Idex Earnings: Solid Margins Considering Revenue Headwinds

We’ve slightly trimmed our fair value estimate for narrow-moat-rated Idex IEX to $215 from $217 following the firm’s third-quarter earnings release, driven by our slightly more muted near-term revenue growth projections, partially offset by time value of money.

Idex’s third-quarter organic sales fell 6% and adjusted EPS was down 1% from the prior-year period. Fluid and metering technologies organic sales were down 1% from the prior-year period due to a slowdown in industrial markets as well as customer destocking in agriculture. Health and science technologies organic sales fell 15%, driven by softness in semiconductor and destocking in analytical instrumentation and life sciences. Last, fire and safety and diversified products organic sales were up 3% thanks to strong results in the fire business. Idex’s third-quarter adjusted EBITDA margin compressed by 30 basis points year over year, from 28.7% to 28.4%, as a favorable price-cost spread and productivity were more than offset by lower volume leverage, unfavorable mix shift, and a dilutive impact from acquisitions.

Management raised its full-year 2023 guidance range and now anticipates adjusted EPS of $8.13-$8.18 (up from $7.90-$8.00 previously). The 1%-2% organic sales decline outlook remains unchanged. The guidance increase is mainly driven by the firm’s strong operational performance and lower effective tax rate in the third quarter. Looking beyond 2023, Idex faces an uncertain macroeconomic environment in the near term, but we continue to expect the health and science technologies business to benefit from favorable long-term secular drivers. Furthermore, we believe that Idex’s strong balance sheet gives management flexibility to boost growth by deploying capital into M&A.