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IDEX's (IEX) Q3 Earnings in Sync Despite Top-Line Growth
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Industrial goods manufacturer IDEX Corporation (IEX - Free Report) reported sedate third-quarter 2016 results with a year-over-year decrease in GAAP earnings despite a healthy improvement in revenues. GAAP earnings for the reported quarter were $69.9 million or 91 cents per share compared with $79.5 million or $1.02 per share in the year-ago quarter. The year-over-year decrease in GAAP earnings was primarily due to loss on divestures.
Excluding non-recurring items, adjusted net income for the reported quarter was $70.5 million or 92 cents per share compared with $69.4 million or 89 cents per share in the year-earlier quarter. Adjusted earnings were in line with the Zacks Consensus Estimate.
Net sales in the reported quarter improved to $530.4 million from $503.8 million in the year-earlier quarter, as the scientific and commercial markets continued to excel. However, the industrial market remained under considerable strain compared with the prior year. Net sales for the third quarter missed the Zacks Consensus Estimate of $538 million. During the quarter, orders were up 9% at $530 million.
By segments, Fluid and Metering Technologies (FMT) recorded a 2% decrease in revenues from the prior-year quarter to $208.3 million due to loss on divestures and adverse foreign currency translation effect. Health and Science Technologies (HST) revenues were $183.6 million, down 1% year over year owing to lower organic growth and foreign currency effects. Fire and Safety/Diversified Products (FSD) recorded sales of $138.8 million, up 30% year over year, as it saw 38% inorganic growth, partially offset by a 6% decline in organic growth.
Margins
Gross margin was 43.5%, down 80 basis points from the prior-year quarter owing to an inventory step-up charge related to AWG and SFC acquisitions. Operating income in the third quarter was $108.9 million compared with $121.8 million in the year-ago quarter with respective margins of 20.5% and 24.2%. Adjusted operating income for the reported quarter was $110.9 million compared with $108.5 million in the year-earlier quarter for respective margins of 20.9% and 21.5%, primarily due to the fair value inventory step-up charges. Earnings before interest, taxes depreciation and amortization or EBITDA came in at $133.4 million versus $142.9 million in the year-ago quarter.
The FMT segment recorded an operating margin of 26.7% in the reported quarter, up 340 basis points from the year-ago quarter due to higher volume related to the energy business.
The HST segment’s operating margin came in at 20.3%, down 140 basis points from the prior-year quarter, largely attributable to the pre-tax fair value inventory step-up charge related to the SFC acquisition.
The FSD segment’s operating margin was 23.2%, down 750 basis points from the year-ago quarter owing to the AWG acquisition inventory step-up charge.
During the reported quarter, LUKAS Hydraulik GmbH, a subsidiary of IDEX, completed the acquisition of AWG Fittings GmbH (“AWG”) in a €46.0 million cash-free, debt-free transaction. AWG is one of the leading manufacturers of mobile and stationary fire protection systems in the world. This acquisition will boost the company’s Fire Suppression platform with its highly integrated firefighting technology and equipment.
IDEX also completed the acquisition of SFC KOENIG AG (“SFC”), a Swiss firm that offers expanders and check valves for critical applications across the transportation, hydraulic, aviation and medical markets. SFC will form an integral part of the IDEX Sealing Solutions Platform within the HST segment and augment its position in the highly engineered fastening and sealing markets.
Year-to-date, IDEX have deployed over $500 million on three strategic acquisitions. At the same time, the company divested two non-strategic product lines in the third quarter and one in early October to focus on its core businesses.
Balance Sheet & Cash Flow
As of Sep 30, 2016, IDEX had cash and cash equivalents of $239.4 million with long-term debt of $1,099.6 million. Cash flow from operating activities was $125.5 million in the third quarter, compared with $113.4 million in the prior-year period. Free cash flow generated during the quarter totaled $113.9 million versus $104.8 million in the year-ago quarter.
Outlook
IDEX anticipates soft demand patterns in its energy and agriculture businesses to be offset by improving demand in water, scientific fluidics and dispensing businesses. Consequently, the company expects organic revenue for 2016 to be down 1%. Adjusted earnings for 2016 are expected within $3.72–$3.74 per share, while fourth-quarter earnings are expected to be in the range of 92 cents to 94 cents.
Barnes has a long-term earnings growth expectation of 9% and is currently trading at a forward P/E of 15.5x.
Altra Industrial has a positive earnings surprise history with an average of 9.2% in the trailing four quarters, comprehensively beating estimates in each quarter.
Chart Industries has a long-term earnings growth expectation of 20% and is currently trading at a forward P/E of 37.7x.
