Yahoo Finance Transcat (NASDAQ:TRNS) Misses Q2 Revenue Estimates
Measurement equipment distributor Transcat (NASDAQ:TRNS) fell short of analysts' expectations in Q2 CY2024, with revenue up 10.1% year on year to $66.71 million. It made a GAAP profit of $0.48 per share, improving from its profit of $0.38 per share in the same quarter last year.
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Transcat (TRNS) Q2 CY2024 Highlights:
Revenue: $66.71 million vs analyst estimates of $69.34 million (3.8% miss)
Adj EBITDA: $10.2 million vs analyst estimates of $10.4 million (slight miss)
EPS: $0.48 vs analyst estimates of $0.36 (34.6% beat)
Full year Guidance: "We expect another year of organic Service revenue growth in the high single-digit to low double-digit range when normalized for the extra week in fiscal 2024 and gross margin expansion." (revenue guidance is better than expectations)
Gross Margin (GAAP): 34%, up from 30.9% in the same quarter last year
Free Cash Flow of $5.25 million, up from $1.55 million in the previous quarter
Market Capitalization: $1.28 billion
“We are pleased with our strong first quarter results as gross margins expanded 310 basis points versus prior year from increased Service productivity and growth in Rentals in the Distribution segment. Consolidated revenue was up 10% driven by consistent demand in highly regulated end markets, our successful integration of acquired companies, and widened breadth of offerings,” commented Lee D. Rudow, President and CEO.
Serving the pharmaceutical, industrial manufacturing, energy, and chemical process industries, Transcat (NASDAQ:TRNS) provides measurement instruments and supplies.
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Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Transcat grew its sales at a solid 9.7% compounded annual growth rate. This shows it was successful in expanding, a good 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. Transcat's annualized revenue growth of 12% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
This quarter, Transcat's revenue grew 10.1% year on year to $66.71 million, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 12.3% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Transcat was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 7.3%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, Transcat's annual operating margin rose by 2.3 percentage points over the last five years, as its sales growth gave it operating leverage
This quarter, Transcat generated an operating profit margin of 7.6%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPS
We track the long-term growth 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.
Transcat's EPS grew at a spectacular 15.5% compounded annual growth rate over the last five years, higher than its 9.7% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Transcat's earnings to better understand the drivers of its performance. As we mentioned earlier, Transcat's operating margin was flat this quarter but expanded by 2.3 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 also analyze EPS over a shorter period to see if we are missing a change in the business. For Transcat, its two-year annual EPS growth of 9.3% was lower than its five-year trend. This wasn't great, but at least the company was successful in other parts of the business.
In Q2, Transcat reported EPS at $0.48, up from $0.38 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Transcat to grow its earnings. Analysts are projecting its EPS of $1.68 in the last year to climb by 30.6% to $2.19.
Key Takeaways from Transcat's Q2 Results
Transcat's revenue and adjusted EBITDAS unfortunately missed in the quarter. However, the company expects "organic Service revenue growth in the high single-digit to low double-digit range" for the full year, slightly above expectations. Overall, this was a mixed quarter for Transcat. The stock traded down 1.6% to $133 immediately after reporting.
So should you invest in Transcat right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
