $120 million represents an all-time quarterly record for EMCOR. Our U.S. Electrical Construction Services segment operating income of $43.8 million increased $7.8 million from the comparable 2018 period. Reported operating margin of 7.7% represents a 20-basis point improvement over last year's second quarter.
The increase in this segment's operating income and operating margin was primarily due to increased gross profit from the commercial market sector, inclusive of certain telecommunications projects, as well as the manufacturing market sector, due to an increase in project activity. This increased performance was partially offset by a reduction in project activity within the transportation and healthcare market sectors due to the completion or substantial completion of several large projects that were active in 2018. 2019's second quarter U.S. Mechanical Construction Services segment operating income of $54 million represents a $3.5 million decrease from last year's quarter. Operating margin of 6.6% is reduced by 130 basis points period over period, as the segment's operating margin for the second quarter of 2018 represented near record level performance due to a more favorable revenue mix than in the current year.
Consistent with my commentary last quarter, this segment's operating performance was impacted by the mix of work currently in process, as its project portfolio includes a greater number of large projects in the earlier stages of completion, which typically carry lower projected gross profit margins than projects that are in the later stages of execution. With the sequential growth in this segment's remaining performance obligations, which Tony will touch upon after my commentary, I anticipate this segment's results will continue to reflect strong operating performance. Our total U.S. construction business is reporting a 7% operating margin or $97.8 million of operating income, which has increased from 2018's second quarter by $4.4 million. Operating income for U.S. building services of $28 million represents 5.3% of revenues and a $5.6 million improvement over last year's second quarter.
Operating margin improved by 40 basis points due to quarter-over-quarter growth and project activity within their mechanical and energy services division, as well as improved profitability within their commercial site-based contract portfolio. Our U.S. Industrial Services segment operating income of $16 million represents 5.4% of revenues and an increase of $14.8 million from last year's second quarter. The increase in quarter-over-quarter operating performance within this segment is due to both increased demand as well as project timing, as scope pertaining to certain of our turnaround projects extended from quarter one into the second quarter of 2019. As previously referenced on this call, as well as the majority of 2017 and 2018's quarterly earnings calls, this segment was still suffering from weak demand in early 2018 due to the residual impact of Hurricane Harvey.
U.K. building services operating income of $5.5 million represents 4.9% of revenues and an increase over last year's second quarter operating income of approximately $900,000 or 50 basis points of operating margin. Consistent with my revenue commentary, this segment's improved operating income performance was despite the negative impact of the decline in the value of the pound sterling, which reduced reported results in US dollars by approximately $300,000.
We are now on slide nine. Additional financial items of significance for the quarter not addressed in the previous slides are as follows. Quarter two gross profit of $346.4 million represents 14.9% of revenues, which has improved from the comparable 2018 quarter by $55.5 million and is consistent on a gross margin basis. Restructuring activity was insignificant in both quarterly periods presented. Diluted earnings per common share from continuing operations is $1.49 and compares to $1.21 for the quarter ended June 30th, 2018.
On an adjusted basis reflecting the add back of the non-cash identifiable and tangible asset impairment loss recorded in 2018's second quarter of approximately $900,000, our non-GAAP diluted earnings per share from continuing operations would have been $1.23 in the year-ago period. When compared to 2019's second quarter performance, we have achieved a 21.1% increase quarter-over-quarter in diluted earnings per share. Our tax rate for the second quarter is 28.3%, which is slightly higher than our 2018 second quarter tax rate due to an increase in certain non-deductible expenses in the current period. On a year-to-date basis, our tax rate is 27.9%, which is approximately the midpoint of my previously communicated expected income tax rate range for full year 2019. Cash flow from operations for the quarter was a positive $15.2 million, which results in cash used in operating activities for the year-to-date period of approximately $42 million.
