Colfax Corporation CFX reported lower-than-expected results for third-quarter 2015. Adjusted earnings came in at 24 cents per share, missing the Zacks Consensus Estimate of 41 cents. Also, the bottom line declined 57.9% from the year-ago tally of 57 cents.
The bottom-line performance was adversely influenced by weak revenue generation, partially offset by benefits reaped from reduction in expenses.
Revenues
Colfax generated net sales of $969.1 million in the quarter, down 16.8% year over year and lagging the Zacks Consensus Estimate of $1,006 million. The year-over-year decline was triggered by a 6.5% fall in existing business revenues and 12.4% negative impact from foreign currency translation, partially offset by a 2.1% gain from acquisitions.
Colfax reports its net sales under two heads/segments. The segmental results are briefly discussed below:
Revenues from the Gas and Fluid Handling segment totaled $481.9 million, down 14.7% year over year. Organically, revenues were down 8.8%, primarily owing to sales decline in power generation, marine, mining and general industrial and other end-markets.
Revenues from the Fabrication Technology segment fell 18.8% year over year to $487.2 million due to lower volumes, an unfavorable price mix and adverse impact from foreign currency translations. The segment’s organic revenues were down 4.4% year over year.
In the quarter, Colfax’s orders fell 17.6% year over year to $444.2 million; while backlog stood at $1,313.8 million at the end of quarter.
Margins
As reported, Colfax’s cost of sales in the quarter declined 14.9% year over year, representing 69.5% of net sales as against 68% in the year-ago quarter. Gross margin fell 150 basis points (bps) year over year to 30.5%. Selling, general and administrative (SG&A) expenses, as a percentage of revenues, were 24.5% as against 21.1% recorded in the year-ago quarter.
Adjusted operating income declined 54.1% year over year, while margin fell 500 bps to 6%.
Balance Sheet and Cash Flow
Exiting third-quarter 2015, Colfax’s cash and cash equivalents grew 4.3% to $221.2 million from $212.2 million in the preceding quarter. Long-term debt increased 11.3% sequentially to $1,532.3 million.
In the first nine months of 2015, Colfax generated cash of $152.1 million from its operating activities, down from $201.5 million generated in the year-ago comparable period. Capital spending decreased 44.6% year over year to $32.7 million.
Outlook
For 2015, Colfax reduced its adjusted earnings forecast to $1.52−$1.56 per share from the previous projection of $1.83−$1.93 per share. Revenues are predicted within $3.90−$3.95 billion versus $4.035−$4.110 billion forecasted earlier. Adjusted tax rate will likely be 29%, while interest expense is projected at $44 million.
With a market capitalization of $3.7 billion, Colfax currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the machinery industry include Graham Corporation GHM, Barnes Group Inc. B and Graco Inc. GGG. While Graham Corporation sports a Zacks Rank #1 (Strong Buy), both Barnes Group and Graco Inc. carry a Zacks Rank #2 (Buy).
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