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Actaunt (ATU) Misses on Q2 Earnings; Revenues Decline Y/Y

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Diversified machinery company, Actuant Corporation reported mixed second-quarter fiscal 2017 (ended Feb 28, 2017) results. Quarterly revenues surpassed the Zacks Consensus Estimate, however earnings fell short of the same by a penny.

Over the last six months, shares of this Zacks Rank #2 (Buy) stock yielded a return of 21.12%, outperforming 16.56% gain recorded by the Zacks classified Machine-Tools & Related Products industry.

Earnings

Quarterly adjusted earnings (eliminating impact of restructuring expense of 3 cents per share) came in at 11 cents per share, a penny lower than the Zacks Consensus Estimate of 12 cents. Also, the bottom line came in lower than the year-ago tally of 21 cents.

Revenues

Actuant’s second-quarter fiscal 2017 net revenue of $258.9 million edged down 1.7% year over year. However, the top line surpassed the Zacks Consensus Estimate of $250 million.

Core sales during the quarter were down 3% year over year. Adverse foreign currency movements hurt sales by 1%, while acquisition and divestitures accounted for the remaining 2%.

Costs and Margins

The company’s cost of sales was $171.5 million in the quarter, marginally down 0.4% year over year.

Gross margin contracted 90 basis points (bps) to 33.7%. The decline was stemmed by poor sales volumes.

Selling, administrative and engineering expenses came in at $67 million, down from $67.2 million recorded in the prior-year quarter.

For the fiscal second quarter, the company’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin was 9.8%, down 160 bps year over year.

Balance Sheet and Cash Flow

Actuant exited the fiscal second quarter with cash and cash equivalents of $171.9 million, down from $179.6 million as of Aug 31, 2016. Long-term debt came in at $547.1 million, down from $561.7 million at the end of fiscal 2016.

In the quarter under review, Actuant generated cash worth $1.9 million from its operating activities, as compared with $7.6 million recorded in the prior year. Capital spending totaled $9.6 million, up from $5.5 million in second-quarter fiscal 2016.

Segmental Performance

Revenues from the Industrial segment increased 12.8% year over year to $91.6 million. The segment’s core sales were up 11% year over year. The upside was driven by higher demand for almost all product lines, especially heavy lifting and concrete tensioning products. In addition, the Larzep acquisition supported the year-over-year growth.

Energy Segment revenues declined 15.4% year over year to $72.9 million. The segment’s core sales plunged 21% year over year. The downside stemmed from weak Hydratight business sales, reduced customer spending on maintenance activities, as well as soft oil & gas related demand in the upstream offshore market. Moreover, a stronger U.S. dollar affected the segment’s top-line performance.  

Revenues from the Engineered Solutions Segment decreased 1.7% year over year to $94.3 million. However, the segment’s core sales climbed 2% year over year. Soft demand from agricultural and off-highway original equipment manufacturers stemmed the year-over-year decline. Also, a stronger U.S. dollar and the Sanlo divestiture impact backed the downside.

Guidance for Third-Quarter Fiscal 2017

Actuant anticipates sales within the range of $290–$300 million for third-quarter fiscal 2017. Earnings are projected to lie within the range of 38–43 cents per share.

Outlook

In the fiscal second quarter, core sales of the company’s Industrial and Engineered Solutions segments turned around after witnessing several dismal quarters. Actuant intends to make a number of investments in new product lines as well as niche growth markets. Robust sales, and diligent revitalization and restructuring actions are likely to bolster near-term earnings. However, tepid conditions prevailing in the energy markets might curtail growth.

Actuant narrowed its fiscal 2017 earnings guidance from $1.10–$1.30 per share to $1.10–$1.20 per share. The move is in sync with the company’s expectations to witness unfavorable sales mix in the near term. Moreover, growth oriented investments are likely to limit near-term improvement in margins.

The company reaffirmed its revenue guidance in the $1.075–$1.125 billion range for fiscal 2017. However, Actuant estimates core sales to be down 2–5%.

For fiscal 2017, free cash flow is predicted to lie in the band of $85–95 million.

Other Stocks to Consider

Some other well-ranked stocks within the industry are listed below:

ACCO Brands Corporation (ACCO - Free Report) has a positive average earnings surprise of 24.74% for the last four quarters and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies, Inc. (AIT - Free Report) carries a Zacks Rank #2 and has a positive average earnings surprise of 6.18% for the trailing four quarters.

Avery Dennison Corporation (AVY - Free Report) also holds a Zacks Rank #2 and has an average earnings surprise of 6.17% for the past four quarters.

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