A month has gone by since the last earnings report for Idex (IEX). Shares have added about 4.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Idex 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.
IDEX Q2 Earnings & Revenues Beat Estimates, Decline Y/Y
IDEX reported better-than-expected results for second-quarter 2020, with earnings and sales surpassing estimates by 8.9% and 6.6%, respectively.
The company’s adjusted earnings per share were $1.10, beating the Zacks Consensus Estimate of $1.01. However, the bottom line decreased 26.7% from the year-ago quarter’s $1.50 per share.
Organic Sales Decline Y/Y
IDEX generated revenues of $561.2 million in the quarter, down 12.6% from the year-ago quarter. Acquisitions had a positive impact of 5% on sales, while organic sales declined 17% and forex woes affected results by 1% in the quarter.
In addition, the company’s revenues beat the Zacks Consensus Estimate of $527 million.
In the reported quarter, orders declined 17% year over year to $521.9 million. As noted, orders were down 18% organically. Forex woes hurt orders by 1%, while acquisition boosted the same by 2%.
IDEX reports revenues under the segments discussed below:
Fluid & Metering Technologies’ (“FMT”) net sales were $219.1 million, down 11% year over year. Organic net sales declined 20%, and forex headwinds had a 1% impact, while acquisition boosted the same by 10%.
Revenues from Health & Science Technologies (“HST”) totaled $215.7 million, reflecting a year-over-year decline of 7%. Results reflected 10% organic sales decline, 4% gain from acquisitions and 1% adverse impact from forex woes.
Fire & Safety/Diversified Products’ (“FSDP”) revenues were $127.1 million, down 23% from the year-ago quarter. Organic sales decreased 22% and currency translation had an adverse 1% impact.
Margins Contract Y/Y
In the reported quarter, IDEX’s cost of sales dipped 6.7% year over year to $326.4 million. It represented 58.1% of the quarter’s revenues compared with 54.5% in the year-ago quarter. Gross margin contracted 370 basis points (bps) year over year to 41.8%. Selling, general and administrative expenses declined 10.7% to $120.4 million. It represented 21.5% of revenues compared with 21% in the year-ago quarter.
Operating income in the quarter dipped 28.8% year over year to $110.6 million, with margin down 450 bps to 19.7%. On a segmental basis, operating income for FMT declined 31.3% to $50.9 million, that for HST dipped 15.5% to $48 million, and for FSDP it moved down 33.9% to $28.8 million. Effective tax rate in the reported quarter was 22.7%.
Balance Sheet and Cash Flow
Exiting the second quarter, IDEX had cash and cash equivalents of $746.3 million, up 18% from $632.6 million recorded at the end of 2019. Long-term borrowings were $1,044.4 million compared with $848.9 million as of Dec 31, 2019.
In the first six months of 2020, the company generated $254.2 million of net cash from operating activities, reflecting growth of 15.7% from the year-ago comparable period. Capital spending on the purchase of property, plant and equipment was $21.1 million compared with $25.7 million in the year-ago comparable period. Free cash flow in the quarter increased 36.2% to $161.1 million.
In the second quarter of 2020, the company bought back 9,600 shares worth $1.4 million and distributed dividends totaling $37.8 million.
On account of the coronavirus-led issues, IDEX anticipates an organic sales decline of 12-17% for the third quarter of 2020.
It is worth noting that on uncertainties, regarding the duration and impacts of the coronavirus outbreak on financial and operating results, the company has not reissued guidance for 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, Idex has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Idex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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