A month has gone by since the last earnings report for Idex (IEX). Shares have lost about 8.3% 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 drivers.
IDEX's Earnings and Revenues Miss Estimates in Q4
IDEX reported lackluster fourth-quarter 2019 results, with earnings and sales missing estimates by 1.48% and 1.46%, respectively.
The company’s adjusted earnings per share were $1.33, lagging the Zacks Consensus Estimate of $1.35. The bottom line excluded 9 cents per share of restructuring expenses and 2 cents of related tax benefits. However, the bottom line increased 1.5% from the year-ago quarter’s $1.31.
In 2019, adjusted earnings were $5.80 per share, reflecting an increase of 7.2% from last year’s figure of $5.41.
Organic Sales Decline Y/Y
IDEX generated revenues of $606 million in the quarter, down 1.3% from the year-ago quarter. Acquisitions had a positive impact of 2% on sales while forex woes affected results by 1%. Organic sales in the quarter declined 2% due to weakening global demand for industrial products along with prevailing uncertainties related to the soft global economy.
In addition, the company’s revenues lagged the Zacks Consensus Estimate of $615 million.
In the reported quarter, orders jumped 1% year over year to $616.6 million. As noted, orders were flat 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’ net sales were $227.5 million, down 4.1% year over year. Organic net sales declined 3%, while forex headwinds had a 1% impact.
Revenues from Health & Science Technologies totaled $227.3 million, reflecting year-over-year growth of 0.8%. Results reflected 3% organic sales decline and 4% gain from acquisitions.
Fire & Safety/Diversified Products’ revenues were $152 million, up 0.2% from the year-ago quarter. Organic sales increased 1% and currency translation had an adverse 1% impact.
In 2019, the company’s revenues were $2,494.6 million, roughly flat year over year. Organic sales increased 1% and acquisitions had a positive impact of 1%, partially offset by 2% adverse impact of foreign currency movements.
Margins Improve Y/Y
In the reported quarter, IDEX’s cost of sales dipped 0.4% year over year to $339.1 million. It represented 56% of the quarter’s revenues compared with 55.4% in the year-ago quarter. Adjusted gross margin improved 20 basis points (bps) year over year to 45.2%. Selling, general and administrative expenses declined 3.5% to $125.8 million. It represented 20.8% of revenues compared with 21.2% in the year-ago quarter.
Adjusted operating income in the quarter dipped 1.5% year over year to $141.1 million with margin remaining flat at 23.3%. On a segmental basis, adjusted operating income for FMT declined 7.7% to $63.7 million and that for HST dipped 1.8% to $51.8 million, while for FSDP it declined 1% to $39.8 million. Effective tax rate in the reported quarter was 20.6%.
Balance Sheet and Cash Flow
Exiting the fourth quarter, IDEX had cash and cash equivalents of $632.6 million, up 35.6% from $466.4 million recorded at the end of 2018. Long-term borrowings were relatively flat at $848.9 million compared with $848.3 million a year ago.
In 2019, the company generated $528.1 million of net cash from operating activities, reflecting growth of 10.2% from 2018. Capital spending on the purchase of property, plant and equipment was roughly $50.9 million, down 9.2% year over year. Free cash flow in the quarter declined 0.2% to $137 million.
In 2019, the company bought back 389,000 shares worth $54.7 million and distributed dividends totaling $147.2 million.
For 2020, IDEX anticipates growth investments and solid restructuring actions amid challenging industrial markets (mainly in the first half of the year). Restructuring initiatives will provide $15 million savings in 2020.
Adjusted earnings for the year are anticipated to be $5.55-$5.85. First-quarter earnings are estimated to be $1.30-$1.34. Organic revenues are anticipated to decline 2% to remain flat for the year, with a 4-5% fall in the first quarter of 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -10.79% due to these changes.
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 F on the value side, putting it in the fifth quintile 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Idex has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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