Colfax Corporation (CFX) reported lower-than-expected results for third-quarter 2014, with adjusted earnings of 57 cents per share missing the Zacks Consensus Estimate of 61 cents by 6.6%. However, the bottom line improved 1.8% year over year.
Revenues
Colfax generated net sales of $1,164.5 million, reflecting an increase of 14.8% year over year. The improvement can be attributed to a 19.9% contribution from acquisitions, partially offset by a 3.8% decline in organic revenues and 1.3% negative impact from foreign currency translation.
However, the top line lagged the Zacks Consensus Estimate of $1,193 million.
Colfax reports its net sales under two heads/segments. The segmental results are briefly discussed below:
The Gas and Fluid Handling segment generated sales of $564.7 million, increasing 10.4% year over year. Organically, revenues were down 5.3%, due primarily to sales decline in end markets like power generation, general industrial and oil, gas & petrochemical.
Revenues from the Fabrication Technology segment rose 19.2% year over year to $599.8 million. The segment’s organic revenue was down 2.3% year over year due to a 5.5% volume decline, partially offset by a 3.2% gain from favorable price/mix.
Total orders inched up 1.1% year over year to $539.4 million, while backlog stood at $1,506.5 million at the end of nine months ending Sep 30.
Margins
Colfax’s cost of sales increased 14% and represented 68% of total revenue as against 68.4% in the year-ago quarter. Gross margin edged up 40 basis points year over year to 32%. Selling, general and administrative (SG&A) expenses, as a percentage of revenue, were 21.1%, against 20.6% recorded in the year-ago quarter.
Adjusted operating income grew 13.9% year over year to $127.8 million while margin came in at 11% versus 11.1% in the year-ago comparable quarter.
Balance Sheet and Cash Flow
Exiting third-quarter 2014, Colfax had cash and cash equivalents of $286.6 million, down compared with $334 million at the end of the preceding quarter. Long-term debt decreased 11.2% sequentially to $1,608.2 million.
In the nine months ended Sep 26, Colfax generated cash of $201.5 million from its operating activities versus $186.8 million in the year-ago comparable period. Capital spending amounted to $59.1 million, up 16% year over year.
Outlook: For 2014, Colfax lowered its sales guidance to a range of $4.675−$4.725 billion from the prior projection of $4.7−$4.8 billion.
Adjusted earnings are estimated within $2.11−$2.18 per share, down from $2.20−$2.35 forecasted previously. Generally Accepted Accounting Principles (GAAP) earnings per share are expected in the range of $2.24−$2.35 versus the prior expectation of $2.31−$2.57.
Tax rate is predicted within 29−30%, while interest expense is expected to be nearly $56 million.
With a market capitalization of $6.7 billion, Colfax currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include AO Smith Corp. (AOS), Manitex International, Inc. (MNTX) and Nordson Corporation (NDSN). All these stocks carry a Zacks Rank #2 (Buy).
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