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End Markets to Aid Altra Industrial (AIMC), Supply-Chain Hurts

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Altra Industrial Motion Corp. (AIMC - Free Report) is one of the leading manufacturers and suppliers of electromechanical power transmission, motion control and automation products. It is headquartered in Braintree, MA, and has production facilities in 16 countries.

The company belongs to the Zacks Manufacturing - General Industrial industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector. Economic recovery and reviving manufacturing activities are beneficial for the industry players. However, cost inflations and supply-chain headwinds are concerning.

Several factors are influencing Altra Industrial’s prospects. A brief discussion on the important factors and financial projections is discussed below:

Diversified Operations: The company’s competitive and financial position is enhanced by its exposure in multiple end markets and geographies. Weakness in one or more markets/geographies might be offset by strength in the others.

Regarding markets, Altra Industrial’s products are used by customers in multiple end markets, including mining, material handling, energy, general industrial, turf & garden, food processing, industrial automation, and transportation. The company believes that growth opportunities in medical, robotics, general factory automation and electronics assembly equipment are solid. The tailwinds are likely to benefit in the near term. Geographically, the company has a solid presence in the United States and other parts of North America; China and other parts of Asia; and Germany and other parts of Europe.

Capital Allocation: Apart from boosting organic prospects, Altra Industrial effectively uses its capital for rewarding shareholders and deleveraging the balance sheet. In the first half of 2021, the company disbursed $7.8 million as dividends. Notably, the quarterly dividend rate was hiked by 33.3% in May 2021.

Regarding debt reduction, Altra Industrial repaid $50 million under its term-loan facility, higher than $30 million used for loan repayment in the year-ago period. Exiting second-quarter 2021, the company’s total debt/total equity was 40.1%, lower than 41.4% at the end of the previous quarter. Times interest earned improved sequentially from 3.3X to 3.7X.

Company’s Projections: For 2021, the company anticipates earnings of $3.30-$3.46 per share, higher than $3.09-$3.24 mentioned earlier. Also, the projection suggests an increase from the year-ago reported figure of $2.88 per share.

Sales for the year are projected to be $1,890-$1,920 million, above the previously mentioned $1,820-$1,850 million. Solid product offerings and healthy demand in markets served are benefiting the company.

Cost Woes: The company predicts a year-over-year earnings decline for the third quarter of 2021. Inflation in prices of raw materials and wages, issues with labor and logistics, and supply-chain restrictions are expected to have been spoilsports.

In second-quarter 2021, the company’s cost of sales, and selling, general and administrative expenses increased 21.5% and 29.7%, respectively. A 15% increase was recorded for research and development expenses. The operating margin was down 50 basis points year over year.

Some other players in the industry, which have been adversely impacted by the above-mentioned prevailing headwinds, are IDEX Corporation (IEX - Free Report) , Illinois Tool Works Inc. (ITW - Free Report) , and Dover Corporation (DOV - Free Report) .

Market-Related Issues: Altra Industrial expects weakness in the renewable energy market, with sales predicted to decline slightly to remain flat, to impact its performance in 2021. Also, prevalent headwinds in the commercial aerospace market might continue to be concerning.

In addition, the company is exposed to risks from foreign-currency movements, geopolitical issues, competition from local players, and macroeconomic challenges due to its wide international presence. Notably, weakness in China’s Class 8 truck and wind markets had adverse impacts on the company’s Asia Pacific sales.