Industrial technology solutions provider EnPro Industries (NYSE:NPO) fell short of the market’s revenue expectations in Q3 CY2024 as sales rose 4.1% year on year to $260.9 million. Its GAAP profit of $0.94 per share was also 20.3% below analysts’ consensus estimates.
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Enpro (NPO) Q3 CY2024 Highlights:
- Revenue: $260.9 million vs analyst estimates of $264.5 million (1.3% miss)
- EPS: $0.94 vs analyst expectations of $1.18 (20.3% miss)
- EBITDA: $64.1 million vs analyst estimates of $66.33 million (3.4% miss)
- EBITDA guidance for the full year is $252.5 million at the midpoint, below analyst estimates of $261.8 million
- Gross Margin (GAAP): 42.3%, up from 39.7% in the same quarter last year
- Operating Margin: 13.1%, in line with the same quarter last year
- EBITDA Margin: 24.6%, up from 15% in the same quarter last year
- Free Cash Flow Margin: 18.1%, down from 26.9% in the same quarter last year
- Market Capitalization: $3.08 billion
“Third quarter performance was resilient despite continued soft conditions in several of our larger end-markets,” said Eric Vaillancourt, President and Chief Executive Officer.
Company Overview
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
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Enpro struggled to generate demand over the last five years as its sales dropped by 3% 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 revenue over the last two years was flat, sugggesting its demand was weak but stabilized after its initial drop in sales. 
This quarter, Enpro’s revenue grew 4.1% year on year to $260.9 million, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, an improvement versus the last two years. Although this projection shows the market thinks its newer products and services will spur better performance, it is still below the sector average.
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Operating Margin
Enpro 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, Enpro’s annual operating margin rose by 6.6 percentage points over the last five years, showing its efficiency has meaningfully improved.
In Q3, Enpro generated an operating profit margin of 13.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
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 was profitable.
Enpro’s EPS grew at a solid 10.5% compounded annual growth rate over the last five years, higher than its 3% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.
Diving into Enpro’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Enpro’s operating margin was flat this quarter but expanded by 6.6 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 analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.
For Enpro, its two-year annual EPS declines of 45.7% mark a reversal from its (seemingly) healthy five-year trend. We hope Enpro can return to earnings growth in the future.In Q3, Enpro reported EPS at $0.94, up from $0.39 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Enpro’s full-year EPS of $2.56 to grow by 119%.
Key Takeaways from Enpro’s Q3 Results
We struggled to find many strong positives in these results. Its EBITDA forecast for the full year missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 4.5% to $140 immediately after reporting.
Enpro may have had a tough quarter, but does that actually create an opportunity to invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
