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.
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