Medicine and manufacturing technology provider Novanta (NASDAQ:NOVT) missed Wall Street’s revenue expectations in Q4 CY2024, but sales rose 12.5% year on year to $238.1 million. Next quarter’s revenue guidance of $234 million underwhelmed, coming in 4.4% below analysts’ estimates. Its non-GAAP profit of $0.76 per share was 6.5% above analysts’ consensus estimates.
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Novanta (NOVT) Q4 CY2024 Highlights:
“Novanta achieved solid financial results for the full year 2024, effectively navigating a persistently challenging environment,” said Matthijs Glastra, Chair and Chief Executive Officer.
Company Overview
Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ:NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.
Electronic Components
Like many equipment and component manufacturers, electronic components companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include data centers and telecommunications, which can benefit companies whose optical and transceiver offerings fit those markets. But like the broader industrials sector, these companies are also at the whim of economic cycles. Consumer spending, for example, can greatly impact these companies’ volumes.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Novanta’s sales grew at a decent 8.7% compounded annual growth rate over the last five years. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Novanta’s recent history shows its demand slowed as its annualized revenue growth of 5% over the last two years is below its five-year trend. We also note many other Electronic Components businesses have faced declining sales because of cyclical headwinds. While Novanta grew slower than we’d like, it did perform better than its peers.
This quarter, Novanta’s revenue grew by 12.5% year on year to $238.1 million but fell short of Wall Street’s estimates. Company management is currently guiding for a 1.3% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 9.7% over the next 12 months, an improvement versus the last two years. This projection is commendable and implies its newer products and services will fuel better top-line performance.
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Operating Margin
Novanta has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Novanta’s operating margin rose by 2.3 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, Novanta generated an operating profit margin of 11.2%, down 1.1 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was recently less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Novanta’s EPS grew at an unimpressive 7.5% compounded annual growth rate over the last five years, lower than its 8.7% annualized revenue growth. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.
We can take a deeper look into Novanta’s earnings to better understand the drivers of its performance. A five-year view shows Novanta has diluted its shareholders, growing its share count by 1.5%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Novanta, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.
In Q4, Novanta reported EPS at $0.76, up from $0.63 in the same quarter last year. This print beat analysts’ estimates by 6.5%. Over the next 12 months, Wall Street expects Novanta’s full-year EPS of $3.08 to grow 23.2%.
Key Takeaways from Novanta’s Q4 Results
It was encouraging to see Novanta beat analysts’ EBITDA expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance missed significantly and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, the quarter seemed fine, but guidance could weigh on shares. The stock remained flat at $137.80 immediately after reporting.
Novanta’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free .
