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Altra (AIMC) Down 49.1% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Altra Industrial Motion (AIMC - Free Report) . Shares have lost about 49.1% 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 catalysts.

Altra Industrial Q4 Earnings Miss Estimates, Up Y/Y

Altra Industrial reported weaker-than-expected results for fourth-quarter 2019. Its earnings lagged estimates by 1.5%, while sales topped the same by a marginal 0.1%.

The machinery company’s non-GAAP earnings in the reported quarter were 66 cents per share, lagging the Zacks Consensus Estimate of 67 cents. However, the bottom line increased 1.5% from the year-ago quarter figure of 65 cents.

For 2019, the company’s non-GAAP earnings were $2.86, in line with both the year-ago figure and the Zacks Consensus Estimate.
 
Segmental Sales

In the reported quarter, Altra Industrial’s revenues decreased 5.8% year over year to $441.9 million. Forex woes had an adverse impact of 1% on the quarter’s sales. Also, organic sales declined 4.8% year over year due to weakness in several end markets — including transportation, metals, factory automation & specialty machinery, distribution, turf & garden, and agriculture. Notably, business in medical, energy (including oil & gas, and renewable), mining, and aerospace & defense improved in the quarter.
    
The company’s revenues marginally surpassed the Zacks Consensus Estimate of $441.3 million.

Altra Industrial reports revenues under two heads — Automation & Specialty, and Power Transmission Technologies. A brief snapshot of the segmental sales is provided below:

Revenues generated from Power Transmission Technologies amounted to $219.1 million, declining 4.2% year over year.

Automation & Specialty’s sales were $223.8 million in the fourth quarter, down 7.4% from the last reported quarter.

For 2019, the company’s net sales totaled $1.83 billion, increasing 56% from the previous year and meeting the Zacks Consensus Estimate. Notably, it realized $15 million in synergies from its collaboration with four companies of the Automation and Specialty business of Fortive Corporation. The collaboration was completed in the fourth quarter of 2018, while the integration was completed in the first quarter of 2019.

Margin Profile

In the reported quarter, Altra Industrial’s cost of sales decreased 6.2% year over year to $284.5 million. Notably, cost of sales represented 64.4% of net sales versus 64.6% in the year-ago quarter. Non-GAAP gross profit was $157.4 million, down 5.1% year over year. Also, gross margin improved 20 basis points (bps) to 35.6%.

Non-GAAP selling, general and administrative expenses decreased 3.2% year over year to $70.1 million and represented 15.9% of net sales. Research and development expenses were $14.7 million versus $14.6 million in the year-ago quarter.

Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $89.4 million, the margin being 20.2%. However, non-GAAP operating income in the reported quarter declined 8% year over year to $72.6 million, with non-GAAP operating margin decreasing 40 bps to 16.4%.

Net interest expenses totaled $17.2 million in the reported quarter versus $22.7 million in the year-ago comparable quarter.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Altra Industrial’s cash and cash equivalents were $167.3 million, down 0.4% from $168 million recorded in the last reported quarter. Long-term debt was $1,563.8 million, reflecting a 2.4% decline from $1,602.8 million in the last reported quarter. During 2019, the company repaid long-term debt of $130 million.

In the fourth quarter of 2019, it generated net cash of $73 million from operating activities, up 27.4% from the year-ago period. Capital invested for purchasing property, plant and equipment totaled $14.8 million, decreasing 9.8% year over year. Free cash flow was $58 million versus $40.9 million in the year-ago period.

In 2019, the company paid out dividends amounting to $44.3 million, above $20 million distributed in the previous year.
 
Outlook

Altra Industrial plans to continue working on lowering debts and reducing costs. Also, it anticipates realizing $52 million in synergies from the collaboration with Fortive’s Automation and Specialty business by the fourth year of the completion of the transaction.

However, the company anticipates difficult end-market conditions to affect its performance in 2020, especially in the first half. It expects sales of $1,720-$1,770 million for the year, down from $1.83 billion in 2019. Unfavorable movements in foreign currencies and coronavirus-related woes (to the tune of $10-$50 million) are predicted to adversely impact results.

Non-GAAP earnings are expected to be $2.40-$2.60 per share and non-GAAP adjusted EBITDA is anticipated to be $340-$360 million. The tax rate is anticipated to be 22-24%. Capital spending is expected to be $45-$50 million.

The company expects to repay debts of $150 million during the year, with leverage expected to be 3.5-3.7x at the year-end.

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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