Why Is Colfax (CFX) Down 5% Since The Last Earnings Report?

A month has gone by since the last earnings report for Colfax Corporation (NYSE:CFX) . Shares have lost about 5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? 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 drivers.

Fourth-Quarter 2016 Highlights

Colfax reported impressive bottom-line results for fourth-quarter 2016. The company's adjusted earnings came in at $0.46 per share above the Zacks Consensus Estimate of $0.44 cents. However, the bottom line fell nearly 9.8% from the year-ago tally of $0.51.

For 2016, the company's adjusted earnings were $1.56 per share, above the Zacks Consensus Estimate of $1.54 but 2.5% below the year-ago tally of $1.60.

Revenues: In the quarter, Colfax generated revenues of $933.8 million, decreasing 12% year over year and below the Zacks Consensus Estimate of $949.6 million. The year-over-year decline was triggered by 9.3% fall in existing businesses and 2.8% negative impact from adverse foreign currency movements, partially offset by 0.1% gain from acquired assets.

Exiting the quarter, Colfax had orders worth $443 million, up 4.2% year over year. Backlog at the period end was $1,029.2 million.

Colfax reports its net sales under two heads/segments. The segmental results are briefly discussed below:

Revenues from Gas and Fluid Handling totaled $497 million, down 13.2% year over year. The decline was triggered by 9.8% fall in the existing businesses and 3.4% adverse impact from foreign currency translations.

Organically, sales declined 34.6% in oil, gas & petrochemical, 10% in marine and 12.3% in general industrial & other end markets. These negatives more than offset roughly 41% gain in mining and 9.6% gain in power generation end markets.

Revenues from Fabrication Technology fell 10.6% year over year to $436.7 million due to 6.8% decline in volumes, 1.9% negative impact from price/mix and 2.2% negative impact from foreign currency translations, partially offset by 0.3% gain from acquired assets.

For 2016, Colfax's revenues totaled $3,647 million, below the Zacks Consensus Estimate of $3.66 billion. Also, the top line fell roughly 8.1% from the year-ago tally.

Margins: In the quarter, Colfax's cost of sales decreased 11.4% year over year, representing 69.1% of net sales compared with 68.6% in the year-ago quarter. Gross margin decreased 50 basis points (bps) year over year to 30.9%. Selling, general and administrative expenses, as a percentage of revenues were 21.2% compared with 21.9% recorded in the year-ago quarter.

The company achieved more than $50 million in structural cost reductions in 2016. Adjusted operating income decreased 9.7% year over year, while margin grew 20 bps to 9.7%.

Balance Sheet and Cash Flow: Exiting the fourth quarter, Colfax had cash and cash equivalents of $221.7 million, up from $191.7 million recorded at previous quarter end. Long-term debt balance was down 6.7% sequentially to $1,286.7 million.

In 2016, Colfax generated net cash of $247 million from its operating activities, down from $303.8 million generated in the year-ago period. Capital spending totaled $63.3 million, decreasing 9.5% year over year. Share buybacks totaled $20.8 million.

Outlook: For 2017, Colfax reiterated its adjusted earnings guidance within $1.55-$1.70 per share range (unchanged), representing 7% growth over 2016. Also, the company announced that it is on track to deliver roughly $50 million in cost savings from its restructuring efforts.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Colfax's stock has an average Growth Score of 'C', however its Momentum is doing a bit better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is more suitable for momentum investors than value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.