A month has gone by since the last earnings report for Colfax (CFX). Shares have added about 6.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Colfax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Colfax Tops Q2 Earnings Estimates, Gives Impressive View
Colfax 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.
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%.
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%.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 19.56% due to these changes.
At this time, Colfax has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Colfax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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