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Altra Industrial (AIMC) Q1 Earnings Top, Margins Improve

Altra Industrial Motion Corp. AIMC reported better-than-expected results for first-quarter 2019. Its earnings and sales surpassed respective estimates by 12.68% and 0.1%. The impressive bottom-line performance came in after the company recorded negative earnings surprise of 7.14% in the fourth quarter of 2018.

We believe that healthy performance lifted investor’s sentiments. The company’s share price increased 8.4% yesterday, closing the trading session at $37.60.

This machinery company’s non-GAAP earnings in the reported quarter were 80 cents per share, surpassing the Zacks Consensus Estimate of 71 cents. Also, the bottom line increased 11.1% from the year-ago figure of 72 cents on the back of healthy sales growth and margin improvement.

Acquisition of Fortive’s Business Drives Revenues

In the reported quarter, Altra Industrial’s net sales more than doubled year over year to $482.8 million, driven by collaboration with four companies of Automation and Specialty business of Fortive Corporation FTV. This collaboration was completed in the fourth quarter of 2018. Integration of Fortive’s businesses was successfully completed in the first quarter of 2019. Organic sales in the quarter grew 1.6%.

Effective from the fourth quarter of 2018, Altra Industrial started reporting revenues under the following heads/segments — Automation & Specialty, and Power Transmission Technologies. A brief snapshot of the segmental sales is provided below:

Automation & Specialty’s sales were roughly $249.1 million, slightly above $241.7 million generated in the previous quarter.

Revenues generated from Power Transmission Technologies amounted to $234.9 million, increasing 2.7% sequentially but down 2.3% sequentially.

Margin Profile Improves

In the reported quarter, Altra Industrial’s cost of sales surged 85.3% year over year to $307.9 million. It represented 63.8% of net sales versus 69.1% in the year-ago quarter. Non-GAAP gross profit was $174.9 million, up 135.7% year over year. Also, gross margin improved 530 basis points (bps) to 36.2%.

Selling, general and administrative expenses increased 82.4% year over year to $71.5 million and represented 14.8% of net sales. Research and development expenses were $15.3 million versus $6.5 million in the year-ago quarter.

Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $105 million, with margin being 21.7%. Conversely, non-GAAP operating income in the reported quarter grew 209.1% year over year to $88.1 million, with non-GAAP operating margin increasing 630 bps to 18.2%.

Net interest expenses totaled $19.8 million in the reported quarter versus $1.8 million recorded in the year-ago comparable quarter.

Balance Sheet & Cash Flow

Exiting the first quarter, Altra Industrial’s cash and cash equivalents were approximately $152.4 million, down 9.8% from $169 million recorded in the last reported quarter. Long-term debt was roughly $1,676.6 million, slightly below $1,690.9 million in the last reported quarter. During the quarter under review, the company repaid long-term debts of $15 million.

In the first quarter, Altra Industrial generated net cash of $39.3 million from operating activities, significantly above $3.7 million recorded in the year-ago quarter. Capital invested for purchasing of property, plant and equipment doubled year over year to $14 million. Free cash flow in the quarter was $25.3 million versus cash outflow of $3.3 million in the year-ago quarter.

During the quarter under review, the company paid dividends amounting to $11.1 million, above $5 million distributed in the year-ago quarter.

A couple of days before releasing the results, the company’s board of directors approved the payment of a quarterly cash dividend of 17 cents per share to shareholders of record as of Jun 18, 2019. The disbursement of dividends will be made on Apr 24, 2019.

Outlook

For 2019, Altra Industrial anticipates benefiting from efforts to optimize supply chain, program related to sales collaboration and gaining from efforts to lower debt profile. Also, the collaboration with Fortive’s Automation and Specialty business will be beneficial, with synergies of $10-$12 million anticipated in 2019 and $52 million by the fourth year.

The company maintained sales projection at $1,920-$1,950 million for 2019. Non-GAAP earnings are expected to be $3.02-$3.18 per share and non-GAAP adjusted EBITDA is anticipated to be $415-$430 million.

The tax rate is anticipated to be around 24-25.8%, down from previously stated 25-26.5%. Capital spending is expected to be approximately $60-$65 million.

Altra Industrial Motion Corp. Price, Consensus and EPS Surprise

 

Altra Industrial Motion Corp. Price, Consensus and EPS Surprise | Altra Industrial Motion Corp. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $2.4 billion, Altra Industrial currently carries a Zacks Rank #3 (Hold).

Two better-ranked stocks in the industry are DXP Enterprises, Inc. DXPE and Roper Technologies, Inc. ROP. The stocks currently carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for 2019 have improved for DXP Enterprises and Roper. Further, the earnings surprise in the last reported quarter was positive 46.55% for DXP Enterprises and 8.43% for Roper.

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