Altra Industrial Motion Corp. AIMC seems to have lost its sheen to challenging end-market conditions and other company-specific headwinds. The manufacturer of mechanical power transmission components currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company belongs to the Zacks Manufacturing – General Industrial industry, currently at the bottom 37% (with the rank of 161) of more than 250 Zacks industries. We believe that the industry is suffering from adverse impacts of global uncertainties, unfavorable movements in foreign currencies, softness in the housing market and weakness in industrial production in the United States. Cost escalation due to tariff-related woes as well as commodity inflation, and high labor costs and freight charges are other concerns.
It is worth mentioning here that the company reported weaker-than-expected results for second-quarter 2019, with earnings lagging estimates by 10.13%. On a year-over-year basis, earnings declined 9%.
Altra Industrial’s shares have lost nearly 19.3% in the past three months compared with the industry’s growth of 1.7% and against the Zacks Industrial Products sector’s decline of 2.6%. The S&P 500 witnessed growth of 2.5% during the same period. Its earnings estimates were lowered, reflecting bearish sentiments.
Headwinds Creating Trouble for Altra Industrial
Top and Bottom-Line Weakness: The company believes that mixed end-market conditions, which it witnessed in the second quarter, will be concerning for the remainder of 2019. Notably, energy, medical equipment, mining and defense markets showed impressive performance in the second quarter. However, transportation suffered from issues in the heavy-duty truck market and results in factory automation & specialty machinery, agriculture, metals, distribution, turf & garden markets, and oil & gas markets were soft too.
These apart, global uncertainties and other headwinds (as detailed in other points mentioned below) have made Altra Industrial revise down projections. For 2019, the company now predicts sales to be $1,850-$1,880 million versus the previously stated $1,920-$1,950 million and non-GAAP earnings are expected to be $2.81-$2.97 per share, down from $3.02-$3.18 mentioned earlier.
In the past 60 days, the Zacks Consensus Estimate for the company’s earnings has declined 7% to $2.92 for 2019 and 9.1% to $3.21 for 2020.
Altra Industrial Motion Corp. Price and Consensus
Altra Industrial Motion Corp. price-consensus-chart | Altra Industrial Motion Corp. Quote
Cost-Related Woes: Altra Industrial is exposed to headwinds arising from undue rise in the cost of sales and operating expenses. Tariffs-related woes are one major concern for the company.
It is worth mentioning here that Altra Industrial recorded an 88.2% increase in the cost of sales; an 87.2% elevation in selling, general and administrative expenses; and a 137.1% hike in research and development expenses in the second quarter of 2019.
Forex Woes: Geographical diversification exposed Altra Industrial to headwinds, arising from geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. Notably, forex woes lowered sales by 2.6% in second-quarter 2019.
For the third quarter, the company anticipates adverse impacts of forex woes. Additionally, it expects to witness softness in industrial activities in Europe and China. It also believes that industrial activities globally will suffer from trade-related and tariff issues.
Highly Leveraged Balance Sheet: High debts can be concerning for Altra Industrial as it raises financial obligations and might adversely impact profitability.
Its long-term debt rose 73.1% (CAGR) in three years from 2016 till 2018. Exiting the second quarter, the company’s long-term debt was approximately $1.6 billion. Net interest expenses in the second quarter totaled $18.6 million versus $6.2 million recorded in the year-ago comparable quarter.
Altra Industrial’s Performance Versus Three Peers
The company has underperformed three industry peers in the past three months. Three such stocks are Nordson Corporation NDSN, RBC Bearings Incorporated ROLL and IDEX Corporation IEX, with respective three-month gains of 9.7%, 6.5% and 4.5%.
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