A month has gone by since the last earnings report for Colfax . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Colfax due for a breakout? 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 catalysts.
Colfax Q4 Earnings & Revenues Surpass Estimates, Up Y/Y
Colfax reported impressive fourth-quarter 2021 results. Its earnings estimates and sales surpassed the respective estimates by 3.5% and 2.2%, respectively.
The machinery company’s adjusted earnings in the reported quarter were 59 cents per share, beating the consensus estimate of 57 cents. Also, the bottom line improved 16% from the year-ago figure of 51 cents on higher sales, driven by growth in sales. Supply-chain woes and logistic issues played spoilsports in the quarter.
In 2021, the company’s earnings came in at $2.14, an increase of 52.9% on a year-over-year basis.
In the quarter under review, Colfax’s net sales were $1,023.3 million, reflecting year-over-year growth of 23.6%. The results benefited from 17.9% growth in the existing businesses and a 7% positive impact from acquisitions. Movements in foreign currencies had a negative impact of 1.3% on its sales in the quarter.
The company’s revenues surpassed the Zacks Consensus Estimate of $1,002 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 $624.2 million, rising 20.4% year over year. The results gained from 22% growth in existing businesses and a 0.1% contribution from acquisitions. Foreign currency translation had an adverse impact of 1.7% on sales in the quarter. The segment contributed 61% to the quarter’s sales.
Revenues from Medical Technology totaled $399.1 million, reflecting year-over-year growth of 28.9%. The results gained from an 18.4% contribution from acquisitions, partially offset by 0.6% negative impact from foreign currency translation. Existing businesses recorded growth of 11.1% in the quarter. The segment contributed 39% to the quarter’s sales.
In 2021, the company’s net sales came in at $3,854.3 million, up 25.5% year over year.
Colfax is on track to split its fabrication technology and medical technology businesses into separate companies. The separation is expected to close in the first quarter of 2022. Post transaction completion, Colfax will adopt the name Enovis.
In the quarter, Colfax’s cost of sales increased 27.8% year over year to $604.5 million. It represented 59.1% of the quarter’s sales compared with 57.2% in the year-ago quarter. Gross profit increased 18% to $418.7 million, and as a percentage of sales, it was 40.9% versus 42.8% in the year-ago quarter.
Selling, general and administrative expenses expanded 25% year over year to $351.7 million. It represented 34.4% of revenues. Adjusted earnings before interest, tax and amortization (EBITA) in the fourth quarter increased 20.7% to $136.1 million. However, the adjusted EBITA margin fell 0.3 percentage points year over year to 13.3%.
Interest expenses (net) decreased 39.1% year over year to $15.6 million.
Balance Sheet and Cash Flow
Exiting the fourth quarter, Colfax had cash and cash equivalents of $719.4 million, up from $177.5 million in the previous quarter. Its long-term debt balance was up 29% sequentially to $2,078.7 million.
The company repaid borrowings of $417.5 million under its revolving credit facilities and others in 2021. It raised $991.5 million in cash through the same means. Proceeds from the issuance of shares totaled $745.2 million in 2021.
In 2021, Colfax generated net cash of $356.1 million from operating activities, up 18% from 2020. Capital used for purchasing property, plant and equipment was $104.2 million, reflecting a year-over-year decline of 9.2%.
For 2022, Colfax believes that improving end-market conditions will support the performance of both of its businesses.
For the year, MedTech sales are predicted to increase 10-14% (6-9% on an organic basis) year over year. ESAB organic sales are predicted to increase 7-10%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -11.53% due to these changes.
At this time, Colfax has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Colfax has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.