With our exceptional organic revenue growth during the period, our working capital levels have increased as we continue to invest in our business. Despite our slow cash start to 2019, our expectation for the full year is to generate positive operating cash flow that will approach the net income implied by our revised earnings guidance range, which Tony will discuss later in our presentation. We are now on slide 10. With the quarter commentary complete, let's now turn our attention to the first six-month results. Revenues of $4.48 billion represent an increase of $628.7 million or 16.3% as compared to $3.85 billion in the prior year period. Double-digit revenue growth across all of our reportable segments other than our U.K. Building Services segment due to foreign currency headwinds has resulted in a new mid-year revenue record for the company.
Year-to-date gross profit, I'm sorry, of $655.1 million is greater than the comparative 2018 period by $95.2 million or 17%. Gross margin of 14.6% for the six months ended June 30th, 2019, represents a 10-basis point improvement over gross margin for the first six months of 2018. Consistent with our revenue growth, each of our reportable segments generated higher gross profit during 2019's six-month period as compared to 2018. Additionally, each of our reportable segments, other than our U.S. Mechanical Construction segment, are reporting improved gross margins period over period. Selling, General, and Administrative expenses of $432.4 million for the six-month period represent 9.6% of revenues as compared to $380.9 million or 9.9% of revenues in 2018. We continue to be successful in leveraging our overhead structure during this period of significant revenue growth, providing additional validation of our continuing successful business model.
Year-to-date operating income is $222.3 million and represents a $44.6 million increase over 2018's six-month performance. Our year-to-date operating margin is 5%, which is 40 basis points higher than the comparative 2018 period. We are performing a large volume of project and service work and doing so in an efficient and a profitable manner. Diluted earnings per common share from continuing operations is $2.77 for the six months ended June 30th, 2019. It compares to $2.15 in the corresponding 2018 period. Adjusting 2018's earnings per share from the non-cash intangible asset impairment loss recorded in the prior year, non-GAAP diluted earnings per share from continuing operations would have been $2.17. When comparing the current year's diluted earnings per share from continuing operations to 2018's adjusted number, we are reporting a 27.6% year-over-year EPS improvement. We are now on slide 11.
EMCOR's balance sheet remains sufficiently liquid as represented by cash of approximately $213 million and modest leverage demonstrated by our debt to capitalization ratio of 13.5%. Our cash balance is reduced from December 31, 2018, as a result of cash used in operations during the first six months of 2019 to fund our organic growth, as well as cash expended for businesses acquired and purchases of property, plant, and equipment. Working capital levels have increased primarily due to the growth in our accounts receivable and contract asset balances related to our strong second quarter revenue growth. The increase in goodwill is due to the three businesses acquired in 2019, as well as the purchase price adjustment associated with the business acquired in the fourth quarter of 2018.
Identifiable intangible assets have increased modestly as a result of the acquisition of the aforementioned businesses in 2019, offset by year-to-date amortization expense of approximately $23.2 million. Total debt, excluding operating lease liabilities, is approximately $295 million and is slightly reduced from year-end 2018 levels. We are happy with where our balance sheet is at this time, given our significant organic revenue growth. EMCOR continues to be well-positioned to capitalize on available opportunities. With my prepared commentary concluded, I will return the call to Tony. Tony?
Thanks, Mark. I'm going to be on page 12, Remaining Performance Obligations or RPO by segment and market sector. Quarter two was another strong project bookings quarter across the company. Total remaining performance obligations at the end of the second quarter were $4.23 billion, up $553 million or 15% when compared to the June 30, 2018 level of $3.67 billion. Quarter two activity also increased $262 million over the December 31, 2018 level of $3.96 billion. The non-residential market continues to offer opportunities, we continue to win our share of project work alongside our robust revenue growth. In addition, as we have stated throughout our call, our subsidiaries are executing at a very high level on project construction and service operations, we see a general absence of badness across our operations.
Our leaders in the field at the executive, project management, and field superintendent levels are, forgive me for saying this, they're knocking it out of the park right now with regard to project selection, estimating, resource allocation, operational execution, project turnover, and completion. That's easily said, but let's not forget, even in a good market, you need to constantly perform, and our field teams are performing, and we're building and finding the right labor resources. Domestic remaining performance obligations have increased roughly 15% or $533 million since June 30, 2018, driven mainly by our Mechanical and Electrical Construction segments, and they're up 17% and 13%, respectively, as they are awarded projects across most market segments, including some large and complex industrial and commercial and data center projects.
