Albany (AIN)

Industrial equipment and engineered products manufacturer Albany (NYSE:AIN) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 7.8% year on year to $288.8 million. The company’s full-year revenue guidance of $1.22 billion at the midpoint came in 1.4% below analysts’ estimates. Its non-GAAP profit of $0.73 per share was 17.4% above analysts’ consensus estimates.

Company Overview

Founded in 1895, Albany (NYSE:AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still 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.

Competitors offering similar products include Hexcel (NYSE:HXL), Ducommun (NYSE:DCO), and Park Aerospace (NYSE:PKE).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Albany grew its sales at a sluggish 3% compounded annual growth rate. This was below our standard for the industrials sector and is 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. Albany’s annualized revenue growth of 6.7% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Machine Clothing and Engineered Composites, which are 60.5% and 39.5% of revenue. Over the last two years, Albany’s Machine Clothing revenue (paper manufacturing belts) averaged 10.7% year-on-year growth while its Engineered Composites revenue (aerospace components) averaged 2.3% growth.

This quarter, Albany missed Wall Street’s estimates and reported a rather uninspiring 7.8% year-on-year revenue decline, generating $288.8 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Albany’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 37.2% gross margin over the last five years. That means Albany only paid its suppliers $62.75 for every $100 in revenue.

This quarter, Albany’s gross profit margin was 33.4%, down 1.3 percentage points year on year. Albany’s full-year margin has also been trending down over the past 12 months, decreasing by 4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Albany has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.4%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Albany’s operating margin decreased by 9 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Albany generated an operating profit margin of 9.8%, down 2.7 percentage points year on year. Since Albany’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Albany, its EPS declined by 5.6% annually over the last five years while its revenue grew by 3%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Albany’s earnings can give us a better understanding of its performance. As we mentioned earlier, Albany’s operating margin declined by 9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower 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 analyze EPS over a shorter period to see if we are missing a change in the business.

For Albany, its two-year annual EPS declines of 12% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, Albany reported EPS at $0.73, down from $0.90 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Albany has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 9.6% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Albany’s margin dropped by 3.9 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle.

Albany burned through $13.48 million of cash in Q1, equivalent to a negative 4.7% margin. The company’s cash burn was similar to its $17.26 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Albany’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 11.8%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Albany’s ROIC decreased by 4.4 percentage points annually over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Albany reported $119.4 million of cash and $416.4 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $222.3 million of EBITDA over the last 12 months, we view Albany’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $5.58 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Albany beat analysts’ EPS expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $65.60 immediately after reporting.

Updated: May 21, 2025 at 11:18 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Albany, you should also grasp the company’s longer-term business quality and valuation.

We see the value of companies helping their customers, but in the case of Albany, we’re out. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its declining operating margin shows the business has become less efficient.

Albany’s EV-to-EBITDA ratio based on the next 12 months is 10.5x. This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $75.25 on the company (compared to the current share price of $65.78).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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