Analogic Corp. :ALOG-US: Earnings Analysis: Q4, 2016 By the Numbers : September 23, 2016

Analogic Corp. reports financial results for the quarter ended July 31, 2016.

We analyze the earnings along side the following peers of Analogic Corp. – OSI Systems, Inc., L-3 Communications Holdings, Inc., Hologic, Inc., Boston Scientific Corporation, Varian Medical Systems, Inc., Agilent Technologies, Inc., Arrhythmia Research Technology, Inc., Integer Holdings Corporation and Royal Philips NV Sponsored ADR (OSIS-US, LLL-US, HOLX-US, BSX-US, VAR-US, A-US, HRT-US, ITGR-US and PHG-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 138.05 million, Net Earnings of USD 8.77 million.
  • Gross margins widened from 41.46% to 45.94% compared to the same period last year, operating (EBITDA) margins now 11.20% from 13.96%.
  • Earnings declined although operating margins improved from 10.14% to 11.20%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-07-31 2015-10-31 2016-01-31 2016-04-30 2016-07-31
Relevant Numbers (Quarterly)
Revenues (mil) 154.47 114.95 127.87 127.98 138.05
Revenue Growth (%YOY) 8.78 -2.85 -4.54 -4.18 -10.63
Earnings (mil) 10.87 1.38 -2.99 4.97 8.77
Earnings Growth (%YOY) -2.49 -62.34 -130.37 -45.53 -19.37
Net Margin (%) 7.04 1.2 -2.33 3.88 6.35
EPS 0.86 0.11 -0.24 0.4 0.7
Return on Equity (%) 8.24 1.04 -2.27 3.79 6.62
Return on Assets (%) 6.94 0.88 -1.9 3.1 5.48

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Market Share Versus Profits

Revenues History
Earnings History

ALOG-US‘s change in revenue this period compared to the same period last year of -10.63% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ALOG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 7.87% and earnings by 76.40% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 13.96% to 11.20%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 41.46% to 45.94%. For comparison, gross margins were 42.92% and EBITDA margins 12.14% in the immediate last period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ALOG-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 203.45, compared to last year’s level of 188.33 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 10.14% to 11.20%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 10.35% to 10.21%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Analogic Corp. provides healthcare and security technology solutions to advance the practice of medicine and save lives. It operates through three segments: Medical Imaging, Ultrasound and Security Technology. The Medical Imaging segment includes systems and subsystems for computed tomography and magnetic resonance imaging medical imaging equipment as well as state-of-the-art, selenium-based detectors for screening of breast cancer and other diagnostic applications in mammography. The Ultrasound segment includes ultrasound systems and transducers primarily in the urology, surgery, anesthesia, and point-of-care markets. The Security Technology segment includes advanced threat detecting computed tomography systems utilizing its expertise in advanced imaging technology, primarily used in checked baggage screening at airports worldwide. The company was founded by Bernard Marshall Gordon in November 1967 and is headquartered in Peabody, MA.

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