Colfax Corporation ( CFX Quick Quote CFX - Free Report) reported impressive results for third-quarter 2020, with earnings surpassing estimates by 2.5%. This was the company’s 20th consecutive quarter of better-than-expected earnings results. Also, the quarter’s sales beat the Zacks Consensus Estimate by 6.1%. The machinery company’s adjusted earnings in the reported quarter were 41 cents per share, surpassing the consensus estimate of 40 cents. However, the bottom line declined 18% from the year-ago figure of 50 cents on weak sales generation and a fall in margin. Revenue Details
In the quarter under review, Colfax’s net sales were $805.9 million, reflecting a year-over-year decline of 4.8%. The results suffered from a 3.2% decline in the existing businesses (due to the pandemic’s impact on demand) and a 1.6% impact from forex woes.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $759.4 million. It currently reports under two business segments — Fabrication Technology and Medical Technology. The segmental information is briefly discussed below: Revenues from Fabrication Technology totaled $491.5 million, declining 8.8% year over year. The results suffered from a 5.9% decline in existing businesses and a 3% adverse impact from forex woes. Revenues from Medical Technology totaled $314.4 million, reflecting year-over-year growth of 2.3%. The results gained from 1.4% growth in existing businesses and a 0.9% positive impact from movements in foreign currencies. Margin Profile
In the quarter under review, Colfax’s cost of sales declined 3.5% year over year to $461.81 million. Selling, general and administrative expenses decreased 4.3% year over year to $278.1 million. It represented 34.5% of revenues.
Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review declined 14.4% year over year to $107.7 million. Also, adjusted EBITA margin decreased 1.5 percentage points year over year to 13.4%. Interest expenses in the quarter declined 19.7% year over year to $25.6 million. Adjusted tax rate in the quarter was 30%. Balance Sheet and Cash Flow
Exiting the third quarter, Colfax’s cash and cash equivalents at $66.4 million reflected no change from the previous quarter, while the long-term debt balance was down 1.3% sequentially to $2,191.7 million.
Notably, the company repaid borrowings of $866.2 million under its revolving credit facilities and other in the first three quarters of 2020. Further, it raised $794.7 million in cash through the same means. In the first three quarters of 2020, Colfax generated net cash of $173.1 million from operating activities as compared with $65.8 million in the year-ago period. Capital used for purchasing property, plant and equipment was $81.6 million, reflecting a year-over-year decline of 18.7%. Buyout
Concurrent with the earnings results, Colfax announced that it agreed to acquire some extremity product lines from
Stryker Corporation ( SYK Quick Quote SYK - Free Report) . The transaction has been valued at $15 million and is subject to the fulfillment of customary closing conditions. It will likely be completed in fourth-quarter 2020. Colfax anticipates that the acquisition will expand its reconstructive product offerings through entry into the foot and ankle market. The buyout will help generate $20 million in revenues in the initial year of the completion of the transaction. Outlook
The company believes that focus on product innovation, a healthy business system and a solid business portfolio will be beneficial in the quarters ahead.
For fourth-quarter 2020, it anticipates sequential growth of 0.5-2.5% in sales, while predicts adjusted earnings per share of 45-50 cents per share. Free cash flow is anticipated to be more than $130 million in the second half of 2020. On a segmental basis, daily sales for Medical Technology are expected to be down 2% to flat in the quarter, while the same for Fabrication Technology is expected to be down 4-6%. Notably, results in Medical Technology will suffer from 4% lower selling days and that in Fabrication Technology will be hurt by 3% lower selling days. Also, forex woes will hurt results by 1%, while uncertainties related to the pandemic and the upcoming U.S. elections remain concerning. Tax rate in the fourth quarter is predicted to be in low 20%, whereas it witnessed 30% in the third quarter of 2020.