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Idex (IEX) Up 10.1% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Idex (IEX - Free Report) . Shares have added about 10.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Idex due for a pullback? 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 catalysts.
Second Quarter 2018 Highlights
IDEX Corporation kept its earnings streak alive by delivering a positive earnings surprise of 6.87% in second-quarter of 2018.
The company's adjusted earnings per share in the quarter came in at $1.40, beating the Zacks Consensus Estimate of $1.31. The bottom line excludes 3 cents per share of restructuring expenses and 1 cent of related tax benefits.
On a year-over-year basis, earnings increased 29.6% driven by healthy organic growth and diligent execution of productivity initiatives.
Revenues Gain From Segmental Strength
IDEX generated revenues of $634.4 million in the reported quarter, reflecting growth of 10.6% from the year-ago tally. The improvement was driven by 9% growth in organic sales and 2% positive impact from foreign currency translations.
In the quarter, orders increased 9% year over year to $639.5 million. As noted, organically orders improved 8% while forex gains added 2% to order growth and divestitures lowered orders by 1%. Backlog exiting the quarter was roughly $5 million.
The top line surpassed the Zacks Consensus Estimate of $622 million by 1.91%.
IDEX reports its revenues under the segments discussed below:
Net sales of Fluid & Metering Technologies (FMT) were $242.8 million, up 9.8% year over year. Organic net sales in the quarter grew 10% while forex tailwinds had a 2% positive impact and acquisitions/divestitures had a 2% negative impact.
The segment gained from strengthening industrial and agriculture businesses. Also, new products for water market were beneficial while energy business gained from strengthening LPG project activity and truck builds.
Revenues from Health & Science Technologies (HST) totaled $227.4 million, reflecting year-over-year growth of 11.2%. The results were driven by 8% organic sales growth, 2% forex gains and 1% positive impact from acquisitions/divestitures.
As noted, solid IVD/BIO end markets drove results for Scientific Fluid and Optics while strengthening transportation and semiconductor market improved Sealing Solutions results. MPT business was impressive in the quarter.
Fire & Safety/Diversified Products (FSDP) revenues were $164.3 million, up 11% from the year-ago quarter. Organic sales growth of 8% was complemented by 3% positive impact from favorable foreign currency movements. The segment gained from strength in all businesses, including rescue tool, dispensing and others.
Margins Improve
In the reported quarter, IDEX's cost of sales increased 9.7% year over year to $347 million. It represented 54.7% of the quarter's revenues compared with 55.2% in the year-ago quarter. Gross margin improved 50 basis points (bps) year over year to 45.3% on the back of benefits from higher volumes and productivity actions. However, rise in engineering costs played spoilsport. Selling, general and administrative expenses jumped 4.4% to $137.5 million. It represented 21.7% of revenues compared with 23% in the year-ago quarter.
Adjusted operating income in the quarter increased 19.7% year over year to $149.8 million, while adjusted operating margin grew 180 bps to 23.6%. On a segmental basis, adjusted operating income for FMT segment grew 19.2% year over year to $71.6 million, while that for HST and FSDP segments expanded 16% to $53.7 million and 24.1% to $46.1 million respectively.
Balance Sheet and Cash Flow
Exiting the second quarter, IDEX had cash and cash equivalents of $458.8 million, up 11.1% from $413 million recorded at the end of the last reported quarter. Long-term borrowings were roughly flat at $858.7 million.
In the second quarter, the company generated net cash of $120.7 million from its operating activities, reflecting growth of 37.8% from the year-ago quarter. Capital spending on the purchase of property, plant and equipment was roughly $11 million versus $9.4 million in the year-ago quarter. Free cash flow for the quarter was $109.7 million, up 40.3% year over year.
During the quarter, the company bought back 147 thousand shares for a total cost of $20.5 million while distributed $33 million dividends.
Outlook
For 2018, IDEX is poised to gain from robust organic growth prospects and synergistic gains from acquired assets. It’s worth noting here that Phantom Controls' intellectual property assets were acquired in June this year while Finger Lakes Instrumentation was added to the portfolio in July. The Phantom Controls' assets buyout will strengthen the company's Fire Suppression businesses and Finger Lakes acquisition will benefit Health & Science business.
With solid results in the first half and continued strength in businesses, the company has raised its earlier guidance for 2018. Full-year adjusted earnings are currently anticipated to lie within the $5.27-$5.35 per share range compared with the earlier prediction of $5.05-$5.20.
Organic revenue growth is anticipated to be roughly 7%, up from 5-6% predicted earlier. Favorable foreign currency movements will add 1% to sales versus 3% expected previously. Operating margin projection has been maintained at the 22.5-23% range. Corporate expenses are likely to total $76-$80 million (up from $73-$77 million predicted earlier), tax rate to be roughly 23%, capital expenditure to be $45 million (lower than $50 million projected earlier) and free cash flow conversion to be 110%.
For the third quarter, earnings per share are anticipated to be $1.29-$1.32 on the back of organic revenue growth of 6-7%. Forex woes will adversely impact revenues by 1%. Operating margin will be roughly 23% while tax rate will be roughly 22.5% and corporate expense $20 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Idex has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 suitable for growth and momentum investors.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Idex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Idex (IEX) Up 10.1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Idex (IEX - Free Report) . Shares have added about 10.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Idex due for a pullback? 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 catalysts.
