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Why Is Enerpac (EPAC) Down 3.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Enerpac (EPAC - Free Report) . Shares have lost about 3.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Enerpac due for a breakout? 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 Tops Q3 Earnings Estimates, Ups H2 View

Enerpac Tool reported better-than-expected results for third-quarter fiscal 2021 (ended May 31, 2021). Its earnings beat estimates by 64.7%, whereas sales surpassed the same by 4.5%.

Its adjusted earnings per share in the reported quarter were 28 cents, surpassing the Zacks Consensus Estimate of 17 cents. Also, the bottom line improved from a loss of 6 cents reported in the year-ago quarter.

Revenue Details

In the reported quarter, the company’s revenues were $143.1 million, reflecting 40.4% growth from the year-ago quarter’s figure. The top line gained from strength in markets and solid orders.

The top line also surpassed the Zacks Consensus Estimate of $137 million.

Notably, the company’s revenues improved 19% from the previous quarter.

Organic sales in the quarter under review were up 36% year over year, driven by 23% growth in service revenues and a 40% increase in product sales. Impacts of divestitures/acquisitions (net) were immaterial, while movements in foreign currency had a positive impact of 6% on the results.

The segmental information is briefly discussed below.

Industrial Tools & Services: Revenues in the reported quarter totaled $133.4 million, reflecting a 43.6% increase from the year-ago figure. The segment’s core sales increased 39%, while divestitures/acquisitions (net) had an immaterial impact on sales. Foreign currency translation boosted the segment’s sales by 6%.

This year-over-year growth in revenues was driven by healthy operating activities as severity related to the pandemic eases.

Other: Revenues in the segment totaled $9.8 million, up 8.2% from the year-ago figure.

Margin Profile

In the reported quarter, Enerpac Tool’s cost of sales increased 27.3% year over year to $76.3 million. It represented 53.3% of the reported quarter’s net sales compared with 58.8% in the year-ago quarter. Gross profit grew 59.4% year over year to $66.9 million. Gross margin grew 550 basis points year over year to 46.7%. Selling, administrative and engineering expenses decreased 0.7% year over year to $40.5 million.

Adjusted EBITDA were $24.4 million, up 271.3% year over year. The adjusted EBITDA margin was 17.1% compared with 6.5% in the year-ago quarter.

Adjusted operating income was $19.5 million in the reported quarter, reflecting an improvement from $0.05 million generated in the year-ago quarter. Adjusted operating margin in the quarter under review was 13.6% compared with 0.1% in the year-ago quarter. Net financing costs declined 70.6% year over year to $1.3 million.

Balance Sheet and Cash Flow

Exiting third-quarter fiscal 2021, Enerpac Tool’s cash and cash equivalents totaled $136.3 million, up 18.2% from $115.3 million at the end of the last reported quarter. Long-term debt was down 7.1% sequentially at $195 million.

In the reported quarter, the company repaid $15 million of the principal amount of the revolving credit facility. Its net debt to adjusted EBITDA was 1.1X at the end of the fiscal third quarter versus 2.1X at the second-quarter end.

Enerpac Tool generated net cash of $11.6 million from its operating activities in the third quarter of fiscal 2021, decreasing 10.7% year over year. Capital spending totaled $3.9 million, up 65.5% year over year. Free cash flow in the reported quarter was $34.5 million, increasing 217.1% year over year.

In the first nine months of fiscal 2021, the company refrained from repurchasing its shares, while paid out cash dividends of $2.4 million.

Outlook

Enerpac Tool anticipates benefiting from market recoveries globally, following the ease in the restrictions related to the pandemic. The company believes that product development, strengthening vertical markets and gains from buyouts will be beneficial in the quarters ahead.

For the second half of fiscal 2021, the company anticipates sales of $290-$295 million, higher than $280-$290 million mentioned earlier. The revised projection pegs fourth-quarter sales at $147-$152 million. Incremental adjusted EBITDA is expected to be 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 30% due to these changes.

VGM Scores

Currently, Enerpac has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Enerpac has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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