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What's in Store for Altra Industrial (AIMC) in Q3 Earnings?

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Altra Industrial Motion Corp. (AIMC - Free Report) is slated to report third-quarter 2018 results on Oct 25, before the market opens.

The company pulled off an average positive earnings surprise of 4.01% over the preceding four quarters. Notably, Altra Industrial’s second-quarter 2018 adjusted earnings of 71 cents per share outpaced the Zacks Consensus Estimate of 66 by 7.6%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Altra Industrial expects that elevated demand secured from majority end-markets will continue to drive its revenues in the quarters ahead.

The company believes global economic strength will boost near-term revenues generated from its distribution and turf & garden end-markets. Increased sales from the cranes, forklift and hoist markets will likely continue to bolster near-term revenues of the material handling end-market.

Altra Industrial noted that recovery in the oil & gas market, as well as improved wind sales in June will strengthen revenues secured from its energy end-market in the third quarter. The company stated that the implementation of steel tariffs and overall industrial strength will continue to reinforce the near-term top-line performance of its metals end-market. Also, higher mining distribution demand and new equipment builds required for mine expansions will likely fortify revenues of its mining end-market.

Apart from end-market sales, Altra Industrial anticipates that new product development initiatives will fuel its organic sales growth in the upcoming quarters. We also believe favorable foreign-currency movements will boost the company’s top-line numbers, moving forward. Moreover, previously-made acquisitions (like Stromag in December 2016) will likely support the upside.

The company is poised to bolster its profitability on the back of stellar sales, strategic restructuring moves and diligent cost-saving initiatives. Nonetheless, escalating costs and expenses might dampen its profitability in the quarters ahead. 

Of late, Altra Industrial has beengrappling with the adverse impacts of rising costs and expenses. In the last five years (2013-2017), its costs of sales have flared up 3.5% (CAGR) while selling, general and administrative expenses increased 4.8% (CAGR), and research and development expenses rose 14.3%.

We believe, if unchecked, higher costs and operating expenses will prove detrimental to the company's margins and profitability, in the near term. In addition to these, we notice that the company’s cash position is weakening over time.

Additionally, we believe the sudden downturn in one or more of end-markets may significantly hurt Altra Industrial’s revenues and profitability in the near future.

For instance, the company perceives that difficult market conditions might continue to impede the near-term revenue growth from its farm and agriculture end-markets. Also, a lackluster power-generation business is anticipated to curb top-line growth in its energy end-market.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release their earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or at least 3 (Hold) for a likely earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as we will see below.

Earnings ESP: Altra Industrial has an Earnings ESP of 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate Estimate for the company’s third-quarter 2018 earnings are pinned at 59 cents.

Zacks Rank: Altra Industrial’s favorable Zacks Rank of 1, when combined with an Earnings ESP of 0.00%, makes surprise predictions inconclusive.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks in the Zacks Industrial Products sector that you may want to consider, as our model shows that these picks have the right combination of elements to post an earnings beat:

AptarGroup, Inc. (ATR - Free Report) has a Zacks Rank #2 and an Earnings ESP of +0.77%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kennametal Inc. (KMT - Free Report) has a Zacks Rank #2 and an Earnings ESP of +0.22%.

Flowserve Corp. (FLS - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.72%.

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