It has been about a month since the last earnings report for Altra Industrial Motion Corp. (AIMC - Free Report) . Shares have lost about 1.7% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is AIMC 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.
First-Quarter 2018 Highlights
Altra Industrial Motion reported impressive results for first-quarter 2018, with earnings surpassing estimates by 8.20%, marking an improvement from 4.1% negative surprise recorded in the previous quarter.
The machinery company's non-GAAP earnings in the reported quarter were 66 cents per share, above the Zacks Consensus Estimate of 61 cents. The result excluded costs related to acquisitions, and restructuring & consolidation as well as the loss on settlements of pension plans and tax adjustments.
The bottom line increased 24.5% from the year-ago tally of 53 cents on the back of an improving industrial market and gains from organic growth initiatives.
Strength in End-Markets Drives Net Sales
In the reported quarter, Altra Industrial Motion's net sales were $240.4 million, reflecting growth of 11.6% from the year-ago tally. Of the improvement, organic growth contributed 5.4% while the rest 6.2% came from favorable foreign-currency movements.
Also, the top line exceeded the Zacks Consensus Estimate of $233 million by 3.1%.
Sales generated from distribution, turf and garden, farm and agriculture, material handling, oil and gas, power generation, metal and mining end markets improved year over year in the quarter under review. These positives were partially offset by the weakness in sales, generated in the wind-energy market.
On a geographical basis, sales grew 9.1% in North America and 13.8% in the Asia Pacific and other regions, partially offset by the fall of 1.5% recorded in Europe.
The company reports revenues under the following heads/segments — Couplings Clutches & Brakes, Electromagnetic Clutches & Brakes and Gearing. A brief snapshot of the segmental sales is provided below:
Revenues generated from Electromagnetic Clutches & Brakes amounted to $69.1 million, increasing 8.2% from the year-ago quarter.
Couplings Clutches & Brakes' sales were roughly $120.2 million, reflecting year-over-year growth of 13.1%.
Gearing revenues grew 14.6% year over year to $53.9 million.
Margin Profile Improves
In the reported quarter, Altra Industrial Motion's cost of sales grew 11.3% year over year to $240.4 million. It represented 69.1% of net sales versus 69.3% in the year-ago quarter. Gross margin improved 20 basis points (bps) to 30.9%.
Selling, general and administrative expenses increased 16.7% year over year to $47.1 million and represented 19.6% of net sales. Research and development expenses were $6.5 million versus $6.2 million in the year-ago quarter. The non-GAAP operating margin in the quarter under review was 10.8%, up 20 bps year over year.
Balance Sheet & Cash Flow
Exiting the first quarter, Altra Industrial Motion's cash and cash equivalents were $46.4 million, down from $52 million recorded in the last reported quarter. Long-term debt inched up 1% sequentially to $278.3 million.
In the quarter under review, the company's net cash generation from operating activities totaled $3.7 million, slightly above $3 million generated in the year-ago quarter. Capital invested for purchasing property, plant and equipment was $7 million versus $7.3 million in the comparable quarter, a year ago.
Free cash outflow in the reported quarter was $3.3 million, below $4.3 million used in the year-ago quarter. During the quarter under review, the company paid dividends amounting to $5 million while refraining from repurchasing any shares.
For 2018, Altra Industrial Motion anticipates benefiting from solid bookings in the majority of the end markets along with the healthy industrial economy. Also, the business combination with Fortive's Automation and Specialty business will be immediately accretive to earnings. The completion of the transaction is anticipated by 2018-end.
The company raised projections for 2018, with sales of $910-$930 million versus the previous forecast of $895-$915 million. Non-GAAP earnings are expected to be $2.36-$2.49 per share, up from $2.30-$2.43 expected earlier. This revised bottom-line forecast exclude the impact of $5.4 million charges related to acquisitions made since the beginning of 2018.
The tax rate is anticipated be around 25-27% while capital spending is expected to be approximately $25-$27 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.
Altra Industrial Motion Corp. Price and Consensus
At this time, AIMC has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, AIMC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.