Colfax – integration of acquired businesses continues in a difficult environment
Colfax (NYSE: CFX) released its Q3 2012 results last week. It missed on revenues but beat EPS expectations.
Even if this is a minor detail for real long term investors it shows the difficult economic environment Colfax operates in.
In a quarter to quarter comparison margins shrank significantly:
Gross margin came down to 30.2% from 35.6%
Operating margin went from 5.4% to 3.2% and net margin was 1% on a GAAP basis.
But don’t forget: Those numbers were realized on a much bigger revenue basis after the Charter International acquisition!
So the important question here is: Did they continue to integrate and restructure the acquired businesses according to their plan?
Management gave a few indications on their conference call (the transcript you can find here on Seeking Alpha)
Related to ESAB CEO Steven Simms pointed out that „despite the lower-than-expected sales, adjusted operating margins improved by 70 basis points during the third quarter in comparison to the second. Despite the softness in top line sales, this margin rate was higher than expected as costs were tightly controlled and price increases largely held.”
And further on „…the ESAB cost and restructuring program remains on track, and we are — we continue to be confident with our plan to deliver margins in the low teens within 3 years of acquisition.”
Management adjusted their guidance for FY 2012 slightly:
Revenue is expected to be $ 3.9 – 3.95 bil and EPS should come in between $ 1.29 – 1.33
This values Colfax share at a p/e 2012 of 26 (… it’s only 2 months left!) and 2013 of about 16.
Interestingly the price/sales ratio 2012 is only 0.8 and even lower for 2013 which could mean that a successfull and profitable integration of the acquired businesses is not yet factored into the share price.
For investors who are convinced that management is capable to further execute the „Colfax Business System” the share remains a Buy!