Industrial conglomerate SPX Technologies (NYSE: SPXC) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 13.7% year on year to $533.7 million. The company’s full-year revenue guidance of $2.16 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $1.51 per share was in line with analysts’ consensus estimates.

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Company Overview

SPX Technologies (NYSE: SPXC) is an industrial conglomerate catering to the energy, manufacturing, automotive, and aerospace sectors.

Gas and Liquid Handling

Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling 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 sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, SPX Technologies’s 5.4% annualized revenue growth over the last five years was tepid. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about SPX Technologies.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. SPX Technologies’s annualized revenue growth of 16.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, SPX Technologies’s year-on-year revenue growth was 13.7%, and its $533.7 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.5% 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 face some demand challenges. At least the company is tracking well in other measures of financial health.

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Operating Margin

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.

SPX Technologies has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.9%, higher than the broader industrials sector.

Looking at the trend in its profitability, SPX Technologies’s operating margin rose by 7.5 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, SPX Technologies generated an operating profit margin of 16.9%, up 3.5 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

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 is profitable.

SPX Technologies’s EPS grew at a spectacular 15.3% compounded annual growth rate over the last five years, higher than its 5.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into SPX Technologies’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, SPX Technologies’s operating margin expanded by 7.5 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 provide insight into an emerging theme or development for the business.

For SPX Technologies, its two-year annual EPS growth of 34.3% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, SPX Technologies reported EPS at $1.51, up from $1.25 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects SPX Technologies’s full-year EPS of $5.57 to grow 9.8%.

Key Takeaways from SPX Technologies’s Q4 Results

It was good to see SPX Technologies's full-year revenue guidance beat analysts’ expectations. We were also happy its EBITDA narrowly outperformed Wall Street’s estimates. Overall, this quarter had some key positives. The stock traded up 2.6% to $140 immediately following the results.

Should you buy the stock or not? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.