Belden (BDC)

Electronic component manufacturer Belden (NYSE:BDC) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 16.6% year on year to $624.9 million. On the other hand, next quarter’s revenue guidance of $652.5 million was less impressive, coming in 2.1% below analysts’ estimates. Its non-GAAP profit of $1.60 per share was 7.1% above analysts’ consensus estimates.

Company Overview

With its enamel-coated copper wire used in WWI for the Allied forces, Belden (NYSE:BDC) designs, manufactures, and sells electronic components to various industries.

Like many equipment and component manufacturers, electronic components companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include data centers and telecommunications, which can benefit companies whose optical and transceiver offerings fit those markets. But like the broader industrials sector, these companies are also at the whim of economic cycles. Consumer spending, for example, can greatly impact these companies’ volumes.

Competitors offering similar products include CommScope (NASDAQ:COMM), TE Connectivity (NYSE:TEL), and Panduit (private).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Belden’s 4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Belden’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.7% annually.

Belden also breaks out the revenue for its most important segments, Enterprise and Industrial, which are 43.9% and 56.1% of revenue. Over the last two years, Belden’s Enterprise revenue (network infrastructure and broadband solutions) averaged 4.7% year-on-year declines. On the other hand, its Industrial revenue (infrastructure digitization and automation) averaged 4.3% growth.

This quarter, Belden reported year-on-year revenue growth of 16.6%, and its $624.9 million of revenue exceeded Wall Street’s estimates by 1.8%. Company management is currently guiding for a 8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months. While this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

Belden’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 36.3% gross margin over the last five years. Said differently, roughly $36.32 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

This quarter, Belden’s gross profit margin was 39.3%, up 1.7 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Belden has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Belden’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Belden generated an operating profit margin of 11.6%, up 1.7 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change 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 is profitable.

Belden’s EPS grew at a decent 9.3% compounded annual growth rate over the last five years, higher than its 4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Belden’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Belden’s operating margin expanded by 3.5 percentage points over the last five years. On top of that, its share count shrank by 10.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Belden, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q1, Belden reported EPS at $1.60, up from $1.24 in the same quarter last year. This print beat analysts’ estimates by 7.1%. Over the next 12 months, Wall Street expects Belden’s full-year EPS of $6.73 to grow 7.8%.

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.

Belden 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 7.9% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Belden’s margin expanded by 3.2 percentage points during that time. This is encouraging because it gives the company more optionality.

Belden burned through $24.76 million of cash in Q1, equivalent to a negative 4% margin. The company’s cash burn was similar to its $21.51 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).

Although Belden hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.2%, higher than most industrials businesses.

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, Belden’s ROIC increased by 2.7 percentage points annually over the last few years. This is a good sign, and we hope the company can keep improving.

Belden reported $259 million of cash and $1.28 billion 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 $430 million of EBITDA over the last 12 months, we view Belden’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $40.83 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 Belden beat analysts’ revenue, EPS, and EBITDA expectations this quarter. On the other hand, its quarterly revenue and EPS guidance fell short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The market seemed to be hoping for more, and the stock traded down 3.4% to $99.58 immediately after reporting.

Updated: May 22, 2025 at 11:25 PM EDT

Before investing in or passing on Belden, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Belden isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months.

Belden’s P/E ratio based on the next 12 months is 14.9x. Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $127.40 on the company (compared to the current share price of $108.27).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

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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