Columbus McKinnon stock tumbles on earnings, acquisition news

Investing.com -- Shares of Columbus McKinnon (NASDAQ:CMCO) plummeted 41% after the company reported third-quarter earnings that fell short of expectations and announced a significant acquisition of Kito Crosby, leading to an analyst downgrade. The material handling solutions provider’s stock movement reflects investors’ concerns over the immediate financial implications of the deal and its impact on the company’s leverage.

Columbus McKinnon’s third-quarter financials showed a decrease in net sales to $234.1 million, a 7.9% drop compared to the same period last year. The company’s operating margin also declined, with GAAP EPS at $0.14 and Adjusted EPS at $0.56, which included negative impacts from foreign exchange movements and lower short-cycle demand. The orders decreased by 4%, driven by a 6% decline in short-cycle orders, with a notable decrease in the Americas offsetting a slight increase in EMEA orders.

The acquisition of Kito Crosby, a global leader in lifting solutions, for $2.7 billion is expected to close later this calendar year, subject to regulatory approvals and customary closing conditions. This strategic move aims to strengthen Columbus McKinnon’s position as a provider of intelligent motion solutions, with the combined company projected to have annual revenue of $2.1 billion and an Adjusted EBITDA margin of 23%.

However, the transaction will initially increase the company’s net leverage ratio to approximately 4.8x pro forma Adjusted EBITDA. Columbus McKinnon plans to fund the acquisition through a combination of committed debt financing and a perpetual convertible preferred equity investment from CD&R, with intentions to de-lever to approximately 3.0x within two years post-closing.

DA Davidson analyst Matt Summerville downgraded Columbus McKinnon from Buy to Neutral with a price target of $35.00, citing concerns over the increased leverage, deal complexity, and ownership structure. "We err on a more conservative posture as we see how this unfolds," the analyst commented, reflecting a cautious stance on the company’s near-term prospects.

The market’s reaction suggests that while the acquisition may offer long-term strategic benefits, the immediate financial strain and increased leverage are of significant concern to investors. Columbus McKinnon will need to focus on effectively integrating Kito Crosby and delivering on the expected synergies to reassure stakeholders of the deal’s value.

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