Machinery company Altra Industrial Motion Corporation kept its earnings streak alive in third-quarter 2017 while delivered a positive sales surprise for fourth quarter in a row. Results were primarily driven by improving industrial market, strategies to leverage benefits from new business opportunities, focus on improving margin profile and foreign currency tailwind.

Non-GAAP earnings in the quarter came in at 48 cents per share, roughly 4.35% above the Zacks Consensus Estimate of 46 cents. On a year-over-year basis, the bottom line surpassed the year-ago tally of 35 cents.

Sales Driven by Acquired Assets

Altra Industrial Motion’s net sales in the quarter were $214.6 million, up 24% year over year. Of the top-line growth, roughly 20.2% came from the synergistic benefits of Stromag acquisition while the remaining 3.8% growth included positive impacts of 95 basis points (bps) from price and 150 bps from favorable foreign currency movements.

Also, the top line came in above the Zacks Consensus Estimate of $212 million.

On a geographical basis, sales grew 2.7% in Europe and 29.5% in Asia Pacific and other regions while fell 2.6% in North America.

The company reports its revenues under the following heads/segments — Couplings Clutches & Brakes, Electromagnetic Clutches & Brakes, and Gearing. A brief snapshot of the segmental sales has been provided below:

Revenues generated from Electromagnetic Clutches & Brakes were $58.3 million, up 15% year over year.

Couplings Clutches & Brakes’ sales were $110.1 million, surging 42.2% from the year-ago quarter.

Gearing revenues grew 2.9% year over year to $48.4 million.

Improved Margin Profile

Altra Industrial Motion’s third-quarter margins improved on the back of revenue growth, partially offset by costs and operating expenses. Cost of sales increased 22.4% year over year while as a percentage of revenues it represented 67.8% versus 68.7% in the year-ago quarter. Gross margin improved 90 bps to 32.2%. Selling, general and administrative expenses increased 13.5% year over year and represented 19.1% of revenues.

Non-GAAP operating margin in the quarter was 10.3%, up 130 bps year over year.

Balance Sheet & Cash Flow

Exiting the third quarter, Altra Industrial Motion had cash and cash equivalents of $53.2 million, down from $59 million in the preceding quarter. Long-term debt was $295.2 million versus $308 million at the previous quarter end.

In the first nine months of 2017, the company’s net cash generated from operating activities fell roughly 7.7% year over year to $43.3 million. Capital spending was $23.3 million, up from $15.7 million in the year-ago period. During the period, the company paid dividends amounting to $13.3 million.

Couple of days before releasing results, Altra Industrial Motion announced that its board of directors has approved payment of a quarterly cash dividend of 17 cents per share to shareholders on record as of Dec 18, 2017. The disbursement of dividend will be made on Jan 3, 2018.

Outlook

For 2017, Altra Industrial Motion anticipates benefiting from the steadily improving end markets, efforts for improving margins and synergistic benefits from the Stromag acquisition. On the back of these expectations and impressive financial performance, the company increased its revenue guidance to $860-$870 million from the previous projection of $850-$865 million.

Non-GAAP earnings are anticipated to be within $2.00-$2.06 per share, up from the earlier forecast of $1.95-$2.05. Tax rate will be 29-31% while capital spending will be approximately $30 million versus $25-$30 million expected earlier.

Altra Industrial Motion Corp. Price and Consensus