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Idex (IEX) Down 2.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Idex (IEX). Shares have lost about 2.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Idex due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

IDEX Beats on Q2 Earnings, Revises Earnings & Sales View

IDEX kept its earnings streak alive in the second quarter of 2019, with earnings beating estimates by 0.7%. However, sales lagged estimates by 2.3%.

The company's adjusted earnings per share in the reported quarter were $1.50, surpassing the Zacks Consensus Estimate of $1.49. The bottom line excluded 3 cents per share of restructuring expenses and 1 cent of related tax benefits.

Further, the bottom line increased 7.1% from the year-ago quarter's figure of $1.40. The improvement was driven by healthy organic growth and diligent execution of productivity initiatives.

Organic Growth Drives Revenues

IDEX generated revenues of $642.1 million in the quarter under review, reflecting year-over-year growth of 1.2%. The top-line improvement came on the back of 3% growth in organic sales, partially offset by 2% adverse impact of forex woes.

However, the company's revenues lagged the Zacks Consensus Estimate of $657.5 million.

In the reported quarter, orders decreased 2% year over year to $628.1 million. As noted, orders were flat organically and foreign currency movements had an adverse 2% impact.
 
IDEX reports revenues under the segments discussed below:

Net sales of Fluid & Metering Technologies ("FMT") were $246.2 million, up 1.4% year over year. Organic net sales grew 3% while forex headwinds had a 2% impact.

Revenues from Health & Science Technologies ("HST") totaled $232.3 million, reflecting year-over-year growth of 2.1%. Results were driven by 3% organic sales growth and 1% gain from acquisitions, partially offset by forex woes of 2%.

Fire & Safety/Diversified Products' ("FSDP") revenues were $164 million, down 0.2% from the year-ago quarter. Organic sales improved 3% and currency translation had adverse 3% impact.

Margins Improve

In the reported quarter, IDEX's cost of sales increased 0.8% year over year to $349.8 million. It represented 54.5% of the quarter's revenues compared with 54.7% in the year-ago quarter. Gross margin improved 20 basis points (bps) year over year to 45.5% on the back of benefits from higher volumes, productivity actions and favorable pricing. However, rise in engineering costs played spoilsport. Selling, general and administrative expenses decreased roughly 1.9% to $134.9 million. It represented 21% of revenues compared with 21.7% in the year-ago quarter.

Adjusted operating income in the quarter increased 5.1% year over year to $157.4 million and margin improved 90 bps to 24.5%. On a segmental basis, adjusted operating income for the FMT segment increased 4.9% to $75.1 million and that for HST expanded 6.3% to $57.1 million while for FSDP it decreased 3.7% to $44.4 million. Effective tax rate in the reported quarter was 21.7%.

Balance Sheet and Cash Flow

Exiting the second quarter, IDEX had cash and cash equivalents of $543.2 million, up 19.1% from $456.1 million recorded at the end of the last reported quarter. Long-term borrowings were flat sequentially at $848.6 million.

In the first half of 2019, the company generated net cash of $219.8 million from operating activities, reflecting growth of 14.2% from the year-ago period. Capital spending on the purchase of property, plant and equipment was roughly $25.7 million, up 22.8% year over year.

During the first half, the company bought back shares worth $54.7 million and distributed dividends totaling $71.3 million. It is worth mentioning here that IDEX repurchased 19,000 shares for $3 million in the second quarter.

Outlook

For 2019, the company anticipates gaining from the diversified business structure and product portfolio as well as growth investments and solid execution abilities. However, it expressed concerns about geopolitical uncertainties and prevalent trade issues.

Adjusted earnings for the year are anticipated to be $5.78-$5.85, revised from $5.70-$5.85 mentioned earlier. Organic revenue growth is anticipated to be roughly 3-4%, down from 4-5% stated previously.

For the third quarter, earnings per share are anticipated to be $1.45-$1.47, with organic sales likely to grow 3%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Idex has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, 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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