Second Quarter 2018 Highlights
IDEX Corporation kept its earnings streak alive by delivering a positive earnings surprise of 6.87% in second-quarter of 2018.
The company's adjusted earnings per share in the quarter came in at $1.40, beating the Zacks Consensus Estimate of $1.31. The bottom line excludes 3 cents per share of restructuring expenses and 1 cent of related tax benefits.
On a year-over-year basis, earnings increased 29.6% driven by healthy organic growth and diligent execution of productivity initiatives.
Revenues Gain From Segmental Strength
IDEX generated revenues of $634.4 million in the reported quarter, reflecting growth of 10.6% from the year-ago tally. The improvement was driven by 9% growth in organic sales and 2% positive impact from foreign currency translations.
In the quarter, orders increased 9% year over year to $639.5 million. As noted, organically orders improved 8% while forex gains added 2% to order growth and divestitures lowered orders by 1%. Backlog exiting the quarter was roughly $5 million.
The top line surpassed the Zacks Consensus Estimate of $622 million by 1.91%.
IDEX reports its revenues under the segments discussed below:
Net sales of Fluid & Metering Technologies (FMT) were $242.8 million, up 9.8% year over year. Organic net sales in the quarter grew 10% while forex tailwinds had a 2% positive impact and acquisitions/divestitures had a 2% negative impact.
The segment gained from strengthening industrial and agriculture businesses. Also, new products for water market were beneficial while energy business gained from strengthening LPG project activity and truck builds.
Revenues from Health & Science Technologies (HST) totaled $227.4 million, reflecting year-over-year growth of 11.2%. The results were driven by 8% organic sales growth, 2% forex gains and 1% positive impact from acquisitions/divestitures.
As noted, solid IVD/BIO end markets drove results for Scientific Fluid and Optics while strengthening transportation and semiconductor market improved Sealing Solutions results. MPT business was impressive in the quarter.
Fire & Safety/Diversified Products (FSDP) revenues were $164.3 million, up 11% from the year-ago quarter. Organic sales growth of 8% was complemented by 3% positive impact from favorable foreign currency movements. The segment gained from strength in all businesses, including rescue tool, dispensing and others.
Margins Improve
In the reported quarter, IDEX's cost of sales increased 9.7% year over year to $347 million. It represented 54.7% of the quarter's revenues compared with 55.2% in the year-ago quarter. Gross margin improved 50 basis points (bps) year over year to 45.3% on the back of benefits from higher volumes and productivity actions. However, rise in engineering costs played spoilsport. Selling, general and administrative expenses jumped 4.4% to $137.5 million. It represented 21.7% of revenues compared with 23% in the year-ago quarter.
Adjusted operating income in the quarter increased 19.7% year over year to $149.8 million, while adjusted operating margin grew 180 bps to 23.6%. On a segmental basis, adjusted operating income for FMT segment grew 19.2% year over year to $71.6 million, while that for HST and FSDP segments expanded 16% to $53.7 million and 24.1% to $46.1 million respectively.
Balance Sheet and Cash Flow
Exiting the second quarter, IDEX had cash and cash equivalents of $458.8 million, up 11.1% from $413 million recorded at the end of the last reported quarter. Long-term borrowings were roughly flat at $858.7 million.
In the second quarter, the company generated net cash of $120.7 million from its operating activities, reflecting growth of 37.8% from the year-ago quarter. Capital spending on the purchase of property, plant and equipment was roughly $11 million versus $9.4 million in the year-ago quarter. Free cash flow for the quarter was $109.7 million, up 40.3% year over year.
During the quarter, the company bought back 147 thousand shares for a total cost of $20.5 million while distributed $33 million dividends.
Outlook
For 2018, IDEX is poised to gain from robust organic growth prospects and synergistic gains from acquired assets. It’s worth noting here that Phantom Controls' intellectual property assets were acquired in June this year while Finger Lakes Instrumentation was added to the portfolio in July. The Phantom Controls' assets buyout will strengthen the company's Fire Suppression businesses and Finger Lakes acquisition will benefit Health & Science business.
With solid results in the first half and continued strength in businesses, the company has raised its earlier guidance for 2018. Full-year adjusted earnings are currently anticipated to lie within the $5.27-$5.35 per share range compared with the earlier prediction of $5.05-$5.20.
Organic revenue growth is anticipated to be roughly 7%, up from 5-6% predicted earlier. Favorable foreign currency movements will add 1% to sales versus 3% expected previously. Operating margin projection has been maintained at the 22.5-23% range. Corporate expenses are likely to total $76-$80 million (up from $73-$77 million predicted earlier), tax rate to be roughly 23%, capital expenditure to be $45 million (lower than $50 million projected earlier) and free cash flow conversion to be 110%.
For the third quarter, earnings per share are anticipated to be $1.29-$1.32 on the back of organic revenue growth of 6-7%. Forex woes will adversely impact revenues by 1%. Operating margin will be roughly 23% while tax rate will be roughly 22.5% and corporate expense $20 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Idex has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 suitable for growth and momentum investors.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Idex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.