In a similar vein, our mobile mechanical services business continues to grow its remaining performance obligations, as demand for HVAC retrofit and maintenance projects continue as our customers seek to improve the efficiency and cost-effectiveness of their building systems and building controls. Remaining performance obligations for this group located within our building services segment have increased $111 million or roughly 31% from the year-ago period. As you look at the graph, the right side of the graph shows remaining performance obligations by market sector. Basically, what you're seeing in our case is improvement in the private non-residential sectors of commercial, industrial, hospitality, and short duration. It's being driven by commercial and industrial and short-duration projects.
That's good because in the aggregate, they're up almost $578 million or almost 28%, and that's balanced against, as Mark Pompa said, a little bit of decline in transportation and healthcare, and we've had steady performance in water, wastewater, and institutional. Taken in the aggregate, we're about breakeven from a growth perspective, I guess, measured against 2018 in those sectors. We take a little license in defining these sectors, but we really try to level up against the Census Bureau data. With all that being said, I'm going to go to pages 13 and 14, which is what everybody on the call actually cares about the most.
As we move into the back half of the year, we have healthy markets, and we continue to see bidding and project opportunities across our business, and we believe this level of activity will continue as we move through the back half of 2019 and the early part of 2020. We have had a strong first half of 2019 and are raising our earnings per diluted share from continuing operations guidance to a range of $5.50-$5.75 versus our previous range of $5-$5.50. This is an over 37% increase or 7.1% when comparing midpoints of those ranges. In the back half, we do expect growth to slow a little bit as comparisons become more difficult for us, especially in our industrial services business, as we had a very good second half of last year in that segment.
With that as background, we now expect revenues of $8.8 billion-$8.9 billion versus previous guidance of $8.5 billion-$8.6 billion. As we move to the second half, we will continue to execute cost discipline, project controls, and we expect our cash flow to improve, as Mark said, to approach our net income level for the year as we move to near year-end. The difference between the top end of the range and the bottom end of the range will depend on a couple things. One is the workflows of some of our large project work, how quickly the schedule will move, how quickly we'll be able to accelerate or accomplish planned milestones, and we have to finalize our fall turnaround schedule with our refining and petrochemical customers.
What we've learned in the past few years from these customers, these downstream customers, is they've shown a willingness to move the schedule by a few weeks or months as they determine their optimal plant loading for any given time period. Let me talk about capital allocation. We will maintain our discipline and balanced approach. We already have closed three acquisitions in 2019 and have a robust and active pipeline as well as robust organic growth opportunities as we've seen through the first half of the year. We are buying good companies, and we're buying those good companies in what we believe are good markets that allow us to expand any one of our domestic segments from a geographic capability or serving a market sector. We have a very disciplined approach.
Many more people want to sell us companies than we are willing to buy, and others buy them, and that's good for them. We balance our internal and external growth efforts with returning cash to shareholders through share repurchases as well as dividends. Thanks for listening, and Adam, let's open the line to questions.
Yes, sir. Once again, ladies and gentlemen, if you would like to ask a question, simply press star, then the number one on your telephone keypad. Once again, for a question, that is star, then the number one. Our first question comes from the line of Tahira Afzal with KeyBanc Capital Markets.
Hi, gentlemen. This is Sean on for Tahira today. Nice quarter, guys.
Thank you.
First one for me is, clearly a blowout quarter for the industrial services segment. Sounded like, the turnaround season was extended. You had some stuff push out from 1Q into 2Q. I'd just like to get a better sense for second half visibility in that segment and just how that kind of year-over-year growth or revenue run rate's going to look in the back half. Also, just how sustainable that margin is you guys put up this quarter, and how the delta could look around that?
