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Why Is Enerpac (EPAC) Up 7.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Enerpac (EPAC - Free Report) . Shares have added about 7.9% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Enerpac Misses Q3 Earnings and Revenue Estimates

Enerpac Tool Group Corp. reported weaker-than-expected third-quarter fiscal 2022 (ended May 31, 2022) results. Earnings and revenues missed estimates by 44.8% and 1.8%, respectively.

The company’s adjusted earnings per share were 16 cents, lagging the Zacks Consensus Estimate of 29 cents. The bottom line decreased 42.6% from 28 cents per share in the year-ago quarter on higher costs and expenses. The prevalent supply-chain, inflation and logistics woes were spoilsports.

Revenue Details

In the reported quarter, the company’s revenues were $151.9 million, reflecting a 6.1% increase from the year-ago quarter’s figure. The top line gained from a healthy performance at Industrial Tools & Services and Other segments.

The top line missed the Zacks Consensus Estimate of $155 million.

Organic sales in the quarter under review were up 10% year over year, driven by 12% growth in product sales. Service revenues increased 1%. Movements in foreign currency had an adverse impact of 4% on the quarter’s revenues.

The segmental information is briefly discussed below.

Industrial Tools & Services (92.4% of third-quarter fiscal 2022 net sales): Revenues in the reported quarter totaled $140.4 million, reflecting a 5.2% increase from the year-ago figure. The year-over-year revenue growth was driven by market recovery worldwide and the impacts of pricing actions taken by the company.

Other (7.6% of net sales in third-quarter fiscal 2022): Revenues in the segment totaled $11.5 million, up 7.6% from the year-ago quarter.

Margin Profile

In the reported quarter, Enerpac Tool’s cost of sales grew 4.6% year over year to $79.8 million. It represented 52.5% of the quarter’s net sales compared with 53.3% in the year-ago quarter. The gross profit increased 7.8% to $72 million. The gross margin jumped 70 basis points to 47.4%.

The gross profit results in the quarter benefited from higher sales, partially offset by impacts of inflationary and supply-chain issues.

Selling, administrative and engineering expenses increased 55.8% year over year to $63.1 million. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $18.3 million, down 25%. The adjusted EBITDA margin was 12% compared with 17.1% in the year-ago quarter.

Adjusted operating income was $13.7 million in the reported quarter, reflecting a decline from $19.5 million in the year-ago quarter. The adjusted operating margin was 9% compared with 13.6% in the year-ago quarter. Net financing costs declined 29% to $1 million.

Balance Sheet and Cash Flow

Exiting the fiscal third quarter, Enerpac Tool’s cash and cash equivalents totaled $123.7 million, down 7.3% from $133.4 million at the end of the last reported quarter. Long-term debt increased 17.1% sequentially to $205 million.

In the reported quarter, the company’s borrowing from the revolving credit facility was $30 million, and repayment on the same source was nil. Its net debt to adjusted EBITDA was 1.1X at the end of the fiscal third quarter versus 0.6X at the fiscal second-quarter end.

Enerpac Tool generated net cash of $2.5 million for its operating activities in the third quarter of fiscal 2022. It generated net operating cash of $11.6 million in the year-ago quarter. Capital spending totaled $2.1 million, down 46.2%. Free cash inflow in the quarter was $1.4 million compared with a cash inflow of $34.5 million in the year-ago quarter.

In the quarter, the company did not pay out any cash dividend.

Outlook

Enerpac Tool anticipates healthy demand and focus on growth to be beneficial for fiscal 2022 (ending August 2022). Also, its ASCEND initiatives are likely to improve its operational excellence, production efficiency and sales and channel coverage, apart from helping it control operating costs. Headwinds related to cost inflation, supply-chain woes and logistics issues remain concerning.

For fiscal 2022, Enerpac Tool currently anticipates sales to be $560-$570 million compared with $560-$580 million projected earlier. It implies an increase from the year-ago tally of $528.7 million. Incremental adjusted EBITDA is expected to be 35-45% (maintained).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Enerpac has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Enerpac has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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