A month has gone by since the last earnings report for Idex (IEX). Shares have added about 4.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Idex 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.
IDEX Beats on Q3 Earnings Estimates, Ups '18 View
IDEX Corporation kept its earnings streak alive in the third quarter of 2018. It delivered positive earnings surprise of 7.6% in the quarter.
The company's adjusted earnings per share in the reported quarter were $1.41, surpassing the Zacks Consensus Estimate of $1.31. The bottom line excluded 6 cents per share of restructuring expenses and 2 cents of related tax benefits.
Further, the bottom line increased 30.6% from the year-ago tally of $1.08. The improvement was driven by healthy organic growth, diligent execution of productivity initiatives and lower taxes.
Segmental Performance Drives Revenues
In the reported quarter, IDEX generated revenues of $622.9 million. The top line increased 8.4% year over year on the back of 9% growth in organic sales. Forex woes had an adverse 1% impact. Moreover, the top line surpassed the Zacks Consensus Estimate of $615.5 million by 1.2%.
In the quarter under review, orders increased 7% year over year to $615.1 million. As noted, orders improved 8% organically and foreign currency movements had an adverse 1% impact.
IDEX reports its revenues under the segments discussed below:
Net sales of Fluid & Metering Technologies ("FMT") were $239.2 million, up 8.3% year over year. Organic net sales in the reported quarter grew 12% while forex headwinds and acquisitions/divestitures had 3% and 1% negative impacts, respectively.
Revenues from Health & Science Technologies ("HST") totaled $222.4 million, reflecting year-over-year growth of 7.4%. Results were driven by 6% organic sales growth and 2% gain from acquisitions, partially offset by forex woes of 1%.
Fire & Safety/Diversified Products ("FSDP") revenues were $161.8 million, up 10.4% from the year-ago quarter. Organic sales growth of 11% was partially offset by 1% negative impact from foreign currency translation.
In the reported quarter, IDEX's cost of sales increased 8.2% year over year to $342.7 million. It represented 55% of the quarter's revenues compared with 55.1% in the year-ago quarter. Gross margin improved 10 basis points (bps) year over year to 45% on the back of benefits from higher volumes and productivity actions.
However, rise in engineering costs was a headwind. Selling, general and administrative expenses decreased roughly 0.7% to $130.5 million. It represented 20.9% of revenues compared with 22.9% in the year-ago quarter.
Adjusted operating income increased 18.4% year over year to $149.8 million and margin improved 200 bps to 24%. On a segmental basis, adjusted operating income for FMT segment increased 13.96% to $70.6 million, while that for HST expanded 13.4% to $52.3 million and for FSDP grew 23.7% to $44.8 million.
Effective tax rate in the reported quarter was 20.2% versus 26.4% in the previous-year quarter.
Balance Sheet and Cash Flow
Exiting the third quarter, IDEX had cash and cash equivalents of $491.8 million, up 7.2% from $458.8 million recorded at the end of the last reported quarter. Long-term borrowings declined 1.2% to $848.2 million.
In the quarter under review, the company generated net cash of $325.8 million from operating activities, reflecting growth of 9.8% from the year-ago quarter. Capital spending on purchase of property, plant and equipment was roughly $39.9 million, up 42.1% from $28.1 million in the year-ago comparable period. Free cash flow was $285.9 million, up 6.5% year over year.
During the nine months, the company bought back shares worth $50.7 million and distributed dividends totaling $94.9 million. It's worth mentioning here that IDEX repurchased $31 million worth of shares in the third quarter.
IDEX raised its guidance for 2018. Full-year adjusted earnings are currently anticipated to be $5.35-$5.37 per share compared with $5.27-$5.35 stated earlier. Organic revenue growth is anticipated to be roughly 8%, up from 7% mentioned earlier.
For the fourth quarter, earnings per share are anticipated to be $1.25-$1.27 on the back of organic revenue growth of 5-6%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Idex has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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 D. 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. 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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