Well, look, we hope our margins build from here. That won't be a linear line, right? A third quarter could be different than second quarter. We have to keep looking back, and over the last 12 months, we have about a 5% operating income margin and a mid-sevens EBITDA margin in that segment. Remember, that segment has a lot of amortization because it was built through acquisition.
You go to the back half of the year, we had a really strong second half of last year, especially in the early part of fourth quarter. Right now, we expect a decent turnaround season. Will it be as strong as last year's? We still have some places to fill in, but we always have places to fill in at this time moving into the fall turnaround schedule. I think demand has solidified in that sector.
I think consolidation will eventually help large contractors like us in that sector. What I mean is consolidation at the refiner level. I think, it allows them to, like I said in my prepared remarks, it allows them to work on optimal plant loading now, and they're getting used to that as they have bigger footprints for the most part to work in. I'd say demand's okay. We're in a more normal market, it's very difficult for us to say, second half will be better than first half. First half will be better than second half, will be better than second half last year, because so much of that work is discovery work.
You get into a turnaround, and that turnaround can expand, or you get into a turnaround, then they'll say, "Just do what you need to, button it up, because we have to get that on-site." Like I said, it can sometimes slide a whole turnaround season as they decide to keep those units open. We're very much at the mercy of our customers in that segment, and we react to those customers well, and we're lucky that we're able to attract and find the best labor to perform for them.
Okay, that's helpful. I guess it's interesting to hear you guys say the bidding momentum's likely to continue through the first half of 2020, particularly considering everybody's focused on some of the non-res data showing some cracks. I was just hoping for a little more color, even anecdotally, around just some of the bidding activity and the opportunities coming down the pipeline for the construction segments over the next 12 months, just to try and understand where the strength is, I guess.
Understand, we've been in a generally slow recovery. It took us till almost 18 months ago to get back to where we were in late 2007, early 2008. For us, a 2%-5% market still presents opportunity for us. As you center that and say there's some significant large opportunities, the number of contractors that can actually do that work, especially trade contractors, greatly diminishes. Therefore, what we may see as momentum in the market, others might not see. They're more at the bottom end. The other thing that's important to remember for us is we're late cycle. A lot of the early indicators, we're reacting to early indicators from 12-18 months ago. We still see a pretty good market, and I was careful, I said moving into 2020, not the first half of 2020.
At least that's what I meant to say. I'll clarify like Mueller did last week, right? We see momentum going into 2020. We don't see past the early part of 2020, right? We never do. Because you got to remember, a lot of our work is short-duration work, and that's an indicator for us, too. That short-duration work and in the backlog in our mechanical service business continue to show momentum, in some ways are the best indicators of where the market is right now for bidding opportunities.
Okay, that's really helpful. Just to sneak in one last one, I'm just curious what the anticipated acquisition contribution's going to be in the second half, and then I guess more importantly, the implied organic growth in the guidance for the second half 2019.
Well, you can do that math. There's a range to that mark with 3%-5%. Pretty tough compare versus the second half of last year. Clearly we'd love this momentum to continue, but you're starting to run against pretty good comparison. Even at that rate, if you take the full year, we're clearly outperforming the market. On the second point, on the acquisition front, deals happen when they happen. We have a pretty good pipeline. We don't really count on a lot out of our deals in the first six to 12 months on an EPS basis, because they have pretty heavy amortization of backlog. On an EBITDA basis and cash, clearly we participate in that. We got some nice opportunities to allow us to expand all the things we've talked about, geography capability across our domestic footprint. Mark?
Yeah, I think, the only other thing I would add is, where we sit in the calendar and what's in front of us, what's possible to happen in 2019 is probably more skewed towards the later half of the six months. Just as Tony said, adding to that, they're not going to be in the portfolio for all that long to provide a significant contribution. With regards to the revised earnings guidance, we've reflected what we thought would be an appropriate level of contribution, if any, for those that we believe were going to be successful, very minimal. You may see a little bit of revenue, but not much else on the reported financials.
Got it. Thanks so much for the time, gentlemen.
Yep, you're welcome.
