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Colfax (CFX) Q2 Earnings In Line, Rise Y/Y,'17 View Raised

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Machinery company Colfax Corporation (CFX - Free Report) reported adjusted earnings of 43 cents per share in second-quarter 2017, matching the Zacks Consensus Estimate. However, earnings were above the year-ago quarter’s tally of 41 cents by 4.9%.

The year-over-year improvement was backed by organic revenue growth and gains from acquired assets. Notably, the company completed acquiring two assets in the Fabrication Tecnology segment, strengthening its welding process analytics and robotic welding torches operations. However, higher cost of sales played spoilsport while lower operating and interest expenses helped in profitability improvement.

Net sales generated were $965.8 million, rising 0.9% year over year. Growth of 0.5% in existing businesses and 1.1% gain from acquired assets were partially offset by 0.7% negative impact from adverse foreign currency movements.

Also, the top line topped the Zacks Consensus Estimate of $938 million by 2.95%.  

Segmental Revenues

Colfax reports its net sales under two heads/segments. The segmental results are briefly discussed below:

Revenues from Gas and Fluid Handling totaled $471 million, down 2.6% year over year. The decline was triggered by an 1.2% fall in the existing businesses and 1.4% adverse impact from foreign currency translations.

Organically, sales declined 22% in oil, gas & petrochemical, 5% in power generation and 1.8% in general industrial & other end markets. These negatives were partially offset by 48.1% gain in mining and 1.6% growth in marine end markets.  

The segment’s orders were worth $457.8 million at the end of the quarter, up 5.8% year over year. Backlog was $1,096.1 million.

Revenues from Fabrication Technology grew 4.5% year over year to $494.8 million due to 2% positive impact from price/mix, 2.3% gain from acquired assets, 0.1% rise in volume and 0.1% positive impact from foreign currency translations.

Margins

In the quarter, Colfax’s cost of sales increased 1.4% year over year, representing 68.9% of net sales compared with 68.5% in the year-ago quarter. Gross margin decreased 40 basis points (bps) year over year to 31.1%. Selling, general and administrative expenses, roughly 21.6% as a percentage of revenues, declined 2.5% year over year.

Adjusted operating income grew 5.6% year over year while margin grew 50 bps to 9.6%.
 
Balance Sheet and Cash Flow

Exiting the second quarter, Colfax had cash and cash equivalents of $272.2 million, up from $207.8 million at the previous quarter end. Long-term debt balance grew 6.2% sequentially to $1,322.4 million.

In first-half 2017, the company generated net cash of $98.6 million from its operating activities, up from $56.4 million in the year-ago quarter. Capital spending totaled $10.6 million, decreasing 58.2% year over year.

Outlook

For 2017, Colfax anticipates benefiting from its organic and inorganic growth initiatives as well as from improving end-market conditions. It predicts the Gas and Fluid segment to witness organic growth in the third quarter.

The company increased its adjusted earnings guidance to $1.65−$1.75 per share from the previous projection of $1.60−$1.75. The mid-point now stands at $1.70 versus $1.675 earlier.

Zacks Rank & Key Picks

With a market capitalization of approximately $5 billion, Colfax currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Altra Industrial Motion Corporation (AIMC - Free Report) , Barnes Group, Inc. (B - Free Report) and Graco Inc. (GGG - Free Report) . While Altra Industrial Motion sports a Zacks Rank #1 (Strong Buy), both Barnes Group and Graco carry a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion’s financial performance was impressive, with an average positive earnings surprise of 16.95% for the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Barnes Group pulled off an average positive earnings surprise of 11.60% over the last four quarters. Also, earnings estimates for 2017 were revised upward over the last 60 days.

Graco delivered an average positive earnings surprise of 23.95% in the trailing four quarters. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.

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