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Margin Expansion Allows Horizon Global's Profits to Soar

Horizon Global (NYSE: HZN) reported its second-quarter earnings results before the markets opened for trading on Tuesday, Aug. 1. The towing and trailering equipment provider reported better-than-expected revenue and net income growth thanks in large part to last year's Westfalia acquisition and continued focus on margin expansion. The strong quarterly results allowed management to once again increase its profit outlook for the full year.

Let's put Horizon's second-quarter results under the microscope to get a better understanding of what happened during the period.

Image source: Getty Images.

Horizon Global Q2: The raw results

Metric Q2 2017 Q2 2016 Year-Over-Year Change
Revenue $253.6 million $167.8 million 51%
Adjusted net income $21.6 million $11.6 million 86%
Adjusted earnings per share $0.84 $0.64 31%

Data source: Horizon Global.

What happened this quarter?

  • The large revenue jump was primarily a result of the Westfalia acquisition, but Horizon also reported organic growth in a few of its key markets. In the Americas, sales increased 7% percent thanks to stronger demand from the aftermarket, original equipment, and e-commerce channels. Asia-Pacific sales experienced "double-digit" organic sales growth thanks to recent expansion in the industrial markets.
  • Operating profit margin expanded by 300 basis points to 9.6%.
  • Adjusted EPS of $0.84 was far higher than management's guidance range of $0.67 to $0.72 and also easily surpassed what market watchers had expected.
  • The company repurchased 570,000 shares of common stock during the quarter.
  • Horizon announced the completed acquisition of Best Bars Limited, which management called "an established leader in the towing and trailering industry in New Zealand" that counts massive automakers like Toyota, Fiat Chrysler Automobiles, and Volkswagen as customers. Best Bars will be included in Asia-Pacific sales in future quarters. 

What management had to say

CEO Mark Zeffiro stated in the earnings press release that Horizon's second-quarter results clearly show that the company is delivering on its growth plan: "We continue to drive progress on our key financial priorities -- expanding our operating margin, improving our capital structure and growing the business to extract maximum value for our shareholders."

For the quarter, he credited the company's strong bottom-line growth to margin expansion as a result of "leverage from increased sales and operational improvements."

He also reiterated that the company is on track to realize 9 million euros in synergies in 2017 as part of the Westfalia integration. 

Looking forward

For the third quarter, management is offering investors the following guidance:

  • Revenue to land between $225 million and $235 million, which represents growth of 49% to 55%.
  • Adjusted EPS to land between $0.35 and $0.40 per share, which represents growth of roughly 16% to 33%.

In response to the strong quarter and upbeat guidance, management is once again raising its profit guidance for the year. Adjusted EPS is now expected to land between $1.04 and $1.14 for the full year 2017, which is a $0.10 increase over its prior outlook.

Wall Street applauded this earnings report by sending shares up by double-digits in early Tuesday morning trading. With sales, margins, and profits all heading in the right direction, it isn't hard to figure out why investors are feeling more bullish about this company's future prospects. 

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends Horizon Global. The Motley Fool has a disclosure policy.