Thank you.
Your next question comes from the line of Noelle Dilts with Stifel.
Hi, guys. Congrats on a great quarter.
Hey, Noelle.
Firstly, I just wanted to circle back to the question on industrial services margins and just see if you could expand on how you're thinking about that now over the long term. I know there's still some opportunity for expansion there. Can you talk to me about how you're thinking about the longer-term goal and what we need to see to get there?
Well, we got to continue to see strengthening in our shop business. We got to successfully fully open this new cleaning stand in Louisiana. It's open, but we got to get the benefit of that in the fall turnaround season. We got to continue to look for niche opportunities like we have, by building a refractory business. Then we have to continue to pursue the large turnarounds because that eats the overhead. I think if you ask us and ask the team in industrial services, 5%'s a good place to get back to, give or take. Clearly we expect on an operating income basis to be north of six, and on an EBITDA basis, north of high sevens, mid eights. We got to get there first before we can increase from there.
Yeah. Noelle, on year to date through June, that segment is at 4.6% operating margin. As Tony said, clearly in the short term, our expectations is to get at least equal to what we are on a consolidated basis or slightly higher. Obviously if you look at the historical run rates, there's certainly some opportunities to improve, but it is solely dependent on mix of work. As Tony had commented, with the less percentage of their revenues and their profits being generated from shop activities, which tend to be higher profit margin contributors versus the field service work, we can't drive the demand to get that balance to a more preferable place. Ultimately we're going to take advantage of the opportunities in front of us.
Right. Okay. Second, labor has been obviously a big conversation over the last year. Given that you are still seeing a lot of demand, and strong momentum, how would you say you're thinking about just industry-wide labor utilization at this point? Curious if your ability to attract quality labor, if you think that's part of what's driving share gains.
Yes. Our ability to attract very good labor, our ability to take care of that labor, to provide them opportunities if they do a good job for us, our ability to keep them safe and be led by terrific people in the field, are all reasons why we attract it. I will tell you, I would not want to be at the low end of the labor pool right now. I would not want to be trying to attract painters or insulators, or landscapers or cleaners right now in any substantial way, because any of those that are at the top of their profession are trying to migrate into the skilled trades. This is sort of counterintuitive, but in this market right now with some of these large jobs, it has become much more of a union skilled trades market, because if you're a non-union person, and we're both.
I mean, if you're a non-union person in a pretty good union market and there's work available and the union will accept you at a pretty high level close to journeyman, you're going to go there. You get better wages, better working conditions, and maybe more opportunity in the future. Mark, I think, we constantly talk to our field leadership down through the subsidiary into the superintendent levels. We have those great field superintendents, we're still attracting our fair share of great labor.
Okay, great. That's helpful. Finally, could you just comment quickly on what you're seeing from a geographic perspective, in the U.S.? If there are any particular pockets of strength in activity or areas where you're seeing slowdown?
Look, we're not very big in it anyway, but I'm glad we're not a big residential high-rise builder in San Francisco, and I'm glad we're not a big residential high-rise builder in New York City. The things we do, we still see pretty good demand, and it's pretty broad-based from what we would've seen over the last couple years. We see good opportunities in water and wastewater in Florida. Our Boston business, our Northeast business continues to be strong. Our Midwest business is strong, especially driven by manufacturing and fire protection and energy retrofit projects and control system upgrades. Our California business, because again, the niches we participate in, some of it was a little bit slow, but now it's regained. It's got some large project opportunities in front of it. Our service operations in California are exceptionally strong right now as we continue to drive energy retrofit work.
Our commercial business in Texas continues to regain strength. We're mainly in the Houston market, with some of our acquisitions on the fire protection side, we're seeing broad-based strength overall, especially in the data center market as it pertains to fire protection. We got in there through acquisition. We're able to build that skill more broadly based. The Mid-Atlantic continues to be very strong, broad-based commercial data centers, some healthcare. Because we slowly rebuilt through and rebuild our labor force responsibly, including on the management side, and now we're able to respond to larger project opportunities and more scope. Right now, that's a trend we see because people know we can get the labor, we're pricing the work right, we're procuring the materials right, and we're executing well.
