Altra Industrial (AIMC) Tops Q4 Earnings & Sales, View Solid

Machinery company Altra Industrial Motion Corporation (NASDAQ:AIMC) failed to keep its earnings streak alive in the fourth quarter of 2017.

The company’s non-GAAP earnings in the quarter were 47 cents per share, roughly 4.1% below the Zacks Consensus Estimate of 49 cents. However, the bottom line increased 14.6% from the year-ago tally of 14.6% on the back of an improving industrial market, strategies to leverage benefits from new business opportunities and gains from acquired assets.

For 2017, the company’s non-GAAP earnings in the year came in at $2.05 per share, in line with the Zacks Consensus Estimate but increasing 31.4% year over year.

Strengthening of End-Markets Drive Sales

In the quarter, Altra Industrial Motion’s net sales amounted to $223.3 million, up 29.4% year over year. Synergistic benefits of Stromag acquisition improved net sales by 20.3% year over year while pricing added 70 basis points (bps) and favorable foreign currency movements contributed 290 bps.

Also, the top line exceeded the Zacks Consensus Estimate of $217.9 million by 2.5%.

Sales generated from distribution, turf and garden, agriculture, oil and gas, metals and mining end markets improved year over year in the quarter. These positives were partially offset by the weakness in sales of material handling, renewable energy and conventional power generation markets.

On a geographical basis, sales grew 1% in Europe, 3.9% in North America and 35.7% in the Asia Pacific and other regions.

The company reports its revenues under the following heads/segments — Couplings Clutches & Brakes, Electromagnetic Clutches & Brakes and Gearing. A brief snapshot of the segmental sales has been provided below:

Revenues generated from Electromagnetic Clutches & Brakes were $64 million, up 21.4% year over year.

Couplings Clutches & Brakes’ sales were $114.6 million, surging 54.5% from the year-ago quarter.

Gearing revenues inched up 0.6% year over year to $47.2 million.

For 2017, the company’s net sales increased 23.7% year over year to $876.7 million. The result was above the Zacks Consensus Estimate of $871.3 million.

Margin Profile Weak on Rising Costs

Altra Industrial Motion’s cost of sales in the fourth quarter increased 31.8% year over year to $154.9 million. It represented 69.3% of the quarter’s net sales versus 68.1% in the year-ago quarter. Gross margin slipped 120 basis points (bps) to 30.7%. Selling, general and administrative expenses increased 18.7% year over year to $41.5 million and represented 18.6% of net sales.

The non-GAAP operating margin in the quarter was 9.6%, down 30 bps year over year.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Altra Industrial Motion had cash and cash equivalents of roughly $52 million, slightly below $53.2 million recorded in the preceding quarter. Long-term debt was $275.6 million versus $295.2 million at the previous quarter end.

In 2017, the company generated net cash of $80.6 million from its operating activities, increasing 5.1% year over year. Capital spending totaled $32.8 million versus $18.9 million in 2016. Free cash flow in the year was $47.8 million, down 17.2% year over year.

During the year, the company paid dividends amounting to $18.3 million.

Few days before releasing results, Altra Industrial Motion announced that its board of directors has approved payment of a quarterly cash dividend of 17 cents per share to shareholders of record as of Mar 19, 2018. The disbursement of dividends will be made on Apr 3, 2018.

Outlook

For 2018, Altra Industrial Motion anticipates benefiting from the improvements in the majority of the end markets, partially offset by expected weakness in the conventional power generation market.

Net sales are anticipated to be within $895-$915 million range and non-GAAP earnings are projected to be $2.30-$2.43 per share. The tax rate will be around 25-27% while capital spending will be approximately $25-$27 million.

Altra Industrial Motion Corp. Price, Consensus and EPS Surprise