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Enerpac (EPAC) Up 5.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Enerpac (EPAC - Free Report) . Shares have added about 5.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Enerpac due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Enerpac Tool Lags Q2 Earnings Estimates, Gives H2 View

Enerpac Tool reported weaker-than-expected results for second-quarter fiscal 2021 (ended Feb 28, 2021). Its earnings lagged estimates by 50%, while sales missed the same by 5.8%.

Its adjusted earnings per share in the reported quarter were 6 cents, lagging the Zacks Consensus Estimate of 12 cents. Also, the bottom line declined 33.3% from the year-ago quarter’s 9 cents.

The company’s earnings were 3 cents below the previous quarter’s reported number.

Revenue Details

In the reported quarter, the company’s revenues were $120.7 million, reflecting a 9.5% decline from the year-ago quarter’s figure. The top line also lagged the Zacks Consensus Estimate of $128.1 million. The performance was adversely impacted by the impacts of the pandemic and divestitures.

Notably, the company’s revenues improved 1.1% from the previous quarter.

Organic sales in the quarter under review were down 11% year over year due to a 12% fall in service revenues and an 11% decline in product sales. Divestitures/acquisitions (net) adversely impacted revenues by 1%, while movements in foreign currency had a positive impact of 2% on the results.

The segmental information is briefly discussed below.

Industrial Tools & Services (93.4% of second-quarter fiscal 2021 net sales): Revenues in the reported quarter totaled $112.7 million, reflecting an 8.6% decline from the year-ago figure. The segment’s core sales decreased 10%, while divestitures/acquisitions (net) had an adverse impact of 1%. Foreign currency translation boosted the segment’s sales by 2%.

The year-over-year decrease was mainly due to the adverse impacts of the pandemic on demand.

Other (6.6% of net sales in second-quarter fiscal 2021): Revenues in the segment totaled $7.9 million, down 21% from the year-ago figure.

Margin Profile

In the reported quarter, Enerpac Tool’s cost of sales decreased 7.6% year over year to $65.9 million. It represented 54.6% of the quarter’s net sales compared with 53.4% in the year-ago quarter. Gross profit declined 11.8% year over year to $54.8 million. Gross margin declined 120 basis points year over year to 45.4%. Selling, administrative and engineering expenses decreased 8.7% year over year to $45.9 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $11.5 million, down 28.2% year over year. The adjusted EBITDA margin was 9.5% compared with 12% in the year-ago quarter.

Adjusted operating income was $6.8 million in the reported quarter, reflecting a year-over-year decline of 32%. Adjusted operating margin in the quarter under review was 5.6% compared with 7.4% in the year-ago quarter. Net financing costs declined 71.1% year over year to $1.3 million.

Balance Sheet and Cash Flow

Exiting second-quarter fiscal 2021, Enerpac Tool’s cash and cash equivalents totaled $115.3 million, down 27.3% from $158.6 million at the end of the last reported quarter. Long-term debt was down 17.6% sequentially at $210 million.

The company’s net debt to adjusted EBITDA was 2.1X at the end of the fiscal second quarter versus 1.9X at the first-quarter end.

Enerpac Tool generated net cash of $13.3 million from its operating activities in the first half of fiscal 2021 versus net cash of $28.7 million used in the year-ago quarter. Capital spending totaled $5.6 million, down 19.2% year over year. During the first half, the company refrained from repurchasing its shares, while paid out cash dividends of $2.4 million.

Outlook

Even though uncertainties related to the coronavirus outbreak still exist, Enerpac Tool anticipates improvement in demand and project activities to drive performance in the second half of fiscal 2021.

It expects revenues of $280-$290 million and incremental adjusted EBITDA at the high end of 35-45% in the second half of the year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 10.64% due to these changes.

VGM Scores

At this time, Enerpac has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Enerpac has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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