Industrial goods manufacturer IDEX Corporation (IEX) reported strong second-quarter 2014 results with a healthy year-over-year increase in revenues and earnings on the back of focused organic growth strategies.
Net income came in at $71.8 million versus $62.6 million in the year-ago quarter, reflecting year-over-year growth of 14.7%. Earnings per share was 88 cents, up 15.8% over the year-ago quarter figure of 76 cents. The reported earnings comfortably beat the Zacks Consensus Estimate of 86 cents. The improvement in earnings was primarily driven by a solid increase in revenues and productivity-improvement initiatives.
Net sales improved to $546.7 million, up 5.5% from $518.4 million in the prior-year period. Organic growth contributed 4% to sales, in addition to a 1% positive effect of foreign currency translation.
Orders came in at $551 million, recording robust year over year growth of 9%. Organic growth contributed 7% to quarterly orders, with a 2% positive effect from foreign currency translation.
By segments, Fluid and Metering Technologies (FMT) reported flat year-over-year sales of $226.1 million. Organic growth for the segment declined 2% year over year, offset by a positive contribution of 1% each from acquisitions and foreign currency translation. The Health and Science Technologies (HST) segment revenues came in at $185.7 million, improving 2.7% year over year, while the Fire and Safety/Diversified Products segment recorded sales of $136.2 million, up 19.3% year over year. Both segments saw solid organic growth which translated into higher revenues.
Margins
Operating income was up 12.6% year over year to $112.1 million. Operating margin improved 130 basis points to 20.5%, driven by enhanced productivity and volume leverage. Earnings before Interest, Taxes Depreciation and Amortization (EBITDA) were $131.3 million, up 10.2% from the year-ago period.
The FMT segment recorded an operating margin of 24.6%, down 30 basis points year over year. Margins for the segment were hurt due to acquisition-related charges.
The HST segment’s operating margin came in at 19.5%, up 40 basis points from the prior-year quarter, driven by improved volume and productivity initiatives.
The Fire and Safety segment recorded an operating margin of 26.4%, up 570 basis points from the year-ago quarter. The increase was primarily attributable to volume leverage and productivity initiatives, in addition to a prior-year charge associated with a facility disposal in 2013.
Acquisitions
In April, the company acquired Aegis Flow Technologies, a leading producer of valve products, for a cash consideration of about $26 million. Aegis has been integrated into the FMT segment, wherein it will offer its profound technological expertise to the latter’s Chemical, Food & Process platform.
With applications in chemical processing and food and beverage industries, Aegis will facilitate further expansion of the company’s product portfolio in the FMT segment. Aegis will serve the chemical, petro-chemical, and chlor-alkali industries situated around the Gulf of Mexico, extending the company’s footprint in the region.
Balance Sheet and Cash Flow
As of Jun 31, 2014, IDEX Corporation had cash and cash equivalents of $485.3 million, while long-term debt stood at $705.3 million.
Cash flow from operating activities aggregated $92.0 million compared with $109.3 million in the previous year. Free cash flow was $80.3 million at this quarter end versus $103.4 million at the end of the year-ago period.
IDEX Corporation repurchased 602,000 shares for $46 million during the quarter. The company has repurchased 1.2 million shares of common stock for $86 million, year-to-date. It plans to continue its share repurchase and dividend programs, as part of its long-term strategy to provide attractive risk-adjusted returns to its stockholders.
Outlook
IDEX Corporation remains optimistic about its top and bottom-line growth. The company intends to continue pursuing organic growth strategies as well as leverage inorganic growth opportunities through potentially lucrative acquisitions. With the recent Aegis acquisition set to expand the company’s foothold in the Gulf of Mexico region, IDEX Corporation is exploring and pursuing multiple prospective acquisition targets to enhance its revenue base.
North American and European markets reflect stability, while Asia continues to be fraught with volatility and uneven growth. Additionally, the company expects FMT and HST revenues to improve in the second half of the year.
Accommodating the mixed growth expectations, the company expects third-quarter 2014 earnings in the range of 83–85 cents per share. For full year 2014, the company now expects to register organic growth of 5–6%, with operating margins exceeding 20%. Full-year 2014 earnings guidance has been raised to the range of $3.50 to $3.55 from the earlier projection of $3.38–$3.45.
The company’s endeavors to create sound organic revenue base while expanding into new regions via strategic acquisitions, bode well for its future growth. We are encouraged by the company’s upbeat outlook.
IDEX Corporation currently has a Zacks Rank #3 (Hold). Other stocks that are worth a look in the industry include The Babcock & Wilcox Company (BWC), Blount International Inc. (BLT) and EnPro Industries, Inc. (NPO), each sporting a Zacks Rank #1 (Strong Buy).
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