Industrial equipment and engineered products manufacturer Albany (NYSE:AIN) missed Wall Street’s revenue expectations in Q4 CY2024, with sales falling 11.3% year on year to $286.9 million. The company’s full-year revenue guidance of $1.22 billion at the midpoint came in 6% below analysts’ estimates. Its non-GAAP profit of $0.58 per share was 12% below analysts’ consensus estimates.
Revenue: $286.9 million vs analyst estimates of $299.5 million (11.3% year-on-year decline, 4.2% miss)
Adjusted EPS: $0.58 vs analyst expectations of $0.66 (12% miss)
Adjusted EBITDA: $218.9 million vs analyst estimates of $59.65 million (76.3% margin, significant beat)
Management’s revenue guidance for the upcoming financial year 2025 is $1.22 billion at the midpoint, missing analyst estimates by 6% and implying -1.3% growth (vs 8.1% in FY2024)
EBITDA guidance for the upcoming financial year 2025 is $250 million at the midpoint, below analyst estimates of $276.8 million
Operating Margin: 8.5%, down from 12.9% in the same quarter last year
Free Cash Flow Margin: 21%, up from 12.2% in the same quarter last year
Market Capitalization: $2.50 billion
"We continue to perform well in both our businesses, as evidenced by strong results at Machine Clothing and ongoing operational progress steered by new leadership at Engineered Composites," said Gunnar Kleveland, President and Chief Executive Officer.
Company Overview
Founded in 1895, Albany (NYSE:AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
General Industrial Machinery
Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still 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 sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Albany’s 3.1% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.
Albany Quarterly Revenue
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. Albany’s annualized revenue growth of 9% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Albany Year-On-Year Revenue Growth
We can better understand the company’s revenue dynamics by analyzing its most important segments, Machine Clothing and Engineered Composites, which are 65.6% and 34.4% of revenue. Over the last two years, Albany’s Machine Clothing revenue (paper manufacturing belts) averaged 11.4% year-on-year growth while its Engineered Composites revenue (aerospace components) averaged 7.3% growth.
This quarter, Albany missed Wall Street’s estimates and reported a rather uninspiring 11.3% year-on-year revenue decline, generating $286.9 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
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Operating Margin
Albany has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Albany’s operating margin decreased by 7.8 percentage points over the last five years. This raises an eyebrow about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
Albany Trailing 12-Month Operating Margin (GAAP)
This quarter, Albany generated an operating profit margin of 8.5%, down 4.4 percentage points year on year. Since Albany’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Albany, its EPS declined by 5% annually over the last five years while its revenue grew by 3.1%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.
Albany Trailing 12-Month EPS (Non-GAAP)
Diving into the nuances of Albany’s earnings can give us a better understanding of its performance. As we mentioned earlier, Albany’s operating margin declined by 7.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Albany, its two-year annual EPS declines of 9.5% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q4, Albany reported EPS at $0.58, down from $1.22 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Albany’s full-year EPS of $3.17 to grow 21.3%.
Key Takeaways from Albany’s Q4 Results
We were impressed by how significantly Albany blew past analysts’ EBITDA expectations this quarter. On the other hand, its full-year revenue guidance missed significantly and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.1% to $77.20 immediately following the results.
Albany underperformed this quarter, but does that create an opportunity to invest right now? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
