Altra Industrial Motion Corp. reported impressive results for second-quarter 2022. AIMC’s earnings beat the Zacks Consensus Estimate by 1.2%, while its sales surpassed the same by 3.5%.

Non-GAAP earnings in the quarter under review were 84 cents per share, beating the Zacks Power Consensus Estimate of 83 cents. However, the bottom line decreased 5.6% from the year-ago period’s figure of 89 cents.

Revenue Details

In the reported quarter, Altra Industrial’s revenues were $498.1 million, reflecting an increase of 1.9% from the year-ago comparable period’s number. Organic sales in the reported quarter expanded 3.1%, driven by healthy end-market businesses, including factory automation, specialty machinery, turf & garden, agriculture, construction and material handling. Foreign currency translation left a negative impact of 3.7%.

Altra Industrial’s revenues surpassed the Zacks Consensus Estimate of $475 million.

On a geographical basis, AIMC’s organic sales expanded 8.2% year over year in North America and increased 20% in Europe. However, sales in the Asia Pacific/Rest of World decreased 19.6%.

Altra Industrial reports revenues under two heads, namely Automation & Specialty and Transmission Technologies. A brief snapshot of the segmental sales is provided below:

Revenues generated from Power Transmission Technologies amounted to $252.5 million, increasing 6.3% year over year. Organic sales in the quarter expanded 10.6% year over year.

Automation & Specialty’s sales were $247.3 million in the second quarter, down 2% from the year-ago quarter’s reading. Organic sales decreased 3.6% from the year-ago quarter’s level.

Margin Profile

In the reported quarter, Altra Industrial’s cost of sales increased 3.9% year over year to $324.9 million. The cost of sales represented 65.2% of net sales. Non-GAAP gross profit was $173.2 million, down 1.5% year over year. The gross margin (non-GAAP) decreased 120 basis points (bps) year over year to 34.8%.

Selling, general and administrative expenses (non-GAAP) increased 2.9% year over year to $90.8 million and represented 18.2% of net sales. Research and development expenses (non-GAAP) were $16 million compared with $16.1 million in the year-ago quarter.

Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $97.1 million, the margin being 19.5%. The non-GAAP operating income in the reported quarter decreased 3.3% year over year to $81.8 million, with the non-GAAP operating margin decreasing 90 bps to 16.4%.

Altra Industrial suffered the adverse impacts of inflation, labor shortages and supply-chain headwinds.

Net interest expenses totaled $11.8 million in the reported quarter, reflecting a decrease from $16.5 million in the year-ago quarter.

Balance Sheet and Cash Flow

While exiting the second quarter of 2022, Altra Industrial’s cash and cash equivalents were $192.9 million, decreasing 21.6% from $246.1 million recorded in the fourth quarter of 2021. Long-term debt was $1,070.1 million, reflecting a 23.6% decrease from $1,401 million in the fourth quarter of 2021.

In the first six months of 2022, AIMC repaid $5 million of borrowings under its term-loan facility and $335 million under the revolving credit facility. Altra Industrial borrowed $15 million from the term-loan facility. However, it didn’t borrow any amount from the revolving credit facility in the reported period.

In the first six months, AIMC generated net cash of $7.2 million from operating activities compared with $100.1 million generated in the year-ago period. Capital invested in purchasing property, plant and equipment totaled $30.6 million, increasing 74.9% year over year. Non-GAAP free cash outflow (adjusted) was $8.4 million against $82.6 million cash inflow in the previous year’s period.

In the first six months, Altra Industrial paid out dividends amounting to $10.5 million, up from $7.8 million distributed in the year-ago quarter.

Three days ago, AIMC’s board of directors approved a quarterly cash dividend of 9 cents per share for its shareholders of record as of Sep 16, 2022. The disbursement will be made on Oct 4.

Outlook

Altra Industrial believes that healthy demand, effective pricing and synergies from buyouts will be beneficial in the quarter ahead. However, supply-chain issues along with inflation and labor problems raise a concern for the third quarter of 2022.

For 2022, AIMC anticipates sales of $1,931.8-$1,971.8 million compared with $1,900.5-$1,940.5 million expected earlier.

Non-GAAP earnings are expected to be $3.35-$3.50 per share and non-GAAP adjusted EBITDA is likely to be $388-$403.5 million. The tax rate is anticipated to be 22-24%.

Capital expenditure is likely to be $50-$55 million. Free cash flow (non-GAAP) is predicted to be $100-$125 million compared with $125-$140 million anticipated earlier.

Zacks Rank & Stocks to Consider

AIMC currently carries a Zacks Rank #4 (Sell).

Some better-ranked companies from the industrial products sector are discussed below:

Greif, Inc. (GEF Quick QuoteGEF - Free Report) presently sports a Zacks Rank #1 (Strong Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

GEF’s earnings estimates have increased 17.8% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 19.4% in the past six months.

Titan International, Inc. presently flaunts a Zacks Rank of 1. Its earnings surprise in the last four quarters was 56.4%, on average.

In the past 60 days, TWI’s earnings estimates have increased 43.3% for 2022. The stock has surged 72.2% in the past six months.

Valmont Industries, Inc. (VMI Quick QuoteVMI - Free Report) presently has a Zacks Rank #2 (Buy). VMI’s earnings surprise in the last four quarters was 13.7%, on average.

In the past 60 days, VMI’s earnings estimates have increased 3.8% for 2022. The stock has risen 26.8% in the past six months.