Industrial manufacturer Standex (NYSE:SXI) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 7.7% year on year to $170.5 million. Its GAAP profit of $1.53 per share was also 5.4% below analysts’ consensus estimates.
Revenue: $170.5 million vs analyst estimates of $178.9 million (4.7% miss)
EPS: $1.53 vs analyst expectations of $1.62 (5.4% miss)
EBITDA: $34.11 million vs analyst estimates of $33.3 million (2.4% beat)
Gross Margin (GAAP): 41.1%, up from 39.3% in the same quarter last year
Operating Margin: 14.1%, down from 15.7% in the same quarter last year
EBITDA Margin: 20%, in line with the same quarter last year
Free Cash Flow Margin: 6.4%, similar to the same quarter last year
Market Capitalization: $2.14 billion
Commenting on the quarter's results, President and Chief Executive Officer David Dunbar said, "Following record profit and cash generation in fiscal year 2024, we delivered another solid operational performance in the fiscal first quarter with record gross margin. Sales from fast growth markets in electric vehicles, defense applications, and commercialization of space improved year-on-year, respectively, but were offset primarily by demand conditions affecting the soft trim business in our Engraving segment. In the fiscal first quarter, we achieved record gross margin of 41.1% and maintained adjusted operating margin near 16.0%, while continuing to support our growth initiatives. We remain optimistic about leading market indicators across most of our businesses."
Company Overview
Holding over 500 patents globally, Standex (NYSE:SXI) is a manufacturer and distributor of industrial components for various sectors.
Gas and Liquid Handling
Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, Standex’s sales grew at a sluggish 3.2% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis.
Standex Total Revenue
Standex Year-On-Year Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Standex’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.3% annually.
This quarter, Standex missed Wall Street’s estimates and reported a rather uninspiring 7.7% year-on-year revenue decline, generating $170.5 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 8.8% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and illustrates the market believes its newer products and services will fuel higher growth rates.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Standex has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Standex’s annual operating margin rose by 4.4 percentage points over the last five years, showing its efficiency has improved.
Standex Operating Margin (GAAP)
This quarter, Standex generated an operating profit margin of 14.1%, down 1.6 percentage points year on year. Conversely, its gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.
Standex’s weak 3.5% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Standex Trailing 12-Month EPS (GAAP)
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Standex, its two-year annual EPS growth of 7.4% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.
In Q3, Standex reported EPS at $1.53, down from $1.57 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Standex’s full-year EPS of $6.11 to grow by 26.2%.
Key Takeaways from Standex’s Q3 Results
It was good to see Standex beat analysts’ EBITDA expectations this quarter. On the other hand, its revenue and EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2% to $176.22 immediately following the results.
