Altra Industrial Motion Corp. AIMC reported better-than-expected results for second-quarter 2018, with earnings surpassing estimates by 7.6%. This was the company’s second consecutive quarter of earnings beat, the former being 8.20% delivered in the first quarter of 2018.
This machinery company’s non-GAAP earnings in the reported quarter were 71 cents per share, surpassing the Zacks Consensus Estimate of 66 cents.
The bottom line increased 24.6% from the year-ago tally of 57 cents on the back of an improving industrial market and gains from organic growth initiatives.
Organic Sales & Forex Gains Drive Revenues
In the reported quarter, Altra Industrial Motion’s net sales were $237.3 million, reflecting growth of 6.3% from the year-ago tally. Of the improvement, organic growth contributed 2.9% while the rest 3.3% came from favorable foreign-currency movements.
Also, the top line marginally exceeded the Zacks Consensus Estimate of $236.8 million.
Sales generated from distribution, material handling, energy, metals market and mining end markets improved year over year in the quarter under review. These positives were partially offset by a salesroom decline in farm and agriculture markets. Sales generated from Turf and Garden business were flat year over year.
The company reports revenues under the following heads/segments — Couplings Clutches & Brakes, Electromagnetic Clutches & Brakes, and Gearing. A brief snapshot of the segmental sales is provided below:
Couplings Clutches & Brakes’ sales were roughly $122.7 million, reflecting year-over-year growth of 10.6%.
Revenues generated from Electromagnetic Clutches & Brakes amounted to $65.1 million, edging down 0.2% from the year-ago quarter.
Gearing revenues grew 4.9% year over year to $51.6 million.
Margin Profile Improves
In the reported quarter, Altra Industrial Motion’s cost of sales grew 5.2% year over year to $159.1 million. It represented 67% of net sales versus 67.7% in the year-ago quarter. Gross margin improved 70 basis points (bps) to 33%.
Selling, general and administrative expenses increased 4.2% year over year to $43.4 million and represented 18.3% of net sales. Research and development expenses were $6.3 million versus $6.2 million in the year-ago quarter.
Non-GAAP operating income in the reported quarter grew 14.3% year over year to $28.5 million, with non-GAAP operating margin increasing 80 bps to 12%.
Balance Sheet & Cash Flow
Exiting the second quarter, Altra Industrial Motion’s cash and cash equivalents were $38.1 million, down 17.9% from $46.4 million recorded in the last reported quarter. Long-term debt decreased 6.6%, sequentially, to $260 million.
In the quarter under review, the company generated net cash of $29.1 million from its operating activities, increasing 12.1% from the year-ago tally. Capital invested for purchasing of property, plant and equipment was $14.9 million versus $14.4 million in the comparable quarter, a year ago. Free cash outflow in the reported quarter was $14.2 million, up 22.8% year over year.
During the first half of 2018, the company paid dividends amounting to $10 million.
A couple of days before releasing results, the company’s board of directors approved the payment of a quarterly cash dividend of 17 cents per share to shareholders of record as of Sep 17, 2018. The disbursement of dividends will be made on Oct 2, 2018.
Outlook
For 2018, Altra Industrial Motion anticipates benefiting from solid organic growth opportunities along with the healthy industrial economy. Also, the business combination with Fortive Corporation’s FTV Automation and Specialty business will be immediately accretive to earnings. The completion of the transaction is anticipated by the end of 2018.
The company raised projections for 2018, with sales of $920-$935 million versus the previous forecast of $910-$930 million. Non-GAAP earnings are expected to be $2.45-$2.55 per share, up from $2.36-$2.49 expected earlier.
The tax rate is anticipated be around 23-25% while capital spending is expected to be approximately $28-$30 million (the previous forecast was $25-$27 million).
Altra Industrial Motion Corp. Price, Consensus and EPS Surprise
Altra Industrial Motion Corp. Price, Consensus and EPS Surprise | Altra Industrial Motion Corp. Quote
Zacks Rank & Stocks to Consider
With a market capitalization of approximately $1.3 billion, Altra Industrial Motion currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks worth considering in the industry are Chart Industries, Inc. GTLS and Graco Inc. GGG. While Chart Industries sports a Zacks Rank #1 (Strong Buy), Graco carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for Chart Industries improved for the current year, while remained stable for Graco. Also, average positive earnings surprise in the last four quarters has been 29.36% for Chart Industries and 4.26% for Graco.
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