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Why Is Colfax (CFX) Up 10.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Colfax (CFX - Free Report) . Shares have added about 10.6% in that time frame, outperforming the S&P 500.

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

Colfax Q4 Earnings Top Estimates, 2021 View Impressive

Colfax reported better-than-expected results for fourth-quarter 2020, with earnings surpassing estimates by 4.1%. This was the company’s 21st consecutive quarter of impressive bottom-line results. However, the quarter’s sales lagged the Zacks Consensus Estimate by 0.3%.

The machinery company’s adjusted earnings in the reported quarter were 51 cents per share, surpassing the consensus estimate of 49 cents. However, the bottom line declined 16.4% from the year-ago figure of 61 cents on weak sales generation and a fall in margin.

For 2020, the company’s adjusted earnings were $1.40 per share, surpassing the Zacks Consensus Estimate of $1.38. However, the results were 30.3% below the year-ago figure of $2.01.

Revenue Details

In the quarter under review, Colfax’s net sales were $828.1 million, reflecting a year-over-year decline of 6.8%. The results suffered from a 7.4% decline in the existing businesses (due to the pandemic’s impact on demand) and a 0.2% impact of forex woes. However, acquisitions had a positive impact of 0.8% in the quarter. Also, the company’s revenues lagged the Zacks Consensus Estimate of $830.2 million.

Notably, its net sales increased 3% from the previous quarter’s figure.

The company currently reports under two business segments — Fabrication Technology and Medical Technology. The segmental information is briefly discussed below:

Revenues from Fabrication Technology totaled $518.6 million, declining 6.5% year over year. The results suffered from a 5.2% decline in existing businesses and a 1.3% adverse impact of forex woes.

Revenues from Medical Technology totaled $309.5 million, reflecting a year-over-year decline of 7.3%. The results suffered from an 11% fall in existing businesses, partially offset by a 7.3% gain from acquired assets and a 1.6% positive impact of movements in foreign currencies.

For 2020, the company’s net sales were $3.1 billion, decreasing 12.2% from the previous year. Also, the sales lagged the Zacks Consensus Estimate of $3.07 billion.

Margin Profile

In the quarter under review, Colfax’s cost of sales declined 3.9% year over year to $473.4 million. Selling, general and administrative expenses decreased 1.6% year over year to $281.4 million. It represented 34% of revenues.

Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review declined 15.7% year over year to $112.8 million. Also, the adjusted EBITA margin decreased 1.5 percentage points year over year to 13.6%. Interest expenses in the quarter declined 21.6% year over year to $25.6 million. Adjusted tax rate in the quarter was 18%.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Colfax had cash and cash equivalents of $97.1 million, up 46.2% from the previous quarter’s figure of $66.4 million. Its long-term debt balance was up 0.6% sequentially to $2,204.2 million.

Notably, the company repaid borrowings of $939 million under its revolving credit facilities and others in 2020. Further, it raised $860.7 million in cash through the same means.

In 2020, Colfax generated net cash of $301.9 million from operating activities as compared with $130.9 million in the previous year. Capital used for purchasing property, plant and equipment was $114.8 million, reflecting a year-over-year decline of 8.5%.

Outlook

Colfax anticipates a healthy increase in sales and earnings in 2021. It also expects the cash flow position to be impressive in the year. It anticipates recovering demand to aid the top-line performance.

Revenues are expected to increase 15-18% year over year in 2021. On a segmental basis, sales for Medical Technology are expected to be up 21-24% (or 14-16% on an organic basis), while the same for Fabrication Technology is expected to increase 11-14% (or 9-12% organically).

Adjusted earnings per share are expected to be $2.00-$2.15 per share, up from $1.40 in 2020. Free cash flow will be at least $250 million for the year.

For the first quarter of 2021, adjusted earnings per share are predicted to be 35-40 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Colfax has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Colfax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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