Enpro (NYSE:NPO) Posts Q2 Sales In Line With Estimates

Industrial technology solutions provider EnPro Industries (NYSE:NPO) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 1.8% year on year to $271.9 million. It made a GAAP profit of $1.27 per share, improving from its loss of $0.89 per share in the same quarter last year.

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“Enpro delivered strong performance in the second quarter, headlined by record profitability in Sealing Technologies. In Advanced Surface Technologies, we saw sequential improvement in segment revenue and adjusted segment EBITDA. For the remainder of the year, while we still expect sequential improvement in AST, we now expect the magnitude of recovery in semiconductor capital equipment spending to be more gradual,” said Eric Vaillancourt, President and Chief Executive Officer.

Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE:NPO) designs, manufactures, and sells products used for machinery in various industries.

Engineered Components and Systems

Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Enpro struggled to generate demand over the last five years as its sales dropped by 3.1% annually, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Enpro's annualized revenue growth of 3% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Enpro reported a rather uninspiring 1.8% year-on-year revenue decline to $271.9 million of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 11% over the next 12 months, an acceleration from this quarter.

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Operating Margin

Enpro has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.2%. This result isn't surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Enpro's annual operating margin rose by 5.1 percentage points over the last five years, showing its efficiency has meaningfully improved.

This quarter, Enpro generated an operating profit margin of 17.7%, up 2.8 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.

EPS

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.

Enpro's flat EPS over the last five years was weak but better than its 3.1% annualized revenue declines. This tells us management adapted its cost structure.

Diving into the nuances of Enpro's earnings can give us a better understanding of its performance. As we mentioned earlier, Enpro's operating margin expanded by 5.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.

Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Enpro, its two-year annual EPS declines of 52% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q2, Enpro reported EPS at $1.27, up from negative $0.89 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Enpro to grow its earnings. Analysts are projecting its EPS of $2.01 in the last year to climb by 192% to $5.86.

Key Takeaways from Enpro's Q2 Results

We enjoyed seeing Enpro exceed analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. Overall, we think this was a solid quarter. The stock remained flat at $146.02 immediately following the results.

So should you invest in Enpro right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.