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SPX Earnings above Estimates

SPX Corporation recently posted their second quarter results, which came in above estimates. Thus, the company reported earnings from continuing operations that were higher by $0.04 per share, namely at $0.80 compared to $0.76 the previous year, after making adjustments for purchase accounting costs of $2.7 million, a figure which came in over analysts’ expectations of $0.65 and $0.64. Earnings came in higher than forecasts despite the company experiencing a 1.6 percent year over year decline in organic revenue (or 2 percent if accounting for currency) compared to predictions of the figures remaining unchanged. Earnings showed Flow Technology dropped by 3.5 percent because of project timing issues for Asia-Pacific food and beverage systems as well as OE pump sales at ClydeUnion that were down.
The company experienced restructuring benefits that were more advantageous than expectations and improve the performance of the Thermal Equipment & Services segment as all as the Industrial Products and Services segment, which lead to an increase in segment profitability to $124 million, indicating an 8 percent gain, with margins growing to 10.2 percent, or by 90 basis points. SPX completed a restructuring project worth $18 million during this quarter to lower the number of employees at ClydeUnion and in the Thermal segment. When one takes into account the company put another $11 million into cutting costs in 2013 and is continuing to buy back shares, all of these factors should result to an annualized EPS of $1, with approximately two thirds seen in the 2013 EPS, namely $0.65, and the remainder to improve the 2014 EPS, namely $0.35.
SPX spent $118 million to buy back 1.5 million shares, which brings the company’s expenditure over the past 6 quarters on the share buyback program to $495 million, translating into a buyback of 7 million shares or 14 percent of shares outstanding.

Company guidance doesn’t include any mergers and acquisitions and they are expecting 46 million diluted shares outstanding for 2013. SPX lowered its EPS range from $4.25 to $4.6 to $4.25 to $4.5 for the year. The revenue growth rate was also lowered, with the initial range being from a drop of 1 percent to 4 percent gains and the current range being from a 2 percent drop to a 2 percent growth. Margin targets were also revised as they have been slightly increased from a range of 10.3 percent to 10.7 percent to a range of 10.4 percent to 10.7 percent.
SPX didn’t decrease the low of their guidance ranges, which means management is more confident and will impact sentiment positively as it will likely create a strong support for stock price while problems at the company’s Thermal business and ClydeUnion are getting better.

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