Helios (NYSE:HLIO) Posts Better-Than-Expected Sales In Q4

Motion control and electronic systems manufacturer Helios Technologies (NYSE:HLIO) announced better-than-expected revenue in Q4 CY2024, but sales fell by 7.2% year on year to $179.5 million. On the other hand, the company’s full-year revenue guidance of $800 million at the midpoint came in 1.2% below analysts’ estimates. Its non-GAAP profit of $0.33 per share was 4.6% below analysts’ consensus estimates.

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“During fiscal year 2024, we had record cash generation, strengthened our balance sheet and improved our financial flexibility by reducing and refinancing our debt. We measurably lowered our operating expenses and drove a new focus on our cash conversion cycle with a concerted effort to reduce inventory. We know we can achieve greater results as we were impacted by market conditions that reduced our expectations for the year. Our team maintained focus on innovation through the year launching many new products. We are better positioned to expand margins with growth and intend to re-energize our sales engine to capture greater market share while increasing diversification in customers and markets. Despite hurricanes, challenging market conditions, and leadership changes, the global team united to support each other and deliver on operational improvements that have enabled us to expand margins in the quarter on softer revenue,” said Sean Bagan, President, Chief Executive Officer, and Chief Financial Officer of Helios.

Company Overview

Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various 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

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Helios’s sales grew at a decent 7.8% compounded annual growth rate over the last five years. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

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. Helios’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.6% over the last two years.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Helios’s organic revenue averaged 7.8% year-on-year declines. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Helios’s revenue fell by 7.2% year on year to $179.5 million but beat Wall Street’s estimates by 1.3%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

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Operating Margin

Helios 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 12.3%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Helios’s operating margin rose by 3.4 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Helios generated an operating profit margin of 7.4%, up 1.3 percentage points year on year. The increase was encouraging, and since its revenue and gross margin actually decreased, we can assume it was recently more efficient because it trimmed its operating expenses like marketing, R&D, and administrative overhead.

Earnings Per Share

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 Helios, its EPS declined by 2.9% annually over the last five years while its revenue grew by 7.8%. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

We can take a deeper look into Helios’s earnings to better understand the drivers of its performance. A five-year view shows Helios has diluted its shareholders, growing its share count by 4.2%. This dilution overshadowed its increased operating efficiency and has led to lower per share 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 Helios, its two-year annual EPS declines of 27.9% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q4, Helios reported EPS at $0.33, down from $0.37 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Helios’s full-year EPS of $2.10 to grow 9.7%.

Key Takeaways from Helios’s Q4 Results

It was good to see Helios narrowly top analysts’ revenue expectations this quarter. We were also happy its organic revenue narrowly outperformed Wall Street’s estimates. On the other hand, both its full-year revenue and EBITDA guidance missed. This softer outlook could weigh on shares. The stock remained flat at $38.81 immediately following the results.

Helios’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.