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Colfax (CFX) Tops Q2 Earnings & Sales Estimates, Hikes View

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Colfax Corporation CFX reported better-than-expected results for second-quarter 2021. Its earnings surpassed estimates by 5.66% and sales beat the same by 7.15%. This was the company’s 23rd consecutive quarter of impressive bottom-line results.

The machinery company’s adjusted earnings in the reported quarter were 56 cents per share, surpassing the consensus estimate of 53 cents. Also, the bottom line improved from the year-ago figure of 9 cents on improved sales, driven by strengthening demand, and margin generation.

Revenue Details

In the quarter under review, Colfax’s net sales were $985.9 million, reflecting year-over-year growth of 58.9%. The results benefitted from 51.2% growth in the existing businesses and a 3.9% positive impact from movements in foreign currencies. Acquisitions boosted sales by 3.8% in the quarter.

Also, the company’s revenues surpassed the Zacks Consensus Estimate of $920 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 $629.8 million, rising 52% year over year. The results gained from 47.3% growth in existing businesses and a 4.5% contribution from foreign currency translation. Also, acquisitions boosted sales by 0.2% in the quarter. The segment contributed 63.9% to the quarter’s sales.

Revenues from Medical Technology totaled $356.1 million, reflecting year-over-year growth of 72.9%. The results gained from 11.1% contribution from acquisitions and 2.7% from foreign currency translation. Existing businesses recorded growth of 59% in the quarter.

Colfax, on Mar 4, 2021, announced its plan to split up its fabrication technology and medical technology businesses into separate companies. Notably, the separation, which is expected to close in the first quarter of 2022, is planned to be carried out following a tax-free method.

Margin Profile

In the quarter under review, Colfax’s cost of sales increased 49.5% year over year to $566.9 million. It represented 57.5% of the quarter’s sales compared with 61.1% in the year-ago quarter. Gross profit increased 73.8% year over year to $419 million and as a percentage of sales, it was 42.5% versus 38.9% in the year-ago quarter.

Selling, general and administrative expenses expanded 43.2% year over year to $337.6 million. It represented 34.2% of revenues. Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review increased 188.9% year over year to $130.3 million. Also, the adjusted EBITA margin grew 5.9 percentage points year over year to 13.2%.

Interest expenses (net) in the quarter decreased 37% year over year to $17.8 million. Adjusted tax rate in the quarter was 22%.

Balance Sheet and Cash Flow

Exiting the second quarter, Colfax had cash and cash equivalents of $62.3 million, down 91.8% from $763.7 million in the previous quarter. Its long-term debt balance was up 6.4% sequentially to $1,576.5 million.

Notably, the company repaid borrowings of $383.4 million under its revolving credit facilities and others in the first half of 2021. Further, it raised $455.6 million in cash through the same means. Proceeds from the issuance of shares totaled $730 million in the first half.

In the first half of 2021, Colfax generated net cash of $162.8 million from operating activities, up 74.6% from the year-ago comparable period. Capital used for purchasing property, plant and equipment was $44.6 million, reflecting a year-over-year decline of 11.5%.

Important Events

On Jul 28, 2021, Colfax announced that it completed the acquisition of Mathys AG Bettlach for $285 million. The buyout price was funded through the issuances of Colfax’s common stock.

Mathys has expertise in making products for sports medicine, artificial joint replacement and synthetic bone graft solutions. The buyout will strengthen Colfax’s MedTec Reconstructive business.

Colfax anticipates Mathys to contribute $150 million to sales in 2022, while its earnings before interest, tax, depreciation and amortization contribution are expected to be $15-$20 million.

The same day, Colfax priced secondary offerings of its 6.5 million common shares at $43.90 per share. The underwritten offering has been made by some shareholders of the company.

Outlook

For 2021, Colfax anticipates adjusted earnings per share of $2.10-$2.20, up from $2.05-$2.15 per share mentioned earlier. Free cash flow is likely to be $275 million for the year, above the previously stated $250 million.

For the third quarter of 2021, adjusted earnings per share are predicted to be 50-55 cents per share.

Colfax Corporation Price, Consensus and EPS Surprise

Colfax Corporation Price, Consensus and EPS Surprise
Colfax Corporation Price, Consensus and EPS Surprise

Colfax Corporation price-consensus-eps-surprise-chart | Colfax Corporation Quote

Zacks Rank & Other Stock to Consider

With a market capitalization of $6.1 billion, the company currently carries a Zacks Rank #2 (Buy).

Three other top-ranked stocks in the industry are Altra Industrial Motion Corp. AIMC, Applied Industrial Technologies, Inc. AIT and Dover Corporation DOV. All companies presently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 8.54% for Altra Industrial, 35.64% for Applied Industrial and 11.96% for Dover.


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