Columbus McKinnon (NASDAQ:CMCO) Misses Q3 Revenue Estimates

Kayode Omotosho

Wed, Oct 30, 2024, 4:33 AM 6 min read

Revenue: $242.3 million vs analyst estimates of $248.7 million (2.6% miss)
Adjusted EPS: $0.70 vs analyst expectations of $0.70 (in line)
EBITDA: $39.15 million vs analyst estimates of $39.81 million (1.6% miss)
Gross Margin (GAAP): 30.9%, down from 38.7% in the same quarter last year
Operating Margin: 4.5%, down from 12.9% in the same quarter last year
EBITDA Margin: 16.2%, down from 17.7% in the same quarter last year
Free Cash Flow Margin: 1.6%, down from 4.5% in the same quarter last year
Market Capitalization: $930.1 million

"Our commercial and operational initiatives are delivering wins with new and existing customers in attractive vertical markets and we delivered one of our highest order quarters in history with 16% order growth and a book-to-bill ratio of 1.08x in Q2." said David J. Wilson, President and Chief Executive Officer.

Company Overview

With 19 different brands across the globe, Columbus McKinnon (NASDAQ:CMCO) offers material handling equipment for the construction, manufacturing, and transportation 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

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Columbus McKinnon’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.

Columbus McKinnon 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. Columbus McKinnon’s annualized revenue growth of 4.3% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Columbus McKinnon missed Wall Street’s estimates and reported a rather uninspiring 6.2% year-on-year revenue decline, generating $242.3 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 5.5% over the next 12 months. While this projection shows the market believes its newer products and services will spur better performance, it is still below the sector average.

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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.

Columbus McKinnon has done a decent job managing its cost base over the last five years. The company produced an average operating margin of 8.9%, higher than the broader industrials sector.

Looking at the trend in its profitability, Columbus McKinnon’s annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years. Shareholders will want to see Columbus McKinnon grow its margin in the future.

Columbus McKinnon Operating Margin (GAAP)

This quarter, Columbus McKinnon generated an operating profit margin of 4.5%, down 8.4 percentage points year on year. Since Columbus McKinnon’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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.

Sadly for Columbus McKinnon, its EPS declined by 1.8% annually over the last five years while its revenue grew by 3.2%. However, its operating margin didn’t change during this timeframe, telling us that non-fundamental factors affected its ultimate earnings.

Columbus McKinnon Trailing 12-Month EPS (Non-GAAP)

Columbus McKinnon Diluted Shares Outstanding

We can take a deeper look into Columbus McKinnon’s earnings to better understand the drivers of its performance. A five-year view shows Columbus McKinnon has diluted its shareholders, growing its share count by 20.7%. This has led to lower per share 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 give insight into an emerging theme or development for the business.

For Columbus McKinnon, EPS didn’t budge over the last two years, but at least that was better than its five-year trend. We hope its earnings can grow in the coming years.

In Q3, Columbus McKinnon reported EPS at $0.70, down from $0.76 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Columbus McKinnon’s full-year EPS of $2.81 to grow by 17.7%.

Key Takeaways from Columbus McKinnon’s Q3 Results

We struggled to find many strong positives in these results. Its revenue unfortunately missed and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 4.9% to $30.65 immediately after reporting.

Columbus McKinnon’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.