SPX Corp Q2 Earnings Beat on Strong Operational Execution

SPX Corp. (SPW) reported second-quarter 2014 adjusted earnings of $1.26 per share, which handily surpassed the Zacks Consensus Estimate of $1.20. The company’s GAAP earnings per share surged 54% year over year to $1.25 per share.

The company’s adjusted earnings include a charge of 10 cent per share related to the power projects in South Africa and a tax gain of 9 cents a share.

The earnings improvement was primarily driven by strength in the company’s Industrial Products and Services business. Moreover, the organizational and restructuring initiatives undertaken last year aided its operating performance by optimizing the cost structure across the globe.

Revenue

Revenues for the quarter rose 1.5% year over year to $1.18 billion. Organic revenues for the quarter increased marginally by 0.1% year over year. The organic revenues benefited from growth in all the businesses except the power projects in South Africa, which led to a decline of about $30 million. The top line gained from favorable currency translation of 1.4%. Revenues lagged the Zacks Consensus Estimate of $1.21 billion.

Segments

Flow Technology revenues for the quarter increased 1.2% year over year to $661.4 million. Organic revenues decreased 1.3%, while favorable currency translations increased revenues by 2.5%. The contraction in organic revenues was primarily due to reduced industrial mixers sales. However, this was offset by increased sales of oil & gas aftermarket services, power and energy valves, industrial flow components, as well as increased sales of food and beverage systems especially in Asia Pacific.

Revenues for the Thermal Equipment and Services segment declined 6.6% year over year to $327.3 million. Organic revenues for the segment decreased 6.1%, while adverse currency fluctuations decreased revenues by 0.5%. The organic revenue decline was due to the expected slowdown in large power projects in South Africa. However, the increased demand for the cooling equipments in Asia Pacific and products for personal comfort heating in the U.S. was a positive.

Revenues in the Industrial Products and Services and Other segment increased 20.7% year over year to $191.0 million. Organic revenues for the segment increased 19.4% year over year. Organic revenues were driven by strength across all the businesses in the segment, especially in its power transformer shipment division.

Cash Flow & Balance Sheet

Exiting the quarter, the company had cash and cash equivalents of $466.2 million compared with $691.8 million as on Dec 31, 2013. Net cash from operating activities for the quarter was negative $41.4 million, narrower than negative $243.7 million in the prior-year period. The company had a long-term debt of $1,181.3 million, compared with $1,090.0 million as on Dec 31, 2013.

Margins

In the quarter, the company’s operating income increased to $123.0 million from $115.0 million in the prior-year quarter, whereas the operating margins expanded from 9.9% to 10.4%.

Business Update

In April, SPX completed the divestment of its Precision Components business for $63.0 million. Apart from this, the company repurchased 1.368 million shares for $140.1 million.

Outlook

Following the earnings release, the company also provided its outlook for fiscal 2014. The company now expects revenue growth to be in the range of 3% to 5%, narrowed from the previously provided range of 2% to 6%. SPX reiterated its outlook for adjusted earnings from continuing operations to be in the range of $5.00 to $5.50 a share. The company expects margins to improve by 80 basis points in the quarter.

Zacks Rank

SPX currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks that can be considered at the moment include China Automotive Systems Inc. (CAAS), Meritor, Inc. (MTOR) and Twin Disc (TWIN). All three hold a Zacks Rank #2 (Buy).