Thanks so much.
Your next question comes from the line of Adam Thalhimer with Thompson Davis.
Hey, good morning, guys. Great quarter.
Thanks, Adam.
Hey, Tony, can you give us some more flavor for what's going into backlog, what's driving your backlog, maybe the pricing within backlog?
I don't make a lot of comments on pricing because with pricing comes execution. You can have great pricing, but if you estimated it wrong, it turns into bad pricing relatively quickly. As you get up in project size, you see the short duration work increasing. That medium project size for EMCOR of about $1 million, that's been very steady. Ultimately, what drives backlog increases is large projects, right? We're running at such a high rate right now, and our organic growth is pretty good. To demonstrably move backlog, you have to have some large projects, and we define those as $30+ million . When you get to that level of project, you're working against a budget a lot of times, and you're working against, "Can we get this project done? What's the scope going to look like?
How are we going to execute? That's the kind of work that's going in the backlog. From there, what our folks have done a terrific job on is getting the scope right, protecting us on the contractual terms, and sometimes it's better not to get the next increment of price if you can get better contract terms to protect you as design or scope changes happen. That's why you're seeing the general absence of badness. A services business or a construction business is a funny thing. What really drives margin, what really makes this thing all work is a general absence of badness. I mean, that we're performing what we said we would perform, and we're not having big write-downs. That is what makes EMCOR, yes, we've had write-downs in the past, but they're nowhere near with the big EPC firms.
It's important for people to always remember that about us. Other than some food process work and maybe a chiller room, we don't do EPC work. We are a specialty trade contractor. What we do is we take a set of plans and specs, or we take a time and material job, we figure out how to buy out that job, usually very successfully, and then we implement our labor. Where we really make our money is productively employing our labor to the best we can with the best mix of work that we can on that job. That is more important than saying, "I just got great pricing on that job," because that can be a big misnomer. All it takes is one bad job and any pricing advantage you have is gone.
Okay. Those $30+ million jobs that you said drove backlog, you still see a good pipeline of those in the market?
Yes.
Okay. Moving over to industrial, it sounds like, just from answering a previous question, you'd prefer us to be modeling slightly down revenue in the back half for industrial? Just from a modeling perspective.
I don't really focus on it. I'd say it's plus or minus last year, flat to minus, flat to plus a little bit. Yes.
Then can you remind us what's peak revenue for that segment now? You did $1.07 billion back in 2016. You've done some acquisitions since then. I mean, if we're really in a healthy market, like what should we be thinking for annual revenue?
We haven't made any acquisitions in that segment for a long time.
Didn't Ardent have a piece of?
We moved one of our companies from construction.
Industrial
industrial, but all that's really doing is making up for their inability to serve California without that business. It's sort of a wash.
I thought Ardent, maybe Ardent was back in 2015.
Ardent's not in the segment. Yeah.
Ardent's in our U.S. Electrical Construction segment, Adam.
Okay. lastly, I wanted to ask about the margins for the segments, just how you're thinking about this for the back half. As I try to get to your guidance, I'm thinking electrical margin's kind of flattish, mechanical margin's up versus the first half, and building services kind of flattish.
Mark?
You're not that far off, Adam.
Okay. That's it for me. Thank you.
Okay. Thanks, Adam.
Your next question comes from the line of Zane Karimi with D.A. Davidson.
Hey, good morning, and solid quarter.
Thanks, Zane.
Just hoping to provide any additional color on the building services margins. They continue to be pretty strong, and is there any mix benefit to that, or is that purely better terms, conditions, execution, et cetera?
It's better execution, especially on our site-based contracts, but it's really being driven by really good mix right now between mechanical service and some of our manufacturing energy work. Mark?
