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Colfax (CFX) Q3 Earnings Beat Estimates, Up Y/Y on Buyouts

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Colfax Corporation (CFX - Free Report) reported better-than-expected results for the third quarter of 2019, with earnings surpassing estimates by 8.7%. This was the company’s 16th consecutive quarter of impressive results.

The machinery company’s adjusted earnings (fully consolidated) in the reported quarter were 50 cents per share, surpassing the Zacks Consensus Estimate of 46 cents. Moreover, the bottom line gained 127.3% from the year-ago figure of 22 cents on solid sales performance, driven by benefits from acquired assets.

Acquired Assets Drive Revenues

In the quarter under review, Colfax’s net sales were $846.5 million, reflecting growth of 61.5% from the year-ago quarter. The improvement was driven by 65% benefit from acquired assets (including DJO Global in February 2019), partially offset by a 0.6% decline in existing businesses and a 2.8% adverse impact of foreign currency movements.

However, the company’s net sales lagged the Zacks Consensus Estimate of $847 million by 0.1%.

It is worth mentioning here that Colfax completed the divestment of its Air & Gas Handling business to an associate of KPS Capital Partners, LP in September 2019. The divestment agreement was signed in May 2019.

The company currently reports under two business segments — Fabrication Technology and Medical Technology. The segmental information is briefly discussed below:

Revenues from Fabrication Technology totaled $539.2 million, rising 2.9% year over year. The segment gained from 2.8% benefit of favorable pricing and 6.3% gain from acquired assets, partially offset by a 3.3% fall in volume and 2.8% adverse impact of forex woes.

Organic growth in emerging markets was healthy while business was soft in Europe and North America.

Revenues from Medical Technology totaled $307.3 million, reflecting year-over-year growth of 3.9%. Organic sales in the quarter rose 4.5% on strength in reconstructive products, and improvement in prevention & rehabilitation products. Acquisitions had a positive contribution of 0.4% on sales growth while forex woes had an adverse 1% impact.

Gross Margin Down Y/Y

In the quarter under review, Colfax’s cost of sales grew 35.6% year over year to $478.4 million. It represented 56.5% of net sales compared with 67.3% in the year-ago quarter. Gross margin declined 1080 basis points (bps) year over year to 43.5%. Selling, general and administrative expenses grew 124.2% year over year to $290.5 million. It represented 34.3% of net sales.

Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review rose 149.6% year over year to $125.8 million. Also, adjusted EBITA margin grew 530 bps to 14.9%. Interest expenses in the quarter grew 174.1% year over year to $31.8 million.

Balance Sheet and Cash Flow

Exiting the third quarter, Colfax had cash and cash equivalents of $127.1 million, roughly 3.7% below $131.9 million at the end of the last reported quarter. Long-term debt balance declined 1.9% sequentially to $4,002.4 million.

It is worth noting that the company repaid debts amounting to $1.6 billion in early fourth-quarter 2019.

In the first three quarters of 2019, Colfax generated net cash of $65.7 million from operating activities, down 34.8% from $100.8 million generated in the prior-year period. Capital used for purchasing property, plant and equipment was roughly $100.4 million, reflecting year-over-year rise of 149.4%.

Outlook

For 2019, Colfax maintained its adjusted earnings from continuing operations at $1.90-$2.00. Also, Medical Technology’s core sales in the fourth quarter will likely be 5.5%.

Colfax Corporation Price, Consensus and EPS Surprise

 

Colfax Corporation Price, Consensus and EPS Surprise

Colfax Corporation price-consensus-eps-surprise-chart | Colfax Corporation Quote

Zacks Rank & Stock to Consider

With a market capitalization of approximately $3.7 billion, Colfax currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Brady Corporation (BRC - Free Report) , Dover Corporation (DOV - Free Report) and Graham Corporation (GHM - Free Report) . All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for these companies improved for the current year. Further, positive earnings surprise for the last reported quarter was 11.48% for Brady, 4.58% for Dover and 100% for Graham.

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