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Why Shares of Horizon Global Corporation Surged 23% in August

What happened
Stock in Horizon Global Corporation (NYSE:HZN) rose 23.4% last month, according to data from S&P Global Intelligence.

So what
The manufacturer of custom engineered towing, trailering, and cargo management equipment delivered higher revenue as expected in its second-quarter 2017 earnings release on Aug. 1. The company benefited from its fourth-quarter 2016 acquisition of Westfalia Automotive, a leading European towing and trailering manufacturer. The 167 million euro deal (equal to about $199.5 million at current exchange rates) closed on Oct. 4, 2016, and was the primary driver behind Horizon’s 46% revenue increase in the first half of 2016.

However, during the second quarter, organic revenue exceeded the company’s own projections, with geographical segments Horizon Americas and Horizon Asia-Pacific delivering revenue growth of 7% and 15%, respectively.

Shareholders were also pleased with vigorous profits. Operating margin increased nearly 3 percentage points to 9.6%, which Horizon’s management attributed to both operating leverage from higher sales and completed margin improvement projects. Horizon still expects to squeeze a bit more profitability from the Westfalia acquisition and projects it will realize merger synergies of 9 million euros (about $10.7 million) in 2017.

In addition to higher earnings, management highlighted cash flow, which benefited from a restructuring of debt in Q1. The restructuring resulted in a reduction in principal and interest payments of $5.3 million in the second quarter.

Now what
The organization’s narrative isn’t completely free of worry. Rising commodity steel prices threaten to eat into Horizon’s margins. But management assured investors that the company has instituted price increases in both the first and second quarters to offset any significant impact this year.

Looking forward, Horizon’s management raised full-year diluted earnings per share (EPS) to a range of between $0.54 and $0.64, from a prior target of $0.50 to $0.60. However, it made no adjustments to forecasted revenue or operating income.

Thus, the raised EPS estimates will be due to the share repurchases Horizon conducted in the second quarter of $8.4 million, plus another $1.6 million in buybacks that management disclosed after quarter end, and any other share repurchases made during the year. Management is hinting strongly that it will engage in further share buybacks in the back half of 2017.

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