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IDEX's (IEX) Q3 Earnings in Sync Despite Top-Line Growth
Industrial goods manufacturer IDEX Corporation (IEX - Free Report) reported sedate third-quarter 2016 results with a year-over-year decrease in GAAP earnings despite a healthy improvement in revenues. GAAP earnings for the reported quarter were $69.9 million or 91 cents per share compared with $79.5 million or $1.02 per share in the year-ago quarter. The year-over-year decrease in GAAP earnings was primarily due to loss on divestures.
Excluding non-recurring items, adjusted net income for the reported quarter was $70.5 million or 92 cents per share compared with $69.4 million or 89 cents per share in the year-earlier quarter. Adjusted earnings were in line with the Zacks Consensus Estimate.
Revenues
Net sales in the reported quarter improved to $530.4 million from $503.8 million in the year-earlier quarter, as the scientific and commercial markets continued to excel. However, the industrial market remained under considerable strain compared with the prior year. Net sales for the third quarter missed the Zacks Consensus Estimate of $538 million. During the quarter, orders were up 9% at $530 million.
By segments, Fluid and Metering Technologies (FMT) recorded a 2% decrease in revenues from the prior-year quarter to $208.3 million due to loss on divestures and adverse foreign currency translation effect. Health and Science Technologies (HST) revenues were $183.6 million, down 1% year over year owing to lower organic growth and foreign currency effects. Fire and Safety/Diversified Products (FSD) recorded sales of $138.8 million, up 30% year over year, as it saw 38% inorganic growth, partially offset by a 6% decline in organic growth.
Margins
Gross margin was 43.5%, down 80 basis points from the prior-year quarter owing to an inventory step-up charge related to AWG and SFC acquisitions. Operating income in the third quarter was $108.9 million compared with $121.8 million in the year-ago quarter with respective margins of 20.5% and 24.2%. Adjusted operating income for the reported quarter was $110.9 million compared with $108.5 million in the year-earlier quarter for respective margins of 20.9% and 21.5%, primarily due to the fair value inventory step-up charges. Earnings before interest, taxes depreciation and amortization or EBITDA came in at $133.4 million versus $142.9 million in the year-ago quarter.
The FMT segment recorded an operating margin of 26.7% in the reported quarter, up 340 basis points from the year-ago quarter due to higher volume related to the energy business.
The HST segment’s operating margin came in at 20.3%, down 140 basis points from the prior-year quarter, largely attributable to the pre-tax fair value inventory step-up charge related to the SFC acquisition.
The FSD segment’s operating margin was 23.2%, down 750 basis points from the year-ago quarter owing to the AWG acquisition inventory step-up charge.
IDEX CORP Price, Consensus and EPS Surprise
IDEX CORP Price, Consensus and EPS Surprise | IDEX CORP Quote
Twin Acquisitions
During the reported quarter, LUKAS Hydraulik GmbH, a subsidiary of IDEX, completed the acquisition of AWG Fittings GmbH (“AWG”) in a €46.0 million cash-free, debt-free transaction. AWG is one of the leading manufacturers of mobile and stationary fire protection systems in the world. This acquisition will boost the company’s Fire Suppression platform with its highly integrated firefighting technology and equipment.
IDEX also completed the acquisition of SFC KOENIG AG (“SFC”), a Swiss firm that offers expanders and check valves for critical applications across the transportation, hydraulic, aviation and medical markets. SFC will form an integral part of the IDEX Sealing Solutions Platform within the HST segment and augment its position in the highly engineered fastening and sealing markets.
Year-to-date, IDEX have deployed over $500 million on three strategic acquisitions. At the same time, the company divested two non-strategic product lines in the third quarter and one in early October to focus on its core businesses.
Balance Sheet & Cash Flow
As of Sep 30, 2016, IDEX had cash and cash equivalents of $239.4 million with long-term debt of $1,099.6 million. Cash flow from operating activities was $125.5 million in the third quarter, compared with $113.4 million in the prior-year period. Free cash flow generated during the quarter totaled $113.9 million versus $104.8 million in the year-ago quarter.
Outlook
IDEX anticipates soft demand patterns in its energy and agriculture businesses to be offset by improving demand in water, scientific fluidics and dispensing businesses. Consequently, the company expects organic revenue for 2016 to be down 1%. Adjusted earnings for 2016 are expected within $3.72–$3.74 per share, while fourth-quarter earnings are expected to be in the range of 92 cents to 94 cents.
IDEX carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Barnes Group Inc. (B - Free Report) , Altra Industrial Motion Corp. and Chart Industries Inc. (GTLS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Barnes has a long-term earnings growth expectation of 9% and is currently trading at a forward P/E of 15.5x.
Altra Industrial has a positive earnings surprise history with an average of 9.2% in the trailing four quarters, comprehensively beating estimates in each quarter.
Chart Industries has a long-term earnings growth expectation of 20% and is currently trading at a forward P/E of 37.7x.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>