Yeah, I think the only thing I would add to that, Zane, is that particular segment has gone through a pretty dramatic portfolio reshaping over the last several years. Now that we've gotten beyond some of the work that either we decided not to re-bid or we moved away from, you're seeing a more reflective contribution of the underlying business that's been there all along. There's not much in that portfolio that's diluting the overall margin performance of that particular segment. You're able to see its true performance now.
Thank you. I appreciate that color there. Touching on the M&A environment comment earlier, just hoping to get your update on it, as well as any perspective on expectations and what you see around the industry as a whole.
Yeah, I'll comment on EMCOR. Where we've had great success over our last, I'd say three years, and the last seven acquisitions all have a story. We're buying companies where people want to be bought by EMCOR. We want to make a fair deal with them. We don't want to buy them cheap. We're not buying them cheap. We're buying them at the appropriate value. We think we're buying good companies, and the results back that up. Good companies with good capabilities in good markets to either augment us where a market we're already in or to open a new market up to us. We put a lot of thought into it. We do very rigorous operational due diligence, legal due diligence, financial due diligence, risk due diligence, insurance, which is a big deal in our business, safety due diligence.
We don't say yes to everything, not even close. We can get pretty far down the line in the initial stages before we make an offer and just say, "If we buy this, we would buy this at this, because this is what the business actually can do without a lot of investment from us." Others, we say, "There's more upside here." In fact, the person we're talking to, we both agree that yes. When that happens, we were able to get to a deal. I simplify good companies, good markets, good people.
Got you. Thank you for the color there.
Your next question comes from the line of Joe Mondillo with Sidoti & Company.
Hi, good morning, everyone.
Good morning.
Morning.
Just had a question on sort of execution. Wondering how you internally measure execution amongst all the various projects that you're involved with, and curious at this point in time right now, how sort of execution stacks up against past years at the company?
I'll take a shot at it and ask my CFO to come in. We measure the heck out of things. You start with an estimate that then goes into our work in process, and we have a rigorous work in process methodology here at EMCOR. It has all the standard metrics you'd expect to see on it. We go through rigorous work in process reviews every month, all the way up through our corporate leadership team. Starts at the project level, goes to subsidiary leadership, goes to segment level, makes it up the way to Mark and his team, and of course, they manage by exception at that level. They have great tools to analytically look at that. We measure against what we thought we were going to do, right? We said we were going to do X, how are we doing that?
We take a good look back at historical performance and what should we expect, not only by company, type of company, market sector, type of project, type of contract. The other thing we do is we do a lot of training around that. We spend a lot of time talking to people about the right way to look at that, the right way to look at the cost to complete, the right way to look at risk. Ultimately, for us to make money and for us to do as well as we are, two big levers have to happen. The first is don't screw up, do no harm, which means don't have any big losers in the portfolio, which right now we don't. The second part is get the estimate right, execute well, close out the job, and get off the job.
You got to do both of those two things well, I would add a third thing which goes with that second one is, we got to get labor productivity. That means investing in BIM, prefab, digital tools. I laugh when people say, "Are you digital?" We're probably the most digital specialty trade contractor in the market. That would have been asking us 10, 20 years ago, "Are you going to use the Hilti station?" It's part of what we do. Mark?
Yeah, the only thing I would add to Tony's commentary, Joe, is with regards to the level of review and the rigor of the review, it's actually monthly.
Right.
To the extent that there's any projects in the portfolio that are underperforming, we will recognize that fairly early in the project timeline and develop action plans to try to get ahead of it. Unlike some other people that may not take a detailed review quarterly or semiannually, we're looking at this information on a monthly basis. As Tony indicated, there's a lot of different eyes looking at it. The great thing about having a lot of different eyes doing those reviews is everybody has a slightly different perspective or bent of what they're looking for. It's not just margin performance, it's obviously cash flow attributes. Are we cash ahead, cash behind? Obviously, we're aware of what the contractual terms are with regards to milestones and billing on most of the large work.
