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IDEX (IEX) Beats on Q4 Earnings, 2017 Guidance Cautious

Industrial goods manufacturer IDEX Corporation IEX reported relatively modest fourth-quarter 2016 results with a year-over-year decrease in GAAP earnings despite a healthy improvement in revenues. GAAP earnings for the reported quarter were $57.3 million or 75 cents per share compared with $67.8 million or 88 cents per share in the year-ago quarter. The year-over-year decline was primarily due to loss on divestures.

Excluding non-recurring items, adjusted net income for the reported quarter was $74.0 million or 96 cents per share compared with $72.3 million or 94 cents per share in the year-earlier quarter. Adjusted earnings comfortably exceeded the Zacks Consensus Estimate by 3 cents.

For full-year 2016, IDEX recorded GAAP earnings of $271.1 million or $3.53 per share compared with $282.8 million or $3.62 per share in 2015 owing to higher operating costs and loss on divestures. Excluding non-recurring items, adjusted net income for the full year improved to $288.4 million or $3.75 per share from $277.2 million or $3.55 per share in 2015.

IDEX Corporation Price, Consensus and EPS Surprise

 

IDEX Corporation Price, Consensus and EPS Surprise | IDEX Corporation Quote

Revenues

Net sales in the reported quarter increased to $530.4 million from $499.8 million in the year-earlier quarter with higher orders. However, net sales for the fourth quarter missed the Zacks Consensus Estimate of $549 million. During the quarter, orders were up 10% at $547 million. For 2016, net sales increased to $2,113.0 million from $2,020.7 million in 2015.

By segments, Fluid and Metering Technologies (FMT) recorded a 4% year-over-year decrease in revenues to $207.1 million due to loss on divestures and adverse foreign currency translation effect. Health and Science Technologies (HST) revenues were $188.3 million, up 1% year over year owing to accretive acquisitions. Fire and Safety/Diversified Products (FSD) recorded sales of $135.0 million, up 37% year over year, primarily due to inorganic growth.

Margins

Gross margin was 43.8%, down 90 basis points from the prior-year quarter owing to an inventory step-up charge related to SFC acquisition. Operating income in the quarter was $81.4 million compared with $98.3 million in the year-ago quarter with respective margins of 15.3% and 19.7%. Adjusted operating income for the reported quarter was $108.9 million compared with $104.8 million in the year-earlier quarter for respective margins of 20.5% and 21.0%, primarily due to the fair value inventory step-up charges. Earnings before interest, taxes depreciation and amortization or EBITDA were $107.3 million compared with $119.1 million in the year-ago quarter. Adjusted EBITDA improved to $134.8 million from $125.6 million in the prior-year quarter.

The FMT segment recorded an adjusted operating margin of 27.2% in the reported quarter, up 190 basis points year over year due to productivity initiatives.

The HST segment’s adjusted operating margin came in at 19.0%, down 330 basis points from the prior-year quarter. This was largely attributable to the pre-tax fair value inventory step-up charge related to the SFC acquisition.

The FSD segment’s adjusted operating margin was 23.8%, down 150 basis points from the year-ago quarter due to the dilutive impact from acquisitions.

Other Significant Developments

During the reported quarter, IDEX recorded $3.7 million of restructuring costs as part of its concerted efforts to drive sustainable growth through cost-reduction actions by employee reduction and facility rationalization. These initiatives are expected to generate annual savings in excess of $4 million starting 2017.

At the same time, the company reduced pension benefit obligations by approximately $11 million as of Dec 31, 2016. IDEX recognized a pre-tax pension settlement charge of $3.6 million in the fourth quarter.

In 2016, IDEX divested four non-core businesses (Hydra-Stop in July, CVI Japan in September, IETG in October and CVI Korea in December) for cash proceeds of $39.1 million that generated a pre-tax loss of $22.3 million.

Balance Sheet & Cash Flow

As of Dec 31, 2016, IDEX had cash and cash equivalents of $236.0 million with long-term debt of $1,014.2 million compared with the respective tallies of $328.0 million and $839.7 million in the year-ago period. Cash flow from operating activities was $399.9 million in 2016, compared with $360.3 million in 2015. Free cash flow in 2016 totaled $361.7 million compared with $321.8 million in 2015.    

Outlook

IDEX remains cautious due to the global economic uncertainty and anticipate 1–2% organic growth in 2017 with earnings of $3.87–$3.95 per share, including a 12 cent foreign currency headwind. First-quarter 2017 earnings are expected in the range of 91–93 cents per share.

IDEX currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Altra Industrial Motion Corp. AIMC, Chart Industries Inc. GTLS and Manitex International, Inc. MNTX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial has a positive earnings surprise history with an average of 8.1% in the trailing four quarters, comprehensively beating estimates in each quarter.

Chart Industries has a long-term earnings growth expectations of 19.5% and is currently trading at a forward P/E of 57.4x.

Manitex is currently trading at a forward P/E of 88.6x.

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Manitex International, Inc. (MNTX): Free Stock Analysis Report
 
Altra Industrial Motion Corp. (AIMC): Free Stock Analysis Report
 
Chart Industries, Inc. (GTLS): Free Stock Analysis Report
 
IDEX Corporation (IEX): Free Stock Analysis Report
 
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