It has been about a month since the last earnings report for Altra Industrial Motion (AIMC). Shares have added about 12.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Altra due for a pullback? 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.
Altra Industrial Beats on Q2 Earnings, Raises View
Altra Industrial reported impressive results for the second quarter of 2020, with earnings surpassing estimates by 76.47%. Also, sales beat estimates by 6.71%.
The machinery company’s non-GAAP earnings in the reported quarter were 60 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. However, the bottom line decreased 15.5% from the year-ago quarter figure of 71 cents.
The company noted that it benefited from healthy demand in wind energy and Class 8 truck markets in China in the second quarter. Along with this, its cost-reduction measures and healthy cash-flow generation in the quarter were encouraging, especially amid the pandemic scare.
In the reported quarter, Altra Industrial’s revenues were $400.8 million, reflecting a decline of 14.1% from the year-ago number.
Forex woes had an adverse impact of 1.6% on the quarter’s sales. Also, organic sales declined 12.5% year over year due to weakness in several end markets — including aerospace & defense, transportation, distribution, metals, mining, turf & garden, medical equipment, and oil & gas. Notably, business in renewable energy, factory automation & specialty machinery, and agriculture markets improved in the quarter.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $376 million.
Altra Industrial reports revenues under two heads — Automation & Specialty, and Power Transmission Technologies. A brief snapshot of the segmental sales is provided below:
Revenues generated from Power Transmission Technologies amounted to $196.3 million, declining 16.4% year over year.
Automation & Specialty’s sales were $205.8 million in the second quarter, down 11.8% from the last reported quarter.
In the reported quarter, Altra Industrial’s cost of sales decreased 14.1% year over year to $257.4 million. Notably, cost of sales represented 64.2% of net sales. Non-GAAP gross profit was $143.4 million, down 14.1% year over year. Gross margin remained stable year over year at 35.8%.
Non-GAAP selling, general and administrative expenses decreased 21% year over year to $58 million and represented 14.5% of net sales. Research and development expenses were $14 million versus $14.7 million in the year-ago quarter.
Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $88.9 million, the margin being 22.2%. Non-GAAP operating income in the reported quarter declined 9.5% year over year to $71.4 million, with non-GAAP operating margin increasing 90 basis points to 17.8%.
Net interest expenses totaled $18.8 million in the reported quarter, reflecting an increase of 1.1% from the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the second quarter, Altra Industrial’s cash and cash equivalents were $220.1 million, decreasing 32.7% from $326.9 million recorded in the last reported quarter. Long-term debt was $1,535.6 million, reflecting a 7.4% decrease from $1,658.5 million in the last reported quarter.
During the first half of 2020, the company repaid $30 million of borrowing under its term-loan facility and $100 million under its revolving credit facility. Additional borrowing under its revolving facility totaled $100 million.
In the first half of 2020, the company generated net cash of $73.7 million from operating activities, down 23.3% from the year-ago comparable period. Capital invested for purchasing property, plant and equipment totaled $17.3 million, decreasing 28.2% year over year. Non-GAAP free cash flow was $56.4 million versus $72 million in the year-ago period.
In the first half of 2020, the company paid out dividends amounting to $22.3 million, slightly above $22 million distributed in the prior-year comparable period.
Altra Industrial noted that workers’ safety, providing services to customers, solid liquidity position, debt reduction and a healthy supply chain are its priorities at present. Also, it expects growth opportunities to be healthy in robotics, factory automation, food processing and medical equipment markets post pandemic.
For 2020, the company anticipates sales of $1,580-$1,640 million, higher from the previously mentioned $1,540-$1,620 million.
Non-GAAP earnings are expected to be $2.05-$2.30, up from $1.67-$2.03 per share stated earlier. Also, non-GAAP adjusted EBITDA is likely to be $305-$330 million (up from the earlier mentioned $281-$317 million). The tax rate is still anticipated to be 21-23%. Capital spending is expected to be $40-$45 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 15% due to these changes.
Currently, Altra has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Altra has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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