Business context and reporting period
SPX Corporation (NYSE: SPXC) filed this Form 10-Q for the quarter ended October 2, 2021. The filing identifies the registrant as SPX Corporation; the request’s “SPX Technologies, Inc.” name does not match the filing. SPX reported continuing operations in HVAC and Detection and Measurement, following its October 1 sale of SPX Transformer Solutions. The sale was treated as a strategic shift and the business is presented as discontinued operations for all periods.
Financial performance
Amounts are in millions, except per-share data. Continuing-operations results exclude discontinued operations.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $285.8 | $268.3 | $870.4 | $783.1 |
| Gross profit / margin | $94.0 / 32.9% | $91.7 / 34.2% | $300.0 / 34.5% | $269.7 / 34.4% |
| Operating income | $11.8 | $20.4 | $44.7 | $54.0 |
| Continuing-operations income | $7.7 | $15.6 | $41.4 | $40.3 |
| Net income, including discontinued operations | $331.1 | $22.8 | $419.4 | $72.6 |
| Operating cash flow—continuing operations | Not separately provided for the quarter | $94.0 | $11.0 |
Revenue rose 6.5% in Q3 and 11.1% for nine months. Q3 continuing-operations income fell 50.6%; nine-month income increased 2.7%. Q3 basic and diluted EPS from continuing operations were $0.17 and $0.17, respectively; nine-month amounts were $0.92 and $0.89.
At October 2, cash and equivalents were $560.1, total debt was $247.6, and cash exceeded debt by $312.5. Available revolving-credit capacity was $437.8; the company reported compliance with credit covenants. Current assets were $1,046.5 and current liabilities $477.5. Nine-month consolidated operating cash flow was $153.8, including $59.8 from discontinued operations; investing cash flow was $498.6, including $617.9 from discontinued operations, chiefly sale proceeds. Financing cash flow was negative $166.8.
Material changes versus prior comparable periods
- Q3 continuing revenue increased, but operating income declined to $11.8 from $20.4 and gross margin contracted to 32.9% from 34.2%.
- Detection and Measurement revenue grew 24.9% in Q3, including acquisition contributions, while segment income fell 30.3%. HVAC revenue declined 1.8% and segment income fell 20.1%.
- For nine months, Detection and Measurement revenue rose 22.3%, but segment income decreased 14.7%; HVAC revenue rose 5.8% and income rose 7.8%.
- Transformer Solutions was sold for $645.0 stated gross consideration; net cash proceeds were $620.6. SPX recorded a $357.7 after-tax disposition gain. The final price and gain remain subject to adjustment.
- Cash increased from $68.3 at December 31, 2020 to $560.1, largely reflecting the divestiture proceeds. Total debt declined from $412.4 to $247.6.
Outlook, management commentary, risks and unusual items
- No specific financial guidance or quantified forward outlook is provided. Management said it is focusing investment on HVAC and Detection and Measurement after exiting most power-generation exposure.
- Management cited supply-chain disruptions, shipment delays, lower manufacturing-cost absorption, higher component, commodity and service costs, and labor shortages. These factors pressured Q3 production and margins; management said it was taking actions and would continue assessing impacts.
- Acquisitions contributed to revenue growth and also increased amortization and acquisition-related costs. The company acquired Sealite and ECS in 2021. ULC’s contingent-consideration liability reversal of $24.3 was accompanied by a $24.3 impairment charge, including $23.3 of goodwill and $1.0 of trademarks.
- Contingencies include asbestos claims and insurance recoveries, and disputes connected with DBT’s South African power projects. DBT claims against MHI and MHI claims against DBT remain subject to dispute resolution; potential outcomes and losses are uncertain. Certain favorable DBT rulings and payments have not been recognized as income because further arbitration is possible.
- Recorded liabilities for claims and other matters totaled $540.4. Asbestos-related liabilities were $499.4, against insurance-recovery assets of $453.9; recoveries depend on insurer solvency and coverage rights.
- Other notable items include $22.4 of federal tax refunds and $15.0 of asbestos-related insurance proceeds received in Q3. The Q3 effective tax rate on continuing operations was 32.5%, including $0.7 of expense from revaluing deferred tax liabilities after an enacted tax-rate increase.
- Management cautioned that the Transformer Solutions sale price and gain could be materially adjusted. It also noted that interim results are not necessarily indicative of full-year results and that 2021 and 2020 fiscal-period lengths differ.
Important facts for investors to verify
- Final sale-price adjustments, net proceeds, and the eventual gain on Transformer Solutions.
- Whether supply constraints, input-cost inflation, labor shortages, and shipment delays persist or further affect margins and backlog conversion.
- Acquisition performance and integration, particularly Detection and Measurement profitability, goodwill and intangible-asset valuations, and contingent consideration.
- Resolution, timing, and potential financial exposure from asbestos matters and the DBT–MHI disputes, including bonds and indemnities.
- Cash generation and debt levels after the one-time divestiture proceeds, and the sustainability of reported operating cash flow.