SPX Technologies, Inc. (SPXC) Earnings & Analysis

Latest quarter

SPX Technologies reported third-quarter revenue of $714.5 million, above the $702.7 million consensus. Adjusted earnings per share were $2.21, also above the $2.10 consensus. Revenue rose 20.5% from $592.8 million a year earlier, while diluted earnings per share increased to $1.62 from $1.28.

The company’s filing attributed the revenue increase to organic growth and acquisitions in HVAC, partly offset by an organic decline in Detection and Measurement. HVAC revenue grew 35.5%; the filing said higher cooling equipment volumes, mainly associated with data center demand, and higher heating product volumes contributed to organic growth. Detection and Measurement revenue fell as communications technology project volumes declined.

Gross margin decreased to 39.1% from 40.4%, while operating margin was 16.1%, compared with 16.4% a year earlier. The filing attributed the gross-margin decrease principally to HVAC labor and supply-chain inefficiencies and elevated input costs, partly offset by product mix and synergy benefits in Detection and Measurement. SPX reported free cash flow of $19.3 million, down from $96.1 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Eugene Lowe said demand for data center solutions was accelerating, while CFO Mark Carano said HVAC growth included higher heating and cooling volumes. Carano reported that HVAC backlog reached approximately $1.1 billion, up 69.0% organically from a year earlier. Lowe said education, government and new commercial markets were softer, while power, industrial and commercial replacement activity remained active.

Asked about the costs of the production ramp, Carano said SPX accelerated hiring and secured additional suppliers because its capabilities and productivity were not ramping quickly enough to meet demand. He said the company was outsourcing metal fabrication, including to secondary suppliers at higher costs, and expected those costs to continue into the fourth quarter. Lowe described the issue as demand exceeding the company’s supply of components it normally makes itself.

Carano said labor should become more productive as employees gain experience, and that SPX expects to bring more fabrication in-house as equipment comes online. Lowe said Madison began assembly during the quarter, while HVAC capacity expansions remained on their existing schedule. He said the company continued to expect approximately $1.1 billion of total data center capacity once fully operational.

On pricing, Carano said steel and diesel costs rose during the quarter and that SPX had been raising prices across HVAC to mitigate inflation. He said higher prices take time to reach new projects, although some backlog contracts allow adjustments for costs. Asked about pricing resistance, Carano said, “We haven’t seen any pushback on pricing.”

Lowe said FIS Water adds water management and control products to SPX’s cooling offering. Asked about acquisitions, he said the company was integrating its recent deals and seeing opportunities across HVAC and Detection and Measurement. He said SPX was still calculating the data center share of Neptronic and FIS Water’s business.

Guidance

SPX raised its full-year revenue outlook to $2.7 billion–$2.8 billion and lowered its adjusted EBITDA range to $625.0 million–$645.0 million. The company lowered the top of its adjusted earnings-per-share range to $8.50, with the range now $8.20–$8.50.

For HVAC, SPX raised its revenue outlook and lowered its segment income margin range to 23.1%–23.5%. Carano said the revenue revision included FIS Water and higher organic volumes, while the margin outlook reflected growth-related inefficiencies and input costs. SPX raised its Detection and Measurement segment income margin range to 27.0%–27.5%.