Stock Story -
Motion control and electronic systems manufacturer Helios Technologies (NYSE:HLIO) beat analysts' expectations in Q2 CY2024, with revenue down 3.4% year on year to $219.9 million. On the other hand, the company's full-year revenue guidance of $832.5 million at the midpoint came in 1.6% below analysts' estimates. It made a non-GAAP profit of $0.64 per share, down from its profit of $0.81 per share in the same quarter last year.
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Helios (HLIO) Q2 CY2024 Highlights:
- Revenue: $219.9 million vs analyst estimates of $215.8 million (1.9% beat)
- EPS (non-GAAP): $0.64 vs analyst estimates of $0.61 (4.6% beat)
- The company dropped its revenue guidance for the full year from $850 million to $832.5 million at the midpoint, a 2.1% decrease
- EPS (non-GAAP) guidance for the full year is $2.35 at the midpoint, missing analysts' estimates by 4.2%
- EBITDA guidance for the full year is $168.5 million at the midpoint, below analyst estimates of $172.9 million
- Gross Margin (GAAP): 32.1%, down from 33.3% in the same quarter last year
- Adjusted EBITDA Margin: 20.1%, down from 22% in the same quarter last year
- Free Cash Flow of $25.7 million, up 109% from the previous quarter
- Organic Revenue fell 4% year on year (-12% in the same quarter last year)
- Market Capitalization: $1.39 billion
Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.
Gas and Liquid HandlingGas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are 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 GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, Helios grew its sales at a decent 7.9% compounded annual growth rate. This shows it was successful in expanding, a useful starting point for our analysis.
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. Helios's recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.4% over the last two years.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Helios's organic revenue averaged 5.8% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company's core operations (not M&A) drove most of its performance.
This quarter, Helios's revenue fell 3.4% year on year to $219.9 million but beat Wall Street's estimates by 1.9%. Looking ahead, Wall Street expects sales to grow 5.1% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Helios has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.8%. This result isn't too surprising as its gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Helios's annual operating margin might have seen some fluctuations but has remained more or less the same over the last five years, highlighting the long-term consistency of its business.
This quarter, Helios generated an operating profit margin of 11.8%, down 1.1 percentage points year on year. Since Helios's gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased sales, marketing, R&D, and administrative overhead expenses.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Helios, its EPS declined by 4.3% annually over the last five years while its revenue grew by 7.9%. However, its operating margin didn't change during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Diving into the nuances of Helios's earnings can give us a better understanding of its performance. A five-year view shows Helios has diluted its shareholders, growing its share count by 4%. 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 also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Helios, its two-year annual EPS declines of 33.2% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, Helios reported EPS at $0.64, down from $0.81 in the same quarter last year. Despite falling year on year, this print beat analysts' estimates by 4.6%. Over the next 12 months, Wall Street expects Helios to grow its earnings. Analysts are projecting its EPS of $1.98 in the last year to climb by 41.7% to $2.80.
Key Takeaways from Helios's Q2 Results We enjoyed seeing Helios exceed analysts' revenue expectations this quarter. We were also glad its organic revenue topped Wall Street's estimates. On the other hand, its full-year revenue guidance missed and its EBITDA guidance for the full year fell short of Wall Street's estimates. Zooming out, the quarter was solid but guidance may weigh on shares. The stock remained flat at $41.80 immediately after reporting.
