Colfax's Share Price Falls on Weak Q2 Earnings, Lowers Outlook - Analyst Blog

Colfax Corporation (CFX) disappointed its shareholders and the market at large, by posting weaker-than-expected second-quarter results on Jul 17. Since then, share price of the manufacturing and engineering company has dropped 6.9% while its earnings estimates have been revised downward, reflecting a weaker outlook for the quarters ahead.

Of the 9 analysts covering the stock, 4 have revised their estimates downward for 2014 while 5 out of 10 analysts have lowered their estimates for 2015. The Zacks Consensus Estimate is currently pegged at $2.47 for 2014 and $3.14 for 2015, down 5% and 1.9% respectively in the last seven days. Also, Colfax has an Earnings ESP of -6.48% for 2014 and -1.27% for 2015.

A brief discussion of Colfax's second-quarter result is provided below:  

Colfax reported adjusted earnings of 48 cents per share, down 14.3% year over year and 27.3% below the Zacks Consensus Estimate of 66 cents. Top-line growth was offset by increase in costs and expenses.

Revenues: Net sales were $1,199.3 million, up 11.7% year over year and above the Zacks Consensus Estimate of $1,263 million. The increase was largely driven by 17.9% contribution from acquisitions. Organically, revenues were down 5% while foreign translation had an adverse impact of 1.2%.

Of the net sales, Colfax generated roughly $568.9 million from Gas and Fluid Handling segment, reflecting a year-over-year increase of 10.1%. Organically, the segment's revenues were down 7.0%, due primarily to sales declines in power generation and oil, gas & petrochemical end-markets. Revenues from Fabrication Technology segment rose 13.1% year over year to $557.3 million, but declined 3.1% organically.

Total orders were $593.8 million, up 24.2% year over year. Backlog at the quarter-end was $1,584.8 million, as against $1,388.4 million in the year-ago comparable period.

Margins: Colfax's cost of sales increased 10.2% and represented 67.6% of total revenue. Gross margin was 32.4%, up 90 basis points (bps) year over year. Selling, general and administrative (SG&A) expenses, as a percentage of revenue, were 23.3%, against 20.6% recorded in the year-ago quarter. Adjusted operating income margin decreased 180 basis points year over year to 9.1%.

Outlook: Colfax has lowered its sales guidance for 2014 to $4.7−$4.8 billion range from the previous projection of $4.85−$4.99 billion.

Adjusted earnings per share are estimated to be within $2.20−$2.35, down compared with the prior expectation of $2.45−$2.70 range. Generally Accepted Accounting Principles (GAAP) earnings per share are anticipated in the range of $2.31−$2.57.

Tax rate is expected to be within 29−30%, while interest expense is predicted to be nearly $56 million versus $58 million expected earlier.

With a market capitalization of $8.4 billion, Colfax holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Blount International Inc. (BLT), EnPro Industries, Inc. (NPO) and Dover Corporation (DOV). While Blount International and EnPro Industries sport a Zacks Rank #1 (Strong Buy), Dover Corporation carries a Zacks Rank #2 (Buy).