After a fourth quarter that featured some stock price volatility for Fox Factory Holding (NASDAQ:FOXF), shareholders this week were looking to its earnings report for some reassurance that the company's growth plan was intact, and that it could withstand the pressures created by the ongoing trade war as U.S.-China negotiations continue to play out.
Fox did not disappoint. The company posted another round of strong growth, topping its own guidance, and issued an upbeat outlook for 2019. The maker of suspension and ride dynamics components for bikes, ATV's, motorcycles and other vehicles also announced a transition at the CEO position. Let's take a closer look at Fox Factory's Q4 and what investors should expect for 2019.
Fox Factory Holding: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Change|
|Revenue||$156.8 million||$121.1 million||29.5%|
|Net income from continuing operations||$20.1 million||$2.8 million||618%|
|Adjusted diluted earnings per share||$0.58||$0.38||52.6%|
What happened this quarter
- Revenue growth was driven by the Powered Vehicles group, which saw 47.7% top-line growth in part due to its acquisition of Tuscany Group in December 2017, and its partnerships with vehicle manufacturers including Ford, Toyota, and Jeep. Sales from its Specialty Sports Group increased 11.9%.
- Adjusted EPS of $0.58 topped its guidance range of $0.50 to $0.56. Revenue of $156.8 million came in near the top of its $148 million to $158 million guidance range.
- Gross margin increased from 32.3% to 32.5%, and operating margin increased from 13.3% to 14.6% as the company continued to leverage expenses like general and administrative, and sales and marketing.
- The company completed the relocation of its headquarters from California to a 23-acre site in Georgia, which will give it more access to a suitable manufacturing workforce as well as increased capacity. Fox will retain significant operations at its Scotts Valley, California, location.
- Fox-sponsored athletes continued to perform well, taking seven medals in the Winter X Games and grabbing eight of the top 10 spots in the men's downhill UCI championship.
- Finally, the company said Larry Enterline would retire as CEO on June 29 to be replaced by Mike Dennison, the current president of the Powered Vehicles Group.
What management had to say
In the earnings press release, CEO Larry Enterline summed up the quarter this way:
We are pleased with our record results in 2018. Our net sales approached the high-end of our expectations and profitability exceeded our guidance for the fourth quarter and fiscal year. We experienced favorable business fundamentals with continued growth across our Powered Vehicles Group and our Specialty Sports Group. For fiscal 2019, we believe FOX is well positioned for future growth in new and existing categories with our compelling performance-defining offerings.
He also signaled optimism about the future in the earnings call:
FOX's differentiated market position continues to fuel our growth in new and existing categories... This translates into the strong relationships we have with our athletes and [original equipment manufacturer]s, reinforcing the value of our brands across the diverse end markets we serve. We believe FOX remains well positioned for future growth. The underlying fundamentals of our business and end markets remained strong.
Fox also offered strong guidance for 2019, calling for revenue of $695 million to $715 million, up 12.2% to 15.5% from 2018, and adjusted earnings per share of $2.45 to $2.55, up from $2.22 in 2018. Those are slower growth rates than it achieved last year, but analysts already were largely expecting its growth to moderate.
Still, there's a lot to like in this latest quarterly update. With its move to Georgia to increase capacity, a specialized premium brand that resonates with top athletes and fans, and tailwinds in its Powered Vehicles Group, Fox should have several years of steady long-term growth ahead.