SPX Corporation (SPXC) — Form 10-Q summary
Filing identity: The filing is for SPX Corporation, not an issuer named SPX Technologies, Inc. It references SPX Technologies entities in its discussion. Reporting period ended June 29, 2019; financial amounts are in millions except per-share data.
Business context and reporting period
SPX is a global engineered-solutions supplier operating through HVAC, Detection and Measurement, and Engineered Solutions segments, with other activities reported as “All Other.” The quarter is a 91-day fiscal period. SPX acquired Sabik Marine in February 2019; its results are included in Detection and Measurement.
Financial performance
- Second quarter: Revenue was $372.4, down 1.8% from $379.2. Gross profit was $108.2 and gross margin was 29.1%, up from $97.7 and 25.8%. Operating income rose to $26.3 from $22.7 (7.1% versus 6.0% of revenue). Continuing-operations income was $19.4 versus $19.7; net income was $19.2 versus $23.0, and diluted EPS was $0.43 versus $0.51.
- First six months: Revenue was $716.0, down 2.1% from $731.1. Gross profit was $191.4 versus $187.8, with margin of 26.7% versus 25.7%. Operating income declined to $29.3 from $42.0. Continuing-operations income was $20.0 versus $32.1; net income was $18.4 versus $35.4, and diluted EPS was $0.41 versus $0.79.
- Cash flow: Six-month operating cash flow from continuing operations was $28.0, compared with $5.8 a year earlier. Investing used $75.5, chiefly for the $77.2 Sabik acquisition; financing provided $13.7. Cash fell $34.2 to $34.6.
- Liquidity and debt: Current assets were $545.5 and current liabilities $466.6 at June 29. Total debt was $401.6, versus $381.8 at year-end; long-term debt was $328.0. SPX reported $289.3 of available revolving-credit capacity and compliance with senior-credit covenants. The term loan’s remaining balance is due December 2022.
Material changes and segment performance
- Revenue pressure reflected lower organic sales, a stronger U.S. dollar, the Heat Transfer wind-down, and South African project revenue reductions. Acquisitions partly offset these declines. Reported South Africa project revenue reductions were $17.5 in Q1 and $6.0 in Q2.
- Detection and Measurement revenue rose 36.3% in Q2 and 33.2% for the half, substantially reflecting acquisitions; segment income increased. Engineered Solutions revenue and income also increased, supported by power transformers. HVAC revenue and income declined, primarily due to lower cooling sales and higher heating-business costs.
- “All Other” reported a $10.0 Q2 loss and $32.6 six-month loss, mainly reflecting lower South African project activity, the related revenue adjustments, and Heat Transfer’s wind-down.
- Q2 gross-margin improvement reflected a more favorable mix, including acquired businesses and lower revenue from historically lower-margin activities. SG&A and amortization increased, partly due to acquisitions.
Outlook, risks and unusual items
- The filing provides no company-wide financial earnings or revenue guidance. Management notes that businesses generally tend to be stronger in the second half, including seasonal strength in heating products. Heat Transfer’s wind-down was expected to finish by year-end 2019; DBT’s remaining scope on the South African projects was expected to be substantially complete by year-end.
- Remaining performance obligations were $80.7; SPX expected to recognize approximately 53% within 12 months and 71% within 24 months. Backlog at June 29 was $69.9 for HVAC, $81.5 for Detection and Measurement, $319.0 for Engineered Solutions, and $26.5 for All Other.
- South African project claims and disputes remain a material uncertainty. A June 28 agreement settled material outstanding claims with Alstom/GE, excluding certain pass-through claims, and returned $11.5 of bank bonds; SPX reduced Q2 revenue and operating income by $6.0 in connection with the agreement. Separate MHPSA liquidated-damages claims and a subcontractor dispute remain unresolved. SPX stated that some potential losses could not currently be estimated.
- Recorded liabilities for claims and contingencies were $600.9, including $556.7 for asbestos product-liability matters; related recorded insurance-recovery assets were $516.4. SPX cautions that estimates, insurance availability, and insurer solvency could affect future results and cash flows.
- Six-month results included a $7.9 gain from an increase in the estimated fair value of an equity security. The six-month effective tax rate rose to 30.3% from 12.3%, partly because no tax benefit was recognized on certain foreign losses. A July 3, 2019 post-quarter acquisition of SGS Refrigeration was completed for $10.0 cash plus a contingent deferred payment of up to $1.5.
Important facts for investors to verify
- Confirm the issuer identity: this is SPX Corporation’s filing, despite the SPX Technologies, Inc. request metadata.
- Track the outcome and cash implications of remaining South African project claims, guarantees, and the subcontractor matter.
- Assess whether acquisition-driven growth and improved gross margin can offset organic declines, higher SG&A, and ongoing amortization.
- Reconcile operating cash-flow improvement with lower cash balances, acquisition spending, and increased total debt.
- Review the assumptions supporting asbestos liabilities and insurance recoveries, as well as the noncash fair-value gain and elevated interim tax rate.