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IDEX (IEX) Up 5.4% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for IDEX Corporation (IEX - Free Report) . Shares have added about 5.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

IDEX Beats on Q1 Earnings & Revenues, Raises View

IDEX started 2017 on a positive note with strong first-quarter 2017 results, driven by healthy year-over-year increase in earnings and revenues. GAAP earnings for the reported quarter were $75.9 million or $0.99 per share compared with $68.1 million or $0.89 per share in the year-ago quarter. The year-over-year improvement was primarily due to top-line growth.

Excluding non-recurring items, adjusted net income for the reported quarter was $79.2 million or $1.03 per share compared with $68.1 million or $0.89 per share in the year-earlier quarter. Adjusted earnings exceeded the Zacks Consensus Estimate by $0.10.

Revenues

Net sales increased to $553.6 million from $502.6 million in the year-earlier quarter with record level orders. IDEX witnessed significantly higher demand in the North American industrial markets with a marked improvement in larger capital projects. Revenues exceeded the Zacks Consensus Estimate of $533 million.

IDEX reported organic growth of 5% in the reported quarter, the first such growth since the fourth quarter of 2014, owing to a diligent execution of operational plans.

By segments, Fluid and Metering Technologies (FMT) recorded a 2% year-over-year increase in revenues to $216.8 million, primarily led by organic growth of 6%. Health and Science Technologies (HST) revenues were $199.7 million, up 7% year over year owing to accretive acquisitions and organic growth, each improving 5%. Fire and Safety/Diversified Products (FSD) recorded sales of $137.4 million, up 31% year over year, primarily due to inorganic growth.

Margins

Gross margin was 45.3%, up 90 basis points (bps) from the prior-year quarter owing to productivity and volume leverage. Operating income in the quarter was $115.7 million compared with $103.3 million in the year-ago quarter with respective margins of 20.9% and 20.6%. Adjusted operating income for the reported quarter was $120.5 million compared with $103.3 million in the year-earlier quarter for respective margins of 21.8% and 20.6%, primarily due to operational efficiency and fair value inventory step-up charges in the prior year. Earnings before interest, taxes depreciation and amortization or EBITDA were $136.7 million compared with $123.3 million in the year-ago quarter. Adjusted EBITDA improved to $141.5 million from $123.3 million in the prior-year quarter.

The FMT segment recorded an adjusted operating margin of 27.4% in the reported quarter, up 300 bps year over year due to productivity initiatives and higher volume.

The HST segment’s adjusted operating margin came in at 22.7%, up 90 bps from the prior-year quarter. This was largely attributable to the productivity initiatives and higher volume.

The FSD segment’s adjusted operating margin was 23.8%, down 70 bps from the year-ago quarter due to the dilutive impact from acquisitions.

Other Significant Developments

During the reported quarter, IDEX recorded $4.8 million of restructuring costs as part of its concerted efforts to drive sustainable growth through cost-reduction actions by employee reduction and facility rationalization. These include a site consolidation at the Material Processing Technologies platform within the HST segment, along with employee reductions within the FMT and HST segments.

Balance Sheet & Cash Flow

As of Mar 31, 2017, IDEX had cash and cash equivalents of $216.1 million with long-term debt of $950.3 million. Cash flow from operating activities was $85.0 million in the reported quarter compared with $70.4 million in the prior-year quarter. Free cash flow at the quarter end totaled $74.8 million compared with $61.7 million in the year-ago period.    

Guidance Raised

With solid quarterly results and robust demand patterns, IDEX raised its earlier guidance for 2017. The company currently expects 3–4% organic growth in 2017 with adjusted earnings of $4.00–$4.17 per share, up from earlier projections of 1–2% organic growth and adjusted earnings of $3.87–$3.95 per share. Second-quarter 2017 adjusted earnings are expected in the range of $1.04–$1.06 per share on organic growth of 2–3%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

IDEX Corporation Price and Consensus

 

IDEX Corporation Price and Consensus | IDEX Corporation Quote

VGM Scores

At this time, IDEX's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising.  It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.


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