IDEX (IEX) Beats On Q1 Earnings & Revenues, Raises View

Industrial goods manufacturer IDEX Corporation (NYSE:IEX) started 2017 on a positive note with strong first-quarter 2017 results, driven by healthy year-over-year increase in earnings and revenues. GAAP earnings for the reported quarter were $75.9 million or 99 cents per share compared with $68.1 million or 89 cents per share in the year-ago quarter. The year-over-year improvement was primarily due to top-line growth.

Excluding non-recurring items, adjusted net income for the reported quarter was $79.2 million or $1.03 per share compared with $68.1 million or 89 cents per share in the year-earlier quarter. Adjusted earnings exceeded the Zacks Consensus Estimate by 10 cents.

Revenues

Net sales increased to $553.6 million from $502.6 million in the year-earlier quarter with record level orders. IDEX witnessed significantly higher demand in the North American industrial markets with a marked improvement in larger capital projects. Revenues exceeded the Zacks Consensus Estimate of $533 million.

IDEX reported organic growth of 5% in the reported quarter, the first such growth since the fourth quarter of 2014, owing to a diligent execution of operational plans.

By segments, Fluid and Metering Technologies (FMT) recorded a 2% year-over-year increase in revenues to $216.8 million, primarily led by organic growth of 6%. Health and Science Technologies (HST) revenues were $199.7 million, up 7% year over year owing to accretive acquisitions and organic growth, each improving 5%. Fire and Safety/Diversified Products (FSD) recorded sales of $137.4 million, up 31% year over year, primarily due to inorganic growth.

Margins

Gross margin was 45.3%, up 90 basis points (bps) from the prior-year quarter owing to productivity and volume leverage. Operating income in the quarter was $115.7 million compared with $103.3 million in the year-ago quarter with respective margins of 20.9% and 20.6%. Adjusted operating income for the reported quarter was $120.5 million compared with $103.3 million in the year-earlier quarter for respective margins of 21.8% and 20.6%, primarily due to operational efficiency and fair value inventory step-up charges in the prior year. Earnings before interest, taxes depreciation and amortization or EBITDA were $136.7 million compared with $123.3 million in the year-ago quarter. Adjusted EBITDA improved to $141.5 million from $123.3 million in the prior-year quarter.

The FMT segment recorded an adjusted operating margin of 27.4% in the reported quarter, up 300 bps year over year due to productivity initiatives and higher volume.

The HST segment’s adjusted operating margin came in at 22.7%, up 90 bps from the prior-year quarter. This was largely attributable to the productivity initiatives and higher volume.

The FSD segment’s adjusted operating margin was 23.8%, down 70 bps from the year-ago quarter due to the dilutive impact from acquisitions.

IDEX Corporation Price, Consensus and EPS Surprise

IDEX Corporation Price, Consensus and EPS Surprise | IDEX Corporation Quote

Other Significant Developments

During the reported quarter, IDEX recorded $4.8 million of restructuring costs as part of its concerted efforts to drive sustainable growth through cost-reduction actions by employee reduction and facility rationalization. These include a site consolidation at the Material Processing Technologies platform within the HST segment, along with employee reductions within the FMT and HST segments.

Balance Sheet & Cash Flow

As of Mar 31, 2017, IDEX had cash and cash equivalents of $216.1 million with long-term debt of $950.3 million. Cash flow from operating activities was $85.0 million in the reported quarter compared with $70.4 million in the prior-year quarter. Free cash flow at the quarter end totaled $74.8 million compared with $61.7 million in the year-ago period.

Guidance Raised

With solid quarterly results and robust demand patterns, IDEX raised its earlier guidance for 2017. The company currently expects 3–4% organic growth in 2017 with adjusted earnings of $4.00–$4.17 per share, up from earlier projections of 1–2% organic growth and adjusted earnings of $3.87–$3.95 per share. Second-quarter 2017 adjusted earnings are expected in the range of $1.04–$1.06 per share on organic growth of 2–3%.

IDEX currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Altra Industrial Motion Corp. (NASDAQ:AIMC) , DXP Enterprises, Inc. (NASDAQ:DXPE) and Graco Inc. (NYSE:GGG) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Altra Industrial has a positive earnings surprise history with an average of 12.49% in the trailing four quarters, comprehensively beating estimates in each.

DXP Enterprises has long-term earnings growth expectations of 20%.

Graco has long-term earnings growth expectations of 10.3%.

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