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Altra (AIMC) Down 10.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Altra Industrial Motion (AIMC - Free Report) . Shares have lost about 10.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Altra due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Altra Industrial Q4 Earnings Lag Estimates, Up Y/Y

Altra Industrial reported weaker-than-expected results for fourth-quarter 2018, with a negative earnings surprise of 7.1%. This came in after three consecutive quarters of impressive results.

This machinery company's non-GAAP earnings in the reported quarter were 65 cents per share, lagging the Zacks Consensus Estimate of 70 cents. However, the bottom line increased 22.6% from the year-ago tally of 53 cents on the back of healthy sales growth and margin improvement.

For 2018, the company's non-GAAP earnings were $2.86 per share, lagging the Zacks Consensus Estimate of $2.89. However, results improved 25.4% from the year-ago figure of $2.28.

Acquisition of Fortive’s Business Drives Revenues

In the reported quarter, Altra Industrial's net sales were $469.2 million, reflecting growth of 110.1% from the year-ago figure. Organic sales in the quarter grew 5.5% while forex woes had an adverse impact of 1.9%. Also, the top line surpassed the Zacks Consensus Estimate of $456.3 million.

A brief snapshot of the segmental sales is provided below:

Automation & Specialty's sales were roughly $241.7 million in the quarter.

Revenues generated from Power Transmission Technologies amounted to $228.8 million, reflecting year-over-year growth of 2.4%.

For 2018, the company's sales totaled $1,175.3 million, increasing 34.1% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $1.16 billion.

Margin Profile Improves

In the reported quarter, Altra Industrial's cost of sales surged 105% year over year to $317.5 million. It represented 67.7% of net sales versus 69.3% in the year-ago quarter. Non-GAAP gross profit was $165.9 million, up 142.3% year over year. Also, gross margin improved 470 basis points (bps) to 35.4%.

Selling, general and administrative expenses increased 180.9% year over year to $116.5 million and represented 24.8% of net sales. Research and development expenses were $14.6 million versus $6 million in the year-ago quarter.

Non-GAAP earnings before interest, taxes, depreciation and amortization (EBITDA) were $95.3 million, up 200.1% year over year. Conversely, non-GAAP operating income in the reported quarter grew 230.8% year over year to $78.9 million, with non-GAAP operating margin increasing 610 bps to 16.8%.

Net interest expenses totaled $22.7 million in the reported quarter versus $2.2 million recorded in the year-ago comparable quarter.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Altra Industrial's cash and cash equivalents were approximately $169 million, significantly above $50.1 million recorded in the last reported quarter. Long-term debt was roughly $1,690.9 million, up from $255.2 million in the last reported quarter.

In the year, the company generated net cash of $116.7 million from operating activities, increasing 44.8% from the year-ago number. Capital invested for purchasing of property, plant and equipment increased 14.3% year over year to $37.5 million. Free cash flow in the year was $79.2 million, increasing 65.8% year over year.

During the year, the company paid dividends amounting to $20 million.

Outlook

For 2019, Altra Industrial anticipates benefiting from solid organic growth opportunities as well as intends on using cash generation for paying down debts. Also, the collaboration with Fortive's Automation and Specialty business will be beneficial, with synergies of $10-$12 million anticipated in 2019 and $52 million by the fourth year.

The company anticipates sales of $1,920-$1,950 million in 2019. Non-GAAP earnings are expected to be $3.02-$3.18 per share and non-GAAP adjusted EBITDA is anticipated to be $415-$430 million.

The tax rate is anticipated to be around 25-26.5% while capital spending is expected to be approximately $60-$65 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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