PMFG Reports F2Q Results; Higher Operating Expenses Offset Strong Revenue Growth

PMFGPMFG Inc (NASDAQ:PMFG) reported this morning fiscal second-quarter results, with revenue beating the consensus estimate and adjusted earnings coming in below expectations. Revenue increased 38% year-over-year to $41 million, compared with the consensus estimate of $39 million. The adjusted loss per share of $0.06 was below consensus expectations for adjusted EPS of $0.01. Adjusted gross margin expanded 230 basis points, to 31.3%. Adjusted operating expenses increased 38% year-over-year and contracted 10 basis points as a percentage of sales. Operating profit increased by $0.5 million year-over-year despite an $11 million increase in revenue as the company increased investments in improving operational issues and information technology systems. Net bookings increased 31% year-over-year, to $39 million. Backlog increased 10% year-over-year and decreased 2% sequentially, to $107 million.

Management increased fiscal 2015 revenue guidance. The company now expects revenue of $160 million to $170 million, compared with the previous range of $150 million to $160 million and the consensus estimate of $159 million. The company expects growth to be driven primarily by a modest recovery in the process products segment and continued strength in the environmental systems segment. Gross margin in the second half of the fiscal year is expected to be in line with what the company achieved in the first half of the year. On the fiscal first-quarter conference call, management said gross margin was expected to be consistent with the historical range of 30%-32%. The consensus gross margin estimate for fiscal 2015 was 31.4% before the release. Operating expenses are expected to decline modestly in the second half of the year as the company reduces spending on information technology expansion and operational improvement initiatives.

The company addressed the impact of lower oil prices. About 25% of PMFG revenue comes from the oil industry in either upstream production or downstream refining and processing. Some customers with projects in PMFG’s backlog have placed projects on temporary hold. These projects comprised 7% of PMFG’s backlog at the end of December. Management expects some projects to proceed as previously scheduled while others may be cancelled. The company is also seeing delays in project awards. These are projects for which PMFG is currently quoting or the projects are in budgetary discussions. Based on current backlog and initial customer responses to lower oil prices, management expects a small impact to fiscal 2015 revenue and a potentially larger impact to fiscal 2016.



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