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Colfax (CFX) Beats Q3 Earnings, Sales Lag; Revises View

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Machinery company Colfax Corporation reported impressive results for third-quarter 2016, with a positive earnings surprise of 11.4%. Adjusted earnings came in at 39 cents per share above the Zacks Consensus Estimate of 35 cents. The bottom line grew 62.5% to 24 cents in the year-ago quarter.  

Colfax’s third quarter revenues totaled $879.2 million, decreasing 9.3% year over year and below the Zacks Consensus Estimate of $884.6 million. The year-over-year fall was triggered by 6.8% fall in existing businesses and 2.6% negative impact from adverse foreign currency movements, partially offset by 0.1% gain from acquired assets.

Exiting the quarter, Colfax’s orders were worth $476.8 million, up 7.3% year over year. Backlog at the period end was $1,108.0 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 $433.1 million, down 10.1% year over year. The decline was triggered by 7.8% decline in the existing businesses and 2.6% adverse impact from foreign currency translations, partially offset by 0.3% benefit from acquisitions.

Organically, sales declined 8.1% in power generation, 9.9% in oil, gas & petrochemical, 0.4% in marine and 12.8% in general industrial & other end-markets. These negatives more than offset roughly 31.6% gain in mining market.  

Revenues from Fabrication Technology fell 8.4% year over year to $446.1 million due to 4.9% decline in volumes, 0.9% negative impact from price/mix and 2.6% negative impact from foreign currency translations.

Margins

In the quarter, Colfax’s cost of sales decreased 10.3% year over year, representing 68.7% of net sales compared with 69.5% in the year-ago quarter. Gross margin grew 80 basis points (bps) year over year to 31.3%. Selling, general and administrative expenses, as a percentage of revenues were 22.7% compared with 24.5% recorded in the year-ago quarter.

Adjusted operating income increased 33.5% year over year, while margin grew 290 bps to 8.9%.
 
Balance Sheet and Cash Flow

Exiting the third quarter, Colfax’s cash and cash equivalents were $191.7 million, above $184.7 million recorded at previous quarter end. Long-term debt balance was down 1.5% sequentially at $1,379.1 million.

In the first nine months of 2016, Colfax generated net cash of $101.9 million from its operating activities, down from $152.1 million generated in the year-ago period. Capital spending totaled $41.7 million, increasing 27.3% 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 $1.45−$1.55 per share. The revised guidance now stands at $1.50−$1.55 per share. The move was triggered by the benefits expected from costs-reduction efforts (roughly $50 million savings anticipated in 2016), favorable operating conditions and the company’s performance so far in the year.

Also, Colfax announced that it is on track to deliver roughly $50 million in cost-savings from its restructuring efforts.

COLFAX CORP Price, Consensus and EPS Surprise

 

COLFAX CORP Price, Consensus and EPS Surprise | COLFAX CORP Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $3.9 billion, Colfax currently carries a Zacks Rank #3 (Hold). Better-ranked machinery stocks include Applied Industrial Technologies, Inc. (AIT - Free Report) , Barnes Group (B - Free Report) and Chart Industries Inc. (GTLS - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Applied Industrial Technologies’ earnings estimates for fiscal 2017 and fiscal 2018 represent year-over-year growth of 2% and 5.9% respectively. Average earnings surprise for the last four quarters is +4.93%.
 
Barnes Group reported better-than-expected results in the last quarter, with a positive earnings surprise of 6.78%. Also, bottom-line expectations for 2017 have improved over the past 60 days.

Chart Industries’ financial performance has been impressive, with an average positive earnings surprise of 428.37% for the last four quarters. Also, earnings estimates for 2016 and 2017 have been revised upward over the last 60 days.

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