Horizon Global Corporation (NYSE: HZN)reported its third-quarter results on Nov. 1. Shares of the manufacturer of branded towing and trailering equipment have been on fire this year, having more than doubled in value year to date. Investors have been bidding up the company's stock as the management team has consistentlydelivered on its plans to increase margins, grow revenue, and reduce leverage.
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Horizon's shares jumped by 8% in the trading session that immediately followed the earnings release. Let's put the company's third-quarter results under the microscope to see why traders are feeling so bullish.
Horizon Global Q3: The raw results
|Metric||Q3 2016||Q3 2015||Change|
|Revenue||$151.7 million||$153.3 million||(1%)|
|Adjusted net income||$5.68 million||$9.00 million||(37%)|
|Adjusted earnings per share||$0.30||$0.50||(40%)|
Data source: Horizon Global.
What happened this quarter?
- North American net sales decreased by 5.1% as the company noted weakness in its retail, aftermarket, and industrial channels. However,adjustedoperating profits fell by only 2.1%, to $14 million, thanks to continued margin expansion.
- Horizon's international sales were strong, showing growth of 10.9%.Adjusted operating profits soared by 200%, to $3.6 million, thanks to the increased sales volume.
- Taken together, adjusted operating profit margin grew to 7.8%, up from 7.6% in the year-ago period.
- Management announced its intentions to acquire the Westfalia Group, a leading provider of towing equipment in Europe.Horizon Global stated that it would fund the acquisition through acombinationof cash, stock issuance, and debtassumption for a total purchase price of roughly 167 million euros. The deal is slated to close in the fourth quarter and management expects it to beaccretive to earnings in 2017.
- Horizon continued to reduce its debt load during the quarter. Its leverage ratio was 2.7 at quarter-end, which is down sharply from 3.6 in the year-ago period. However, those figures do not take into account the $152 million term loan that was taken on to fund theWestfalia Group acquisition.
What management had to say
Horizon's CEO, Mark Zeffiro, was quite happy with his company's performance, saying:
Zeffiro also said that the company is already working on integrating the Westfalia Group acquisition, and that it is on target toachieve $10 million in synergies next year.
Management is feeling even more confident about its plans to deliver strong results for the full year, which caused it to bump up its guidance. While it is still projecting constant currencynet sales growth of only 3% to 5%, it now believes that adjusted segment operating profit margins will improve by 130 to 150 basis points. That compares favorably to the prior outlook of a "more than 100 basis point" improvement.Better still, net cash conversion is expected to be more than 200% higher than net income generation, which is up sharply from management's prior outlook. Importantly, theseresults do not include the impact from theWestfalia Groupacquisition, either.
CEO Zeffiro commented on the company's upbeat guidance and his team's marching orders for the rest of the year, stating:
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Brian Feroldi has no position in any stocks mentioned.Like this article? Follow him onTwitter, where he goes by the handle@Longtermmindset, or connect with him on LinkedIn to see more articles like this.
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