SPX Corporation (SPXC) — Form 10-Q Summary
Business context and reporting period
This filing is by SPX Corporation, the company identified in the filing (not SPX Technologies). It covers the quarter ended June 27, 2020, and the six months then ended. SPX supplies engineered products and services through HVAC, Detection and Measurement, Engineered Solutions, and other businesses. Amounts below are in millions of dollars unless stated otherwise.
Financial results and condition
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $373.2 | $372.4 | $742.5 | $716.0 |
| Gross profit / margin | $114.0 / 30.5% | $108.2 / 29.1% | $228.1 / 30.7% | $191.4 / 26.7% |
| Operating income | $34.4 | $26.3 | $67.1 | $29.3 |
| Continuing-operations income | $28.4 | $19.4 | $51.1 | $20.0 |
| Net income | $27.1 | $19.2 | $49.8 | $18.4 |
| Diluted EPS | $0.59 | $0.43 | $1.09 | $0.41 |
- Revenue and margins: Q2 revenue was nearly unchanged year over year; first-half revenue rose 3.7%. First-half gross margin increased to 30.7% from 26.7%. Reported revenue growth benefited from the SGS and Patterson-Kelley acquisitions and prior-year South African project revenue reductions; organic revenue declined 3.2% in Q2 and 4.7% in the first half.
- Cash flow: First-half cash from continuing operating activities was $29.8, versus $28.0. Capital expenditures were $9.4. Cash from all operating activities, including discontinued operations, was $26.3. Cash increased $135.5 to $190.2, with net financing cash inflows of $119.8 contributing substantially to the increase.
- Liquidity and debt: At June 27, cash was $190.2; total debt was $517.9, including $266.8 classified as short-term and $247.0 long-term. SPX reported $202.7 of available revolving-credit capacity and $9.3 under its trade-receivables facility. Management reported over $400.0 of availability from cash and aggregate borrowing capacity. The company was in compliance with senior-credit covenants. Revolving borrowings were classified as current because SPX expected to repay them within a year.
- Other balance-sheet items: Current assets were $769.0 and current liabilities $704.0. Inventory was $181.6, up from $154.9 at year-end 2019. Total equity was $552.1.
Material changes and segment performance
- Q2 operating income increased to $34.4 from $26.3; first-half operating income rose to $67.1 from $29.3. Comparisons benefited from prior-year reductions of $6.0 in Q2 and $23.5 in the first half related to variable consideration on South African power projects. Improved power-transformer profitability also contributed.
- HVAC: Q2 revenue rose 1.1% to $132.3, partly due to acquisitions, while first-half revenue fell 3.3% to $250.8. Management cited weaker heating-product demand, a warmer-than-normal winter, and COVID-related effects.
- Detection and Measurement: Q2 revenue fell 9.4% to $92.1 and segment income fell 26.3% to $16.0. Lower demand and delayed orders affected higher-margin locator and communication products.
- Engineered Solutions: Q2 revenue increased 5.6% to $146.8 and segment income rose to $17.6 from $13.0. Power-transformer sales mix, pricing discipline, and manufacturing throughput improved.
- All Other: Segment loss was $4.2 in Q2 and $8.1 in the first half, improved from the comparable 2019 periods that included South African project revenue reductions. The South African projects and Heat Transfer wind-down contributed to lower underlying activity.
Outlook, risks, contingencies, and unusual items
- Management said COVID-19 had a modest adverse impact through June 27 and expected adverse effects to continue through the second half of 2020 and possibly longer. The duration and magnitude were uncertain. Risks included weaker customer demand, order delays, supply disruption, facility closures, credit access, covenant compliance, and potential asset impairments. SPX reported no material facility interruptions to date and said many products and services support critical infrastructure.
- Management cited cost and cash-flow actions, including lower discretionary spending and capital expenditures, and steps to address potential sourcing challenges. The filing provides no specific financial guidance or quantified full-year outlook.
- Q2 other income included a $5.3 gain from an increase in the estimated fair value of an equity investment. Net income also included a $1.3 loss on disposition of discontinued operations, primarily revisions to retained divestiture liabilities.
- SPX recorded $565.0 of liabilities for claims and proceedings, including $525.0 for asbestos matters, alongside $496.4 of related insurance-recovery assets. Management warned that claim, insurance, and insurer-solvency assumptions may change and materially affect results, cash flows, or financial position.
- Disputes remain concerning DBT’s South African power projects. SPX recorded no revenue for its current or potential claims against a prime contractor and no loss for the contractor’s claims, while acknowledging some loss was reasonably possible but not estimable. A July 23, 2020 panel ruling favored DBT on certain matters, including return of some bonds and incentive payments; the ruling was subject to further arbitration and the incentive payment was not recorded.
- Other notable items include a new ten-year corporate-headquarters lease with scheduled payments totaling $17.6, restructuring charges of $1.7 in the first half, and an expected possible decrease of up to $10.0 in previously unrecognized tax benefits within 12 months.
Most important facts for investors to verify
- Whether COVID-related demand weakness and order delays persist, especially in HVAC heating and Detection and Measurement, and how they affect margins and backlog.
- Whether operating cash flow and liquidity remain adequate as borrowings, customer collections, and working-capital needs change.
- Whether power-transformer performance and backlog convert into sustained revenue and profit.
- Developments in South African project disputes, including potential claims, bond releases, and any further arbitration.
- The recoverability and timing of asbestos insurance assets, and changes in associated liabilities or insurer capacity.
- Potential impairment exposure, including the disclosed sensitivity of Cues goodwill to operating forecasts and the risk of prolonged COVID-related pressure on goodwill and intangible assets.