I think just the level and frequency of inquiry prevents us from having many projects that actually result in being marginally profitable or loss projects. With the number of work, the amount of work we perform at any given quarter or any given year, obviously that's almost impossible to prevent. I think what you're seeing in the current period results, as opposed to some of the earlier periods, is the fact that we haven't had any significant projects of note that are either break even or loss projects, which obviously we would recognize that when we identify it as a problem. The bigger problem once it happens is we don't have any revenue being burned through the company right now where we're not recognizing any margin.
Where we've had projects in the past that were of consequence and that had some difficulties, we then were burning revenue after that happened at no margin, which obviously dilutes the overall margins of the company. What you're seeing currently in 2019 and what you saw for almost all of 2018 is you didn't have any of that revenue being burned by the company with either no margin or very low margin. You're able to see the true performance of EMCOR at its best.
The other thing I'd add to Mark made a key statement, lots of sets of eyes. I would add one adjective to that.
Qualified.
Qualified and experienced sets of eyes.
Experienced eyes.
People are asking incisive questions and insightful questions. Our field leadership very rarely is faced from our internal resources that they're getting questions that are crazy. They're saying, "Yeah, right question to ask, and here's what we think." The other thing is one of our core values here at EMCOR is transparency. We believe that it has to be a core value for a company that's as decentralized as we are, and it's one of the things that unite us together. We always have a very clear saying, "Bad news has to travel really fast here." Good news can wait a while. Bad news has to travel fast. We also don't overreact to bad news. We react to it in an appropriate way, and we bring all the skills that we can, and our folks know that. They know that we're in the game with them.
I would say the other thing that maybe changes us versus other people, none of us are what I would call traditional corporate types. We're not M&A people. We are operating people from our finance team to our legal team, our safety team, our risk team. Everything is focused on supporting the operations in the field. We do acquisitions because we want to build great operations. We don't do acquisitions just to do acquisitions. We invest organically because we want to get productivity. We just don't invest organically because it's a new experiment. We usually try something small and then go larger on it. There's this relentless focus on operations and productivity and the safety of our people and the transparency that I think is core to what we do, and it's how we behave. It's how we ask questions.
It's how we answer questions, and it's what makes us who we are. We take bad news, and we do something with it. We don't just sit on it.
Just a really quick follow-up to that question. At these levels of execution that you're running at, how hard is it to start to, I guess, squeak out more margin in terms of efficiency and execution?
Our segments have ranges of margins based on the mix of work they have and where they are in the project cycle. I think we're pretty good margins right now. I'm not going to call them peak margins because they could go up 20 or 30 basis points or go down 10 basis points.
The margins we're currently earning are reflective of the mix of revenue we have. If we get an improved mix of revenue, there's obviously the opportunity for margin improvements.
Yes.
All right. I also wanted to ask in terms of how your non-union businesses have been performing relative to your union base compared to historically. Is there any changing dynamics in this past year or two? Has anything trended differently between the two?
No, other than industrial, but that has nothing to do with union versus non-union. That has to do with the recovering market.
Okay. Last question, just in terms of capacity. Capacity is for the most part based on personnel and trying to find the skilled labor and whatnot. Have you had any issues at any of your locations? Obviously, this has been a theme in the industrial world, are you running up against capacity at all?
Look, they're always qualified adjectives. You say, "Have you had any issues?" Well, in a bad market that has labor, we make sure we have the right mix of labor, so you always have issues as you assemble a workforce of 37,000 people. Are we having trouble staffing our projects with the appropriate level of resources? I go back to our earlier comment. Because of where we are in the food chain, because of the excellence we have in project management and our field superintendents. Understand, all of EMCOR's subsidiary leadership came from the field. They were either project managers, they were field operating people, operations managers, or they came up through the trade. They know labor, and labor trusts them because they keep them safe. We pay them every week.
They're led by people that know what they're doing, and if they do a good job for us, they're likely to have follow-on work and be part of our core team. Our folks know skilled labor.
Okay, good enough. Thanks for taking my questions. Appreciate it.
Thanks, Joe.
Thank you.
There are no further questions at this time.
With that, terrific quarter. Thanks to the people in the field. We'll talk to you all in October.
Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.