Altra Industrial (AIMC) Beats On Q1 Earnings & Revenues

Machinery company Altra Industrial Motion Corporation (NASDAQ:AIMC) kept its earnings streak alive in first-quarter 2016 by posting a positive earnings surprise of 18.75%. The company’s earnings of 38 cents per share surpassed the Zacks Consensus Estimate of 32 cents. However, the bottom line declined 9.5% from the year-ago figure of 42 cents.

Also, the company’s top-line result was impressive. Net sales were $180.5 million, ahead of the Zacks Consensus Estimate of $177 million. However, the top line was down roughly 6.7% from $193.4 million generated in first-quarter 2015. The year-over-year fall was triggered by a 4.9% decline in organic revenues and a 1.8% adverse impact from foreign currency translation.

Segmental Details

Altra Industrial Motion reports its revenues under the following segments: Couplings Clutches & Brakes, Electromagnetic Clutches & Brakes, and Gearing. A brief snapshot of the segmental sales has been provided below:

Electromagnetic Clutches & Brakes revenues (31.8% of first-quarter sales) inched down 50 basis points (bps) year over year to $57.3 million. Couplings Clutches & Brakes sales (41.9%) were $75.6 million, down 15.1% year over year. Sales in the Gearing segment (27.1%) totaled $48.9 million, down 0.6% year over year.

Margins

In the quarter, Altra Industrial Motion’s cost of sales declined 6.7% year over year, representing 69.7% of revenue versus 69.8% in the year-ago quarter. Gross margin increased 10 bps year over year to 30.3%. Selling, general and administrative expenses were roughly $33.5 million, accounting for 18.6% of revenues.

Balance Sheet & Cash Flow

Exiting first-quarter 2016, Altra Industrial Motion’s cash and cash equivalents were $44.8 million, down from $50.3 million in the preceding quarter. Long-term debt inched up 0.5% sequentially to $232.8 million.

In the quarter, Altra Industrial Motion generated cash of $6.1 million from its operating activities, less than half of $12.8 million generated in the year-ago quarter. Cash used on purchase of property, plant and equipment totaled $5.7 million, down from $7.7 million in the year-ago period. During the quarter, the company repurchased roughly 0.91 million shares for $2.2 million.

Exiting the quarter, Altra Industrial Motion had approximately $12.9 million of authorization left under its $50 million share buyback program approved in May 2014.

A day before the earnings release, Altra Industrial Motion announced that its board of directors has approved payment of a quarterly cash dividend of 15 cents per share. The disbursement will be made on Jul 5 to shareholders of record as on Jun 17.

Outlook

For 2016, Altra Industrial Motion anticipates difficult operating conditions in the global industrial markets to ease a bit in the second half of the year. Businesses from the oil & gas related end markets will be weak.

Altra Industrial Motion reaffirmed its 2016 guidance in which sales are expected within $700−$720 million, while non-GAAP earnings are anticipated in a range of $1.40−$1.50 per share. Tax rate is expected within roughly 29−31%. Capital expenditure will likely come in a band of $20−$24 million while depreciation will be $30−$32 million.

In 2015, Altra Industrial Motion had initiated certain restructuring and cost-saving strategies to keep costs under control and align its business operations with current demand levels. The company intends to lower the number of its facilities by 20−30% as well as improve its supply chain worldwide. These initiatives are expected to be completed by 2018. As part of these restructuring activities, the company is on track to complete six consolidations in second-quarter 2016 while it expects to announce the seventh in the third quarter.

With a market capitalization of $746 million, Altra Industrial Motion currently holds a Zacks Rank #2 (Buy). Other stocks worth considering in the machinery industry include Gorman-Rupp Co. (NYSE:GRC) , Luxfer Holdings PLC (NYSE:LXFR) and Colfax Corporation (NYSE:CFX) . While both Gorman-Rupp and Luxfer Holdings sport a Zacks Rank #1 (Strong Buy), Colfax Corporation carries a Zacks Rank #2 (Buy).