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A month has gone by since the last earnings report for Altra Industrial Motion (AIMC). Shares have added about 33% 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 the most recent earnings report in order to get a better handle on the important drivers.
Altra Industrial Beats on Q3 Earnings, Hikes '20 View
Altra Industrial reported better-than-expected results for the third quarter of 2020, with earnings surpassing estimates by 77.6%. This is the third consecutive quarter of earnings beat by the company. Also, its third-quarter sales beat estimates by 9.9%.
The machinery company’s non-GAAP earnings in the reported quarter were 87 cents per share, surpassing the Zacks Consensus Estimate of 49 cents. Also, the bottom line rose 26.1% from the year-ago quarter figure of 69 cents.
The company noted that it benefited from healthy demand in renewable energy and medical markets, and Class 8 truck markets in China in the third quarter. Along with this, its cost-reduction measures and healthy cash-flow generation in the quarter were encouraging.
In the reported quarter, Altra Industrial’s revenues were $437.8 million, reflecting a decline of 1.2% from the year-ago number.
Foreign currency translation had a positive impact of 1.2 percentage points. However, organic sales declined 2.4% year over year due to weakness in several end markets — including distribution, metals, mining, oil & gas, and agriculture. Notably, business in renewable energy, factory automation & specialty machinery, defense, transportation, turf & garden, and medical equipment markets improved in the quarter.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $398 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 $197.7 million, declining 9.6% year over year.
Automation & Specialty’s sales were $240.8 million in the third quarter, up 7.1% from the year-ago reported quarter.
In the reported quarter, Altra Industrial’s cost of sales decreased 4.3% year over year to $273.7 million. Notably, cost of sales represented 62.5% of net sales. Non-GAAP gross profit was $164.1 million, up 4.5% year over year. Gross margin increased 200 basis points (bps) year over year at 37.5%.
Non-GAAP selling, general and administrative expenses decreased 7.3% year over year to $64.6 million and represented 14.8% of net sales. Research and development expenses were $13.8 million versus $14.4 million in the year-ago quarter.
Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $101.8 million, the margin being 23.3%. Non-GAAP operating income in the reported quarter increased 17.6% year over year to $85.7 million, with non-GAAP operating margin increasing 310 basis points to 19.6%.
Net interest expenses totaled $18 million in the reported quarter, reflecting a decrease of 1.1% from the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the third quarter, Altra Industrial’s cash and cash equivalents were $238.7 million, increasing 8.5% from $220.1 million recorded in the last reported quarter. Long-term debt was $1,476.9 million, reflecting a 3.8% decline from $1,535.6 million in the last reported quarter.
During the first nine months of 2020, the company repaid $90 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 three quarters of 2020, the company generated net cash of $161.8 million from operating activities, down 10.3% from the year-ago comparable period. Capital invested for purchasing property, plant and equipment totaled $24.3 million, decreasing 34.1% year over year.
In the first nine months of 2020, the company paid out dividends amounting to $24.9 million, down from $33.1 million distributed in the prior-year comparable period.
Altra Industrial noted that its diversified businesses, initiatives to boost opportunities in end markets, debt reduction actions and healthy cash generation might be beneficial in the quarters ahead.
It upwardly revised its financial projections for 2020. Sales are now projected to be $1,690-$1,710 million, higher than the previously mentioned $1,580-$1,640 million.
Non-GAAP earnings are expected to be $2.70-$2.82, up from $2.05-$2.30 per share stated earlier. Also, non-GAAP adjusted EBITDA is likely to be $355-$370 million (up from the earlier mentioned $305-$330 million). The tax rate is still anticipated to be 20-21%, lower than 21-23% mentioned previously. Capital spending is expected to be $34-$40 million (down versus $40-$45 million stated previously).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 27.16% due to these changes.
Currently, Altra has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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