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Colfax (CFX) Tops Q1 Earnings & Sales Estimates, Ups View


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Colfax Corporation CFX reported better-than-expected results for the first quarter of 2018. It delivered a positive earnings surprise of 14.3% while surpassing sales estimates by 8.4%.

The machinery company's adjusted earnings in the reported quarter were 48 cents per share, surpassing the Zacks Consensus Estimate of 42 cents. Also, the bottom line increased 23.1% from the year-ago tally of 39 cents on the back of sales growth, rise in adjusted operating income and lower tax rate.

Organic Sales, Buyout and Forex Gains Drive Revenues

In the quarter under review, Colfax's net sales were $880.9 million, reflecting growth of 20.1% from the year-ago quarter. The improvement was driven by 4.9% contribution from existing businesses, 9.4% gain from acquired assets and 5.8% positive impact from foreign currency movements.

Also, the top line exceeded the Zacks Consensus Estimate of $812.9 million.

The company reports its net sales in two segments - Air and Gas Handling, and Fabrication Technology. The segmental information is briefly discussed below:

Revenues from Air and Gas Handling segment were $347.7 million, increasing 27.1% year over year. Results were driven by 2.4% contribution from the existing businesses, 16.8% gain from acquired assets and 7.9% positive impact from foreign currency translations.

The segment's orders were worth $327.1 million in the reported quarter, reflecting the decline of 2.5% from the year-ago quarter. The decline was due to weakness in oil, gas & petrochemical as well as power generation markets, partially offset by strong orders in the mining and general industrial, and other markets.

Backlog at the end of the quarter under review was $889.5 million, up 2.6% year over year.

Revenues from Fabrication Technology totaled $533.3 million, increasing 15.9% year over year. The improvement came on the back of 3.8% positive impact from price, 4.9% gain from acquired assets, 2.6% rise in volume and 4.6% positive impact from foreign currency translations.

As noted, the segment's North American businesses were solid. New products also helped boost the segment's performance. During the reported quarter, the company added Sandvik Materials Technology's welding-wire operations to this segment. The buyout is expected to enhance opportunities for the company in the specialty filler-metal market.

Margin Profile Weak on Higher Costs and Expenses

In the quarter under review, Colfax's cost of sales increased 23.6% year over year to $610.3 million. It represented 69.3% of net sales compared with 67.3% in the year-ago quarter. Gross margin declined 200 basis points (bps) year over year to 30.7%. Selling, general and administrative expenses increased 14.7% year over year to $200.5 million. It represented 22.8% of net sales.

Adjusted operating income in the quarter under review increased 7.9% year over year to $70.1 million. However, adjusted operating margin slipped 90 bps to 8%. Effective tax rate in the quarter was 21.1% versus 26% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter, Colfax's cash and cash equivalents were $268.3 million, roughly 2.4% up from $262 million at the end of previous quarter. Long-term debt balance increased 6.3% sequentially to $1,122.1 million.

In the reported quarter, the company used net cash of $2.7 million for operating activities versus $40.4 million generated in the year-ago quarter. Capital invested, used for purchasing fixed assets, totaled $11.1 million, reflecting a year-over-year decline of 5.2%.

Outlook

For 2018, Colfax anticipates gaining from its strengthening Fabrication Technology business. Its Air & Gas Handling business is expected to improve on the back of margin growth in orders and restructuring initiatives. Also, the company expects meaningful acquisitions to support growth in unexplored markets and new business platforms.

Based on these positive aspects, the company increased adjusted earnings per share projection to $2.05-$2.20 from the previous forecast of $2.00-$2.15. The revised guidance reflects earnings growth potential of at least 18%. Restructuring measures are expected to yield minimum $25 million in savings. Effective tax rate for the year is predicted to be 23-24%.

Colfax Corporation Price, Consensus and EPS Surprise

Colfax Corporation Price, Consensus and EPS Surprise | Colfax Corporation Quote

Zacks Rank & Stocks 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 DXP Enterprises, Inc. DXPE , Tennant Company TNC and IDEX Corporation IEX . While both DXP Enterprises and Tennant sport a Zacks Rank #1 (Strong Buy), IDEX Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

In the last 60 days, earnings estimates for each of these stocks improved for the current year. Also, average positive earnings surprise for last four quarters was 189.56% for DXP Enterprises, 1.39% for Tennant and 3.12% for IDEX Corporation.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: DXPE , IEX , TNC , CFX



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