Machinery company Colfax Corporation reported better-than-expected results for second-quarter 2016. Adjusted earnings came in at 41 cents per share, surpassing the Zacks Consensus Estimate of 39 cents by 5.1%. However, the bottom line declined 18% from the year-ago tally of 50 cents.

Talking about Colfax’s top-line performance, net sales in the quarter were $957.2 million, surpassing the Zacks Consensus Estimate of $942.5 million. However, the top line declined 6.6% year over year due to adverse impacts of 5.6% from fall in existing business revenues and 3.8% from unfavorable foreign currency impacts. These negatives more than offset roughly 2.7% gains from acquired assets.

Exiting the quarter, Colfax’s orders were worth $445.7 million, down 11.3% year over year. Backlog at period-end was $1,068.9 million.

Segmental Details

Colfax reports its net sales under two heads/segments. The segmental results are briefly discussed below:

Revenues from Gas and Fluid Handling totaled $483.7 million, down 4.2% year over year. The decline was triggered by 7% decline in the existing businesses and 2.8% adverse impact from foreign currency translations, partially offset by 5.6% benefit from acquisitions.

Organically, sales declined in oil, gas & petrochemical, 12% in marine, 29.8% in mining and 12.1% in general industrial & other end-markets. These negatives more than offset roughly 2% gain from power generation market.   

Revenues from Fabrication Technology fell 9% year over year to $473.5 million due to 1.7% decline in volumes, 2.5% negative impact from price/mix and 4.8% negative impact from foreign currency translations.

Margins

In the quarter, Colfax’s margin profile weakened due mainly to negative impact from lower revenue generation, partially offset by a decline in costs and expenses. Cost of sales decreased 5.9% year over year, representing 68.5% of net sales compared with 68% in the year-ago quarter. Gross margin inched down 50 basis points (bps) year over year to 31.5%. Selling, general and administrative expenses, as a percentage of revenues were 22.3% compared with 21.7% recorded in the year-ago quarter.

Adjusted operating income declined 16.9% year over year, while margin fell 120 bps to 9.1%.
 
Balance Sheet and Cash Flow

Exiting second-quarter 2016, Colfax’s cash and cash equivalents decreased 5.8% sequentially to $184.7 million. Also, long-term debt balance was down 2.8% sequentially at $1,399.9 million.

In the first half of 2016, Colfax generated net cash of $56.4 million from its operating activities, down from $66.9 million generated in the year-ago period. Capital spending totaled $25.5 million, increasing 39.2% year over year. Share buybacks totaled $20.8 million.

Outlook

For 2016, Colfax revised its earnings guidance by raising the bottom-end of the previous range of $1.40−$1.55 per share. The revised guidance now stands at $1.45−$1.55 per share. Also, the company announced the initiation of additional cost savings strategies that will enable it to mitigate the ill-effects of weak end-markets.

Zacks Rank & Stocks to Consider

With a market capitalization of $3.6 billion, Colfax currently carries a Zacks Rank #3 (Hold). Some competitors of Colfax are performing well and have gained high investment value. Better-ranked machinery stocks include Tennant Company (TNC Quick QuoteTNC - Free Report) , Illinois Tool Works Inc. (ITW Quick QuoteITW - Free Report) and Ingersoll-Rand Plc (IR Quick QuoteIR - Free Report) . While Tennant Company sports a Zacks Rank #1 (Strong Buy), both Illinois Tool Works and Ingersoll-Rand carry a Zacks Rank #2 (Buy).

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