Colfax (CFX) Tops Q2 Earnings Estimates, Gives Impressive View
Colfax Corporation CFX kept its earnings streak alive in the second quarter of 2020, with earnings surpassing estimates by 50%. This was the company’s 19th consecutive quarter of better-than-expected earnings results. Also, the quarter’s sales beat the Zacks Consensus Estimate by 2.91%.
The machinery company’s adjusted earnings in the reported quarter were 9 cents per share, surpassing the consensus estimate of 6 cents. However, the bottom line declined 83.3% from the year-ago figure of 54 cents.
Revenue Details
In the quarter under review, Colfax’s net sales were $620.4 million, reflecting a year-over-year decline of 31.7%. The results suffered from a 27.9% decline in the existing businesses (due to the pandemic’s impact on demand) and a 3.9% impact from forex woes.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $603 million.
It currently reports under two business segments — Fabrication Technology and Medical Technology. The segmental information is briefly discussed below:
Revenues from Fabrication Technology totaled $414.4 million, declining 30.1% year over year. Volumes had an adverse impact of 25.5% on sales, while favorable pricing contributed 1%. Forex woes had an adverse impact of 5.6%.
Revenues from Medical Technology totaled $206 million, reflecting a year-over-year decline of 34.8%. Organic sales in the quarter decreased 34.2% year over year, while forex woes had an adverse impact of 0.6%.
Margin Profile
In the quarter under review, Colfax’s cost of sales declined 28.8% year over year to $379.3 million. Selling, general and administrative expenses decreased 23.5% year over year to $235.7 million. It represented 38% of revenues.
Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review declined 64.5% year over year to $45.1 million. Also, adjusted EBITA margin decreased 6.7 percentage points year over year to 7.3%. Interest expenses in the quarter declined 14.8% year over year to $28.3 million.
Balance Sheet and Cash Flow
Exiting the second quarter, Colfax’s cash and cash equivalents decreased 81.8% sequentially to $66.4 million. Further, long-term debt balance was down 11.6% sequentially to $2,220.9 million.
Notably, the company repaid borrowings of $698.9 million under its revolving credit facilities and other in the first half of 2020. Further, it raised $635.7 million in cash through the same means.
In the first half of 2020, Colfax generated net cash of $93.2 million from operating activities as compared with $10.4 million in the year-ago period. Capital used for purchasing property, plant and equipment was $50.4 million, reflecting a year-over-year decline of 21.2%.
Outlook
The company noted that necessary actions are being taken to ensure workers’ safety, continue serving customers and maintaining a healthy liquidity position. Also, investment in growth opportunities — including product launches — and pursuing cost-reduction measures are priorities.
For the third quarter of 2020, the company anticipates generating higher profits than the second quarter of the year. EBITA margin in the quarter is expected to be in low 30%. Also, cash generation is likely to be positive in the quarter.
Despite these tailwinds, uncertainties related to the pandemic are concerning for Colfax and thus, it refrained from reissuing its financial projections for 2020.
Colfax Corporation Price, Consensus and EPS Surprise
Colfax Corporation price-consensus-eps-surprise-chart | Colfax Corporation Quote
Zacks Rank & Stock to Consider
With a market capitalization of $3.7 billion, the company currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry are Altra Industrial Motion Corp. AIMC, Chart Industries, Inc. GTLS and Graco Inc. GGG. All these companies carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 76.47% for Altra Industrial, 46.51% for Chart Industries and 37.04% for Graco.
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