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Colfax FY 2012: integrating and restructuring in a difficult economic environment

February 15th, 2013

The 2012 results of Colfax Corp. (NYSE.CFX) are a mixed picture:

Everything the company can influence they did well:

restructuring, streamlining and integrating the acquired companies.

As CEO Simms explains: “We were extremely pleased with the performance of our Soldexa acquisition in November and December, which contributed over $3 million in operating profit before transaction costs and acquisition accounting items totaling $5 million.”

And he continues: “our working capital performance in the fourth quarter was outstanding. We generated $163 million in operating cash flow in the quarter. Inventory balances were reduced by $56 million, accounts payable increased by $56 million and a significant improvement in construction contract funding was achieved. This accomplishment was broad-based across all 3 businesses and shows what focused application of the CBS tools can deliver.”

But the economic environment remained difficult in 2012:

Most of the ESAB regions continued to experience relatively soft demand consistent with the third quarter due to the weakening of the global economic environment. As discussed on last quarter’s call, we expect a slight decline in operating margins at ESAB as we planned a number of factory shutdowns for December.

But there are also positive signs:

Colfax’ backlog was a strong $1.4 billion at year end. Their book-to-bill ratio for the fourth quarter at 1.01:1 was stronger than the typical fourth quarter.

They saw strong bookings in the gas-handling business, unfortunateley offset by continued weakness in fluid-handling.

So what do these results mean for investors?

The management team is working hard to improve the group’s effectiveness implementing their „Colfax Business System (CBS)” and they are very successful at doing it!

We can expect improving margins and strong cash flow numbers over time.

They are well positioned in a number of industrial markets and when they economy improves they will profit immediately!

Colfax share at yesterday’s closing of $ 42.25 is valued at a p/e of 23 as analysts expect EPS of $ 1.82  in FY 2013.

To me this seems to be a „buy” on weaknesses!

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