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On September 8, ABM Industries (NYSE:ABM) told investors that a business famous for grinding out steady, unglamorous cash flow had rediscovered exactly that. Free cash flow through the first nine months of fiscal 2026 jumped more than $150 million from a year earlier, and management used the moment to raise guidance across the board. But underneath that headline, the quarter split cleanly into segments pulling in opposite directions, and the stock's muted valuation suggests the market hasn't fully bought the turnaround yet.
Nine-month free cash flow reached $199.6 million, up from $42.4 million a year earlier, a swing management credited to tighter working capital discipline and the stabilization of a previously disruptive ERP rollout. That improvement gave ABM room to raise its full-year reported free cash flow outlook to $210 million and its normalized figure to $285 million. Adjusted EPS climbed 27% to $1.04, helped by higher segment profit and prior share buybacks, while the company hit its target leverage ratio of below 3 times a full quarter ahead of schedule. The more interesting story sits in ABM's newer businesses. Semiconductor, microgrid, and data center work generated nearly $775 million in revenue over nine months, now more than 11% of the total, and semiconductor organic growth alone ran 65%.
The recent WGNSTAR acquisition pushed ABM further into that world, with CEO Scott Salmirs describing the deal as giving the company the ability to operate "inside the bull's eye" of semiconductor fabrication plants rather than just around them. Aviation revenue grew 12% to $328.1 million on travel demand and the ongoing Heathrow ramp, and manufacturing and distribution revenue rose 18% to $481 million. A newly signed microgrid contract with the Army Corps of Engineers, worth about $20 million, adds another data point to a pipeline management says will convert more heavily in fiscal 2027 and 2028.
Not every part of the portfolio cooperated. Business and Industry revenue fell 2.6% as ABM absorbed the exit of a large UK client and continued softness in Northern California commercial real estate, where Salmirs said competitors are pricing at levels ABM isn't willing to match. Aviation's growth came with a cost: operating margin slipped to 5.6% from 6.8% as airline clients, squeezed by elevated fuel costs, pushed back on service pricing.