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Colfax (CFX) Posts In Line Q3 Earnings, Maintains '17 View

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Machinery company Colfax Corporation reported mixed results for third-quarter 2017. The company’s adjusted earnings came in at 42 cents per share, in line with the Zacks Consensus Estimate while surpassing the year-ago tally by 7.7%.

The year-over-year improvement was backed by organic revenue growth and gains from acquired assets, partially offset by higher cost of sales and operating expenses.

Segmental Business Drives Revenues

The quarter’s net sales were $844.5 million, increasing 10.2% year over year. Sales missed  the Zacks Consensus Estimate of $913 million by roughly 7.5%. The year-over-year improvement was driven by 6.1% growth in existing businesses, 1.7% gain from acquired assets and 2.4% positive impact from foreign currency movements.

During the quarter, the company agreed to sell its Fluid Handling business to CIRCOR International, Inc. for approximately $860 million. The divestment is anticipated to be completed in the fourth quarter of 2017. Till then, the Fluid Handling business will be considered as discontinued operations.

Post the divestment agreement, the company’s net sales are reported under two segments — Air and Gas Handling and Fabrication Technology. The segmental results are briefly discussed below:

Revenues from Air and Gas Handling were $362.3 million, up 13.1% year over year. The improvement was driven by 10.4% growth in the existing businesses and 2.7% positive impact from foreign currency translations.

The segment’s orders were worth $262.6 million at the end of the quarter, down 27.2% year over year. The weakness was due to lower demand from power market and project delays in the oil & gas market. These were partially offset by strong orders from the general industrial markets. Backlog at the end of the quarter was $782.8 million.

Revenues from Fabrication Technology totaled $482.2 million, increasing 8.1% year over year to $494.8. The improvement came on the back of 1.3% positive impact from price, 3% gain from acquired assets, 1.6% rise in volume and 2.2% positive impact from foreign currency translations.

As noted, the segment’s North American businesses were solid compared with the previous quarter while the South American businesses are gaining traction. New products launches also helped boost the segment’s performance.

Margins Expand Despite Rise in Costs

Colfax’s cost of sales in the quarter jumped 9.9% year over year, representing 68.8% of net sales compared with 68.9% in the year-ago quarter. Gross margin inched up 10 basis points (bps) year over year to 31.2%. Selling, general and administrative expenses, roughly 21.5% as a percentage of revenues, increased 8.3%.

Adjusted operating income increased 15.7% year over year to $82.1 million while margin grew 40 bps to 9.7%.

Balance Sheet and Cash Flow

Exiting the third quarter, Colfax’s cash and cash equivalents were $260.4 million, down from $272.2 million at the previous-quarter end. Long-term debt balance grew 0.9% sequentially to $1,334.6 million.

In first nine months of 2017, the company generated net cash of $114.7 million from its operating activities, increasing 12.6% year over year. Capital spending slipped roughly 50% to $20.7 million.

Outlook

For 2017, Colfax anticipates benefiting from its organic and inorganic growth initiatives as well as from improving end-market conditions.

The company reaffirmed its previously issued adjusted earnings guidance of $1.65-$1.75 per share. The forecast includes roughly 25-28 cents per share of contribution from the to-be-divested Fluid Handling assets.

Colfax Corporation Price and Consensus

Colfax Corporation Price and Consensus | Colfax Corporation Quote

Zacks Rank & Key Picks

With a market capitalization of approximately $4.5 billion, Colfax currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Kadant Inc. (KAI - Free Report) , Sun Hydraulics Corporation and Altra Industrial Motion Corporation . While Kadant and Sun Hydraulics sport a Zacks Rank #1(Strong Buy), Altra Industrial Motion carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Kadant pulled off an average positive earnings surprise of 20.32% over the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Sun Hydraulics delivered an average positive earnings surprise of 3.47% in the trailing four quarters. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.

Altra Industrial Motion’s financial performance was impressive, with an average positive earnings surprise of 17.30% for the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

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