ABM (ABM) Q4 2025: WGN Star Acquisition Adds Mid-Teens Margin, Accelerates Semiconductor Expansion
ABM capped 2025 with record revenue and a strategic leap into semiconductor fabrication via the WGN Star acquisition. Segment operating margin clarity, strong free cash flow, and a robust pipeline position the company for disciplined growth in 2026, with technical solutions and aviation leading the charge.
Summary
- Semiconductor Entry: WGN Star acquisition brings high-margin, technical workforce access to fabrication centers, deepening sector reach.
- Margin Visibility: New segment operating margin metric improves transparency amid insurance adjustment reporting changes.
- Cash Flow Recovery: ERP stabilization and disciplined working capital drive strong free cash flow into 2026.
Performance Analysis
ABM delivered record quarterly revenue, up 5.4% year-over-year, with organic growth of 4.8% and broad-based segment gains. Technical Solutions led with 16% revenue growth, propelled by microgrid and mission critical projects, while Manufacturing & Distribution (M&D) and Aviation posted robust gains of 8% and 7%, respectively. Business & Industry (B&I) and Education segments grew 2%, stabilizing after recent volatility in commercial real estate and education end markets.
Adjusted EPS was impacted by a $0.26 per share headwind from prior year self-insurance adjustments, a reporting change now included in non-GAAP results following SEC guidance. Excluding this, core profitability exceeded expectations. Adjusted EBITDA margin, after normalizing for insurance effects, reflected solid operational execution and restructuring benefits. Free cash flow rebounded sharply to $112.7 million in Q4, up from $15.5 million last year, as ERP friction eased and working capital discipline took hold.
- Technical Solutions Outperformance: Segment margin expanded 150 basis points to 12.4%, driven by volume and favorable mix.
- M&D Margin Compression: Strategic pricing to win semiconductor contracts diluted margin, but set up long-term growth.
- Restructuring Impact: $35 million annualized savings program, with most benefits to be realized in fiscal 2026.
Share repurchases reduced outstanding shares by 4% in 2025, and leverage remains controlled at 2.7x ahead of the WGN Star closing.
Executive Commentary
"This is one of the largest single aviation awards in ABM's history, and it reflects the reputation our teams have built in delivering industry-leading service and operational excellence... Our recent agreement to acquire WGN Star will strengthen our position in the fast-growing semiconductor market and will complement our growth in the strategic space."
Scott Salmirs, President & Chief Executive Officer
"We expect to grow our core EPS by more than 10% on 4% to 5% revenue growth... We'll continue investing for the long term in 2026, including adding talent, expanding our AI capabilities, and building out our technology stack."
David Orr, Executive Vice President & Chief Financial Officer
Strategic Positioning
1. Semiconductor Fabrication Entry via WGN Star
The WGN Star acquisition marks ABM's first entry into the core of semiconductor fabrication environments, adding 1,300 skilled technical employees and access to over 30 semiconductor clients. Previously, ABM serviced only the outer rings of these facilities; WGN Star unlocks high-barrier, high-margin work inside fabrication centers. With only 15% of the market currently outsourced, this move positions ABM for significant share capture as onshoring and sector growth accelerate.
2. Segment Operating Margin Metric for Transparency
ABM introduced segment operating margin, defined as segment operating profit divided by total revenue, to provide a clearer view of operational health by stripping out insurance adjustment volatility. Fiscal 2025 margin landed at 7.9%, with 2026 guidance at 7.8% to 8%, reflecting restructuring benefits and mix shifts.
3. Aviation and Technical Solutions as Growth Engines
Aviation secured one of the largest contracts in ABM history, while Technical Solutions continues to drive double-digit growth through microgrid and data center projects. Both segments are expected to outpace company-average growth, supported by a strong backlog and pipeline.
4. ERP Stabilization and AI Investment
ERP system rollout, now covering nearly 90% of transactions, enabled improved cash conversion and reduced DSO by 11% from Q2 peaks. AI investments in RFP automation and HR support tools are expected to drive further efficiency and scalability, with early exploration of agentic AI for client-facing operations.
5. Disciplined Capital Allocation and M&A Pipeline
Share repurchases and cautious leverage management signal a balanced approach to capital allocation. ABM plans to maintain leverage near 3x post-acquisition and will weigh further M&A against organic and technology investments, focusing on high-IRR, strategic targets in sectors like data centers and pharma.
Key Considerations
ABM's 2025 performance underscores a pivot to higher-value, technical service verticals while maintaining operational discipline and cash flow recovery. The company is navigating reporting changes and macro stabilization in its largest segments, while investing in growth platforms with long-term potential.
Key Considerations:
- WGN Star Integration: Success in cross-selling and expanding fabrication services will determine the acquisition’s value creation.
- Insurance Adjustment Reporting: Segment margin metric helps investors parse true operational performance amid new GAAP requirements.
- ERP and AI Leverage: Continued progress in digital transformation is critical for sustaining cash flow and margin improvement.
- Capital Allocation Balance: Management remains focused on maintaining leverage discipline while pursuing strategic M&A and buybacks.
Risks
Insurance reserve adjustments introduce ongoing earnings volatility, now reported above the line and no longer excluded from non-GAAP results. Integration risk around WGN Star, including retention of technical talent and realization of revenue synergies, could affect margin trajectory. Macroeconomic or sector-specific slowdowns in aviation or semiconductor end markets would pressure growth assumptions.
Forward Outlook
For Q1 2026, ABM expects:
- Ramp-up of major aviation contract and initial WGN Star integration
- Continued organic growth in technical solutions, aviation, and M&D segments
For full-year 2026, management guided to:
- Organic revenue growth of 3% to 4% (4% to 5% including WGN Star)
- Segment operating margin of 7.8% to 8%
- Adjusted EPS of $3.85 to $4.15 (excluding insurance adjustments)
- Free cash flow of $250 million before transformation, integration, and earnout costs
Management highlighted:
- Strong pipeline and backlog in technical and aviation segments
- Majority of $35 million restructuring savings to be realized in 2026
Takeaways
ABM enters 2026 with momentum from record bookings and a strategic shift toward high-margin, technical service verticals.
- Technical Solutions and Aviation Will Drive Growth: Robust demand and new contract wins underpin above-average segment expansion.
- WGN Star is a Strategic Inflection: The acquisition provides a platform for deeper semiconductor penetration and future cross-selling synergies.
- Margin and Cash Flow Focus Remains Central: Normalized metrics and ERP-driven improvements give investors greater visibility into underlying performance.
Conclusion
ABM’s 2025 results reflect disciplined execution, a sharpened strategic focus, and a bold move into the heart of semiconductor services. With improved margin transparency, stabilized core segments, and a healthy M&A pipeline, the company is positioned for sustainable growth and earnings expansion in 2026 and beyond.
Industry Read-Through
ABM’s move into semiconductor fabrication support signals growing demand for outsourced technical workforce solutions as chip manufacturing onshores in North America. The company’s AI investments and ERP transformation are emblematic of a broader shift toward digital enablement in facility and infrastructure services. Peers in aviation, technical services, and manufacturing support should note the margin expansion and cross-selling opportunities from sector-focused M&A. The insurance adjustment reporting change may prompt similar transparency moves across the industry as regulatory scrutiny increases.