This engineering business has coped extremely well with the recession.
You don't need me to tell you that it's been a torrid year. Company results have made pretty much uniformly gloomy reading: plunging sales, plunging profits, and dividends slashed or cut.
Last week, one company that I keep an eye on broke ranks. It's a business that I last wrote about in April: IMI (LSE: IMI), a dull-but-worthy specialist FTSE‑250 engineering business.
The RNS said it all. "In expectation that forecast earnings for 2009 are likely to be materially ahead of current consensus, IMI plc has brought forward to today its Interim Management Statement for the period from 1 July to 8 November 2009."
Swinging the axe
Business has been tough for IMI: no doubt about it. On a constant currency basis, revenues for the ten-month period to the end of October are around 18% lower than for the corresponding period in 2008.
This was to be expected, of course. And the better-than-expected results stem mostly from IMI's determination to do something about it. Actions taken to 'right size' the business, and accelerate moves to transfer more production to low-cost economies continue to bear fruit, said the company, and further plans scheduled for 2010‑2011 have been brought forward.
In addition, low-cost sourcing initiatives and value engineering programmes have reduced material prices in the year to date by around 5%, while lower average metal prices have also produced margin benefits.
As a result, the company expects operating margins for the second half of the year to be better than it previously expected -- and in excess of 14%. Earnings per share for the year as a whole, it added, would be in the region of 43 pence to 45 pence per share.
On the balance sheet, cash flow remains strong, with debtor-day performance at similar levels to last year, despite the difficult economic environment, and inventories have been reduced by nearly 15%, further boosting cash flow.
Profits beckon
Let's keep a sense of perspective, though. While these results are good, they're not brilliant. Those earnings per share of 43 pence to 45 pence, for instance, must be compared with 2008's figure of 54.1 pence. Let's not break out the champagne quite yet.
But looking forward, a sip or two might be appropriate. IMI isn't an extravagant business, and it continues to strip cost out. Peppered with phrases such as 'lower overheads' and 'rightsizing', the results paint a picture of a business poised to deliver earnings in spades when market conditions return to something near normal.
The market clearly thought so: on the day that the results were published, the company's shares rose 16%. They've gone even higher, since.
Why didn't I buy?
I'm not a great one for investing regrets. Looking back, there are plenty of things I could have done differently, but crying over spilt milk is generally pointless.
But I am narked about IMI. I was tempted to buy back in the lows of March, when the shares were 250 pence. I was still tempted when I wrote about the business on 2 April -- at which point they had risen to 298 pence. And as I write these words, they're now at 539 pence, a rise of 115% in eight months.
Have I left it too late, yet again? Time will tell.
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