SPX Corporation — Form 10-Q Summary
Reporting period: Quarter ended October 2, 2010; year-to-date period covers nine months. Comparatives are the quarter and nine months ended September 26, 2009. The filing identifies the registrant as SPX Corporation; the supplied company metadata says SPX Technologies, Inc.
Financial performance
Amounts are in millions of dollars, except per-share data. Q3 revenue rose 9.9% to $1,289.8; organic revenue growth was 6.8%, with acquisitions contributing 4.8 percentage points and currency reducing growth by 1.7 points. For nine months, revenue increased 1.1% to $3,565.1, despite a 2.2% organic decline.
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Gross profit | $378.5 | $354.6 | $1,045.2 | $1,034.7 |
| Gross margin | 29.3% | 30.2% | 29.3% | 29.3% |
| Operating income | $108.7 | $102.3 | $247.9 | $252.7 |
| Income from continuing operations | $39.8 | $50.8 | $126.9 | $128.2 |
| Net income attributable to SPX common shareholders | $39.4 | $46.0 | $140.3 | $103.8 |
| Diluted EPS from continuing operations | $0.78 | $0.98 | $2.55 | $2.55 |
| Diluted net EPS | $0.78 | $0.93 | $2.79 | $2.09 |
Q3 operating margin was approximately 8.4%, versus 8.7% a year earlier. Nine-month net income benefited from $12.1 of discontinued-operations income, including disposition-related tax effects; continuing-operations earnings were nearly flat year over year.
Segments and notable changes
- Flow Technology: Q3 revenue was $438.6, up 8.0%, and segment income was $58.2, up 17.3%. Nine-month revenue and income declined 1.7% and 2.4%, respectively.
- Test and Measurement: Q3 revenue rose 21.3% to $227.6 and segment income rose 38.0% to $17.8. Nine-month revenue increased 13.7% and income increased 71.6%, driven chiefly by automotive diagnostic tools.
- Thermal Equipment and Services: Q3 revenue rose 9.6% to $440.1; income was $60.2, up 1.7%. Nine-month income increased 30.1% to $140.6, supported by project execution and mix.
- Industrial Products and Services: Q3 revenue rose 2.7% to $183.5, but income fell 37.8% to $21.6. Nine-month revenue declined 15.3% and income declined 54.4%, mainly reflecting lower power-transformer volume and pricing.
Cash flow, debt and liquidity
- Cash from continuing operations for the first nine months was $43.0, versus $235.7 in 2009. Management attributed the decrease mainly to working-capital investment, particularly receivables, as revenue recovered.
- Cash and equivalents were $391.0 at October 2, 2010, down from $522.9 at year-end 2009. Net cash decreased $131.9 over the nine-month period. Capital expenditures were $35.7; acquisition and investment outflows were $122.1.
- Total debt was $1,310.3, versus $1,279.0 at year-end 2009. The company issued $600.0 of 6.875% senior unsecured notes due 2017 and used proceeds chiefly to repay its $562.5 remaining term loan and related costs. It recorded a $25.6 charge for extinguishment of the loan and interest-rate swaps.
- Available capacity was $403.8 under revolving credit facilities and $27.5 under the trade-receivables facility. The company reported compliance with debt covenants. Current assets were $2,427.2 and current liabilities $1,711.8.
Outlook, risks and unusual items
- Management expected Q4 2010 Flow Technology revenue to increase at a low double-digit rate, including a flat-to-single-digit organic increase; Test and Measurement revenue to rise at a low double-digit rate; Thermal Equipment and Services revenue to be about 10% below the prior-year quarter because of project timing; and Industrial Products and Services revenue to be generally flat. No consolidated full-year earnings guidance is provided in the filing.
- Backlog at October 2 was $771.9 for Flow Technology, $1,665.9 for Thermal Equipment and Services, and $358.7 for Industrial Products and Services. Management cautioned that large-project timing can cause significant fluctuations in Thermal segment revenue and profit.
- Q3 included the $25.6 debt-and-swap extinguishment charge. Nine-month results also included a $22.0 income-tax benefit from IRS examinations, partly offset by a $6.2 charge related to retiree prescription-drug benefits under health-care reform. The nine-month effective tax rate was 22.8%, versus 33.1% in 2009.
- The company completed acquisitions of Anhydro, Torque Tension Systems and Gerstenberg in 2010; their pro forma and post-acquisition effects were described as not material to results. It also cited pricing pressure, foreign-exchange exposure, pension costs, acquisition integration and economic conditions as risks.
- Unrecognized tax benefits were $101.2 gross ($83.8 net); the company said $30–$40 could be resolved or paid within 12 months. It reported $302.0 of accruals for claims and contingencies, including risk-management matters, and environmental liabilities at 96 owned or controlled sites. Management believed recorded accruals were adequate, while noting that outcomes and estimates could change.
Most important facts for investors to verify
- Whether the Q3 revenue recovery and backlog conversion supported subsequent-period organic growth, particularly in Flow Technology.
- Whether working-capital demands—especially receivables—continued to suppress operating cash flow.
- Whether Industrial Products and Services margins stabilized amid power-transformer pricing and volume pressure.
- Debt-service capacity, covenant headroom and available borrowing capacity following the 2017 notes issuance and term-loan repayment.
- Resolution and cash impact of tax examinations, divestiture-related adjustments, environmental matters and other contingent liabilities.
- The registrant-name discrepancy between the request metadata and the filing, which names SPX Corporation.