SPX Corp Q1 Earnings Beat, Revs Lag - Analyst Blog

Shares of  SPX Corp. SPW rose nearly 1.1% following the company's first-quarter 2014 results on Apr 30. The company's adjusted earnings came in at 27 cents a share, which surpassed the Zacks Consensus Estimate of 22 cents by 22.7%. The company's GAAP earnings surged to $6.58 per share compared with a meager 28 cents in the prior-year period.

The company's adjusted earnings include a $7.0 per share gain from the divestment of the joint venture interest in EGS Electrical Group, LLC, a debt repayment charge of 45 cents per share and a non-service related pension expense of 24 cents per share.

The earnings improvement was primarily driven by the strength in the company's Flow end markets. Moreover, the organizational and restructuring initiatives undertaken last year aided its operating performance by optimizing the cost structure across the globe. 

Revenue

Revenues for the quarter contracted 1.9% to $1.07 billion versus $1.09 billion reported in the prior-year quarter. Organic revenues for the quarter declined 2% year over year. The top line was impacted by an unfavorable currency translation of 0.1% and weakness in one of the three segments of the company. Revenues were also below the Zacks Consensus Estimate of $1.11 billion.

Segments

Flow Technology revenues for the quarter increased 0.6% to $616.7 million compared with $613.0 million in the prior-year quarter. Organic revenues decreased 0.6%, while currency fluctuations increased revenues by 1.2%. The contraction in organic revenues was primarily due to reduced OE pump sales resulting from increased discipline in order acceptance of OE pump contracts. However, this was offset by increased sales of oil & gas aftermarket services, power and energy valves, industrial flow components, as well as increased sales of food and beverage systems.

Revenues for the Thermal Equipment and Services segment declined 8.4% year over year to $279.6 million. Organic revenues for the segment decreased 5.8%, while currency fluctuations decreased revenues by 2.6%. The organic revenue decline was due to the expected slowdown in large power projects in South Africa.

Revenues in the Industrial Products and Services and Other segment increased 0.4% to $173.1 million compared with $172.4 million in

the prior-year quarter. Organic revenues for the segment remained flat year over year. Revenue growth was offset by inclement weather conditions due to which the shipment of four large power transformers was delayed, resulting in a lag of $10 million on the segment revenues.

Margins

Gross margin for the quarter increased 118 basis points (bps) to 28.0%, primarily due to favorable currency fluctuations and lower cost of products. For the quarter, the company reported operating income of $15.1 million, down from $30.0 million reported in the prior-year period.

Cash Flow & Balance Sheet

Exiting the quarter, the company had cash and cash equivalents of $486.0 million compared with $691.8 million as on Dec 31, 2013. Cash from operating activities for the quarter was negative $60.6 million, narrower than negative $66.4 million in the prior-year period. The company had a long-term debt of $1,088.9 million, a decline from $1,090.0 million as on Dec 31, 2013.

Business Update

In the first quarter, SPX divested three of its businesses- its 44.5% joint venture interest in EGS Electrical Group, LLC, its Thermal Product Solutions business and most recently the Precision Components business. Apart from this, the company completed the redemption of its 7.625% senior notes that were due in Dec 2014 and repurchased 1.316 million shares for $134.3 million. The company also increased its annual dividend by 50% to $1.50 per share in the quarter.   Moreover, the company took initiatives to settle a part of its SPX U.S. Pension Plan in the period.

Outlook

Following the earnings release, the company also reiterated its outlook for fiscal 2014. SPX continues to expect revenue growth to be in the range of 2% to 6% while adjusted earnings from continuing operations are expected to be in the range of $5.00 to $5.50 a share. 

SPX currently carries a Zacks Rank #2 (Buy). Other stocks that look promising and are worth consideration include Douglas Dynamic, Inc. PLOW, Dorman Products, Inc. DORM and Remy International, Inc. (REMY). While Douglas Dynamic carries a Zacks Rank #1 (Strong Buy), both Dorman Products and Remy International have the same rank as SPX.