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Colfax (CFX) Q3 Earnings Beat Estimates, Fall Y/Y on Sales

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Colfax Corporation (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 - 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.

Colfax Corporation Price, Consensus and EPS Surprise

 

Colfax Corporation Price, Consensus and EPS Surprise

Colfax Corporation price-consensus-eps-surprise-chart | Colfax Corporation Quote

Zacks Rank & Stock to Consider

With a market capitalization of $3.4 billion, the company currently carries a Zacks Rank #3 (Hold).

Two better-ranked stocks in the industry are Altra Industrial Motion Corp. (AIMC - Free Report) and EnPro Industries, Inc. (NPO - Free Report) . Both companies currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for Altra Industrial have improved for the current year, while the same has been unchanged for EnPro. Further, earnings surprise for the last reported quarter was 77.55% for Altra Industrial and 980.00% for EnPro.

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