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Colfax (CFX) Up 2.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Colfax (CFX - Free Report) . Shares have added about 2.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

Colfax Tops Q2 Earnings & Sales Estimates, Hikes View

Colfax reported better-than-expected results for second-quarter 2021. Its earnings surpassed estimates by 5.66% and sales beat the same by 7.15%.

The machinery company’s adjusted earnings in the reported quarter were 56 cents per share, surpassing the consensus estimate of 53 cents. Also, the bottom line improved from the year-ago figure of 9 cents on improved sales, driven by strengthening demand, and margin generation.

Revenue Details

In the quarter under review, Colfax’s net sales were $985.9 million, reflecting year-over-year growth of 58.9%. The results benefitted from 51.2% growth in the existing businesses and a 3.9% positive impact from movements in foreign currencies. Acquisitions boosted sales by 3.8% in the quarter.

Also, the company’s revenues surpassed the Zacks Consensus Estimate of $920 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 $629.8 million, rising 52% year over year. The results gained from 47.3% growth in existing businesses and a 4.5% contribution from foreign currency translation. Also, acquisitions boosted sales by 0.2% in the quarter.

Revenues from Medical Technology totaled $356.1 million, reflecting year-over-year growth of 72.9%. The results gained from 11.1% contribution from acquisitions and 2.7% from foreign currency translation. Existing businesses recorded growth of 59% in the quarter.

Margin Profile

In the quarter under review, Colfax’s cost of sales increased 49.5% year over year to $566.9 million. It represented 57.5% of the quarter’s sales compared with 61.1% in the year-ago quarter. Gross profit increased 73.8% year over year to $419 million and as a percentage of sales, it was 42.5% versus 38.9% in the year-ago quarter.

Selling, general and administrative expenses expanded 43.2% year over year to $337.6 million. It represented 34.2% of revenues. Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review increased 188.9% year over year to $130.3 million. Also, the adjusted EBITA margin grew 5.9 percentage points year over year to 13.2%.

Interest expenses (net) in the quarter decreased 37% year over year to $17.8 million. Adjusted tax rate in the quarter was 21.3%.

Balance Sheet and Cash Flow

Exiting the second quarter, Colfax had cash and cash equivalents of $62.3 million, down 91.8% from $763.7 million in the previous quarter. Its long-term debt balance was up 6.4% sequentially to $1,576.5 million.

Notably, the company repaid borrowings of $383.4 million under its revolving credit facilities and others in the first half of 2021. Further, it raised $455.6 million in cash through the same means. Proceeds from the issuance of shares totaled $730 million in the first half.

In the first half of 2021, Colfax generated net cash of $162.8 million from operating activities, up 74.6% from the year-ago comparable period. Capital used for purchasing property, plant and equipment was $44.6 million, reflecting a year-over-year decline of 11.5%.

Outlook

For 2021, Colfax anticipates adjusted earnings per share of $2.10-$2.20, up from $2.05-$2.15 per share mentioned earlier. Free cash flow is likely to be $275 million for the year, above the previously stated $250 million.

For the third quarter of 2021, adjusted earnings per share are predicted to be 50-55 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Colfax has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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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