EnPro Industries (NPO) Q3 Earnings & Sales Miss, Up Y/Y – October 31, 2017

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EnPro Industries Inc. (NPO Free Report) delivered a negative earnings surprise of 18% in third-quarter 2017. This is the fifth consecutive quarter of weaker-than-expected bottom-line results.

Adjusted earnings in the quarter came in at 73 cents per share, lagging the Zacks Consensus Estimate of 89 cents. However, the bottom line surged 69.8% from the year-ago tally of 43 cents.

Per a reorganization plan, the company reconsolidated results of Garlock Sealing Technologies LLC and related entities with its results for the third quarter.

Strengthening End-Markets Drive Revenues

The company’s third-quarter net sales were $343.7 million, below the Zacks Consensus Estimate of $356.5 million. However, the top line grew 17.4% year over year on the back of strengthening segmental sales. In addition, the company cited that acquisition (net of divestitures) and forex gains of 0.2% and 1%, respectively, impacted sales positively.

Business was strong in semiconductor, food & pharma, aerospace, automotive, general industrial and metals & mining end markets. Additionally, demand for products grew modestly in oil & gas and heavy-duty trucking markets. These positives were partially offset by weakness in industrial gas turbines and nuclear markets.

The company reports its revenue results under three segments. A brief snapshot of segmental sales has been provided below:

Sealing Products revenues were up 21.9% year over year to $213.7 million. Engineered Products sales were $75.5 million, up 14.9% year over year. Sales in the Power Systems segment were $55.4 million, up 5.5% year over year.

Margins Weak on Higher Costs & Expenses

EnPro Industries’ cost of sales increased 17.7% year over year and represented 66.5% of net sales versus 66.3% recorded in the year-ago quarter. Gross margin declined 20 basis points to 33.5%. Selling, general and administrative expenses were $85.7 million, accounting for 24.9% of revenues.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter were $51.1 million, up 20.6% year over year while adjusted EBITDA margin was 14.9%.

Balance Sheet & Cash Flow

Exiting the third quarter, EnPro Industries had cash and cash equivalents of $176.1 million, up from $132.1 million in the preceding quarter. Long-term debt was $560.4 million, increasing 13.8% sequentially.

In the first nine months of 2017, the company generated net cash of $64.4 million from its operating activities, considerably up from $7.9 million in the year-ago period. Cash used for purchase of property, plant and equipment totaled $23.6 million, slightly below $24.6 million in the year-ago period.

During the nine months, the company paid approximately $14.3 million as dividend and repurchased shares worth $11.5 million.

Share Buyback Program Announced

Concurrent with the earnings release, the company announced that its board of directors has approved $50 million worth share buyback program. The program is valid for a three-year period starting Oct 28, 2017.

Outlook

EnPro Industries anticipates benefiting from strengthening end-market conditions, solid product portfolio and healthy macroeconomic conditions. It raised its adjusted EBITDA guidance to $207-$212 million from the previous projection of $200-$205 million.

EnPro Industries Price and Consensus

EnPro Industries Price and Consensus | EnPro Industries Quote

Zacks Rank & Key Picks

With a market capitalization of approximately $1.7 billion, EnPro Industries currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Sun Hydraulics Corporation (SNHY Free Report) , Barnes Group Inc. (B Free Report) and Graco Inc. (GGG Free Report) . While Sun Hydraulics sports a Zacks Rank #1 (Strong Buy), both Barnes and Graco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sun Hydraulics’ financial performance was impressive, with an average positive earnings surprise of 3.47% over the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Barnes Group pulled off an average positive earnings surprise of 9.02% over the last four quarters. Also, its earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Graco delivered an average positive earnings surprise of 24.34% over the last four quarters. Also, earnings estimates for 2017 and 2018 improved over the past 60 days.

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