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Actuant (ATU) Tops Q4 Earnings, To Reshape Segments in '19

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Actuant Corporation (ATU - Free Report) delivered better-than-expected results in the fourth quarter of fiscal 2018 (ended Aug 31, 2018.) This was the company’s second consecutive quarter of positive earnings beat.

This industrial tool maker’s adjusted earnings per share in the reported quarter were 39 cents, reflecting increase of 11.4% from the Zacks Consensus Estimate of 35 cents. On a year-over-year basis, the bottom line expanded 105.3% from the year-ago tally of 19 cents. The improvement came on the back of healthy segmental business and improving margins.

For fiscal 2018, Actuant’s adjusted earnings were $1.09, up 31.3% from the year-ago tally of 83 cents. This also surpassed the Zacks Consensus Estimate of $1.06.

Segmental Performance Drives Revenues

In the reported quarter, Actuant generated sales of $301.4 million, increasing 9.3% from the year-ago quarter. The improvement was driven by 10% growth in organic sales, partially offset by 1% adverse impact from unfavorable movements in foreign currencies. It’s worth noting here that gains from Equalizer and Mirage buyouts, as well as impact from Viking divestiture, had less than 1% positive impact on sales.

Further, the top line surpassed the Zacks Consensus Estimate of $288.9 million by roughly 4.3%.

The company reports net sales under three segments — Industrial, Energy and Engineered Solutions. The segmental information is briefly discussed below:

Revenues from the Industrial segment were $111.6 million, increasing 11.3% year over year. It accounted for 37% of the reported quarter’s sales.

The segment’s core sales grew 10% while Equalizer buyout added 1%. Demand for standard industrial tools was healthy while sales for heavy lifting technology grew handsomely and that for concrete tensioning products improved slightly.

Revenues from Energy segment totaled $77.5 million, increasing 12.9% from the year-ago tally. It accounted for 25.7% of the reported quarter’s sales.

Core sales grew 15% while foreign currency translation had a negative 2% impact on sales. Growth in maintenance activities in the North Sea and the Middle East strengthened the Hydratight business. Moreover, rise in demand from medical, oil & gas market, and other (non-energy) markets boosted Cortland sales.

Revenues from the Engineered Solutions segment grew 5.2% year over year to $112.3 million. It accounted for 37.3% of the reported quarter’s sales.

The segment’s core sales grew 6% and foreign currency translation had 1% negative impact. Business flourished in off-highway markets — including forestry, agriculture and mining. Moreover, truck sales in Europe increased, partially offset by the decline recorded in China.

For fiscal 2018, Actuant’s net sales were $1,182.6 million, increasing 7.9% year over year. Furthermore, the top line was above the Zacks Consensus Estimate of $1.17 billion.

Margins Improve Y/Y

In the reported quarter, Actuant’s cost of sales increased 7.9% year over year to $193.3 million. It represented 64.1% of sales compared with 65% in the year-ago quarter. Gross margin improved 90 basis points (bps) year over year to 35.9%. Selling, administrative and engineering expenses decreased 1.4% year over year to $70.9 million. As a percentage of sales, it represented 23.5% versus 26.1% in the year-ago quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $43.2 million, up 49.6% year over year. Adjusted EBITDA margin in the reported quarter was 14.3% versus 10.5% in the year-ago quarter. Adjusted operating income increased 64.7% year over year to $32.2 million while adjusted operating margin grew 360 bps to 10.7%.
 
Balance Sheet and Cash Flow

Exiting fourth-quarter fiscal 2018, Actuant had cash and cash equivalents of $250.5 million, up 32.2% from $189.5 million at the end of the last-reported quarter. Long-term debt balance decreased 1.4% sequentially to $502.7 million.

In the quarter under review, the company generated net cash of $70.5 million from operating activities, increasing 93.5% year over year. Capital spending totaled $2.2 million, down 59.2% year over year.

In fiscal 2018, the company’s net cash from operating activities totaled $106.1 million and capital expenditure was $20.9 million. During the fiscal, the company paid dividend amounting to $2.4 million.

Outlook

Actuant believes that emphasis on development of products, better serving customers and enhancement of operational efficiency will help it deliver sound results in fiscal 2019. Moreover, the company’s initiatives to restructure its portfolio, including the planned divestment Cortland Fibron, will work in its favor.

For fiscal 2019, the company anticipates adjusted earnings per share of $1.09-$1.20. This projection includes the impact of 12 cents per share, relating to the increase in tax rate from 10% in fiscal 2018 to 20% in fiscal 2019. Sales are projected to be $1.21-$1.24 billion, reflecting year-over-year growth of 3-5%.

The company will start reporting results under two business segments — Industrial Tools & Services, and Engineered Components & Systems — from the first quarter of fiscal 2019. Industrial Tools & Services sales for the fiscal are predicted to grow 3-5% year over year, including mid-single-digit growth in both the first and the second half of the fiscal. Sales growth for Engineered Components & Systems is anticipated to be 2-5%, including low-single-digit growth in the first half and mid-single-digit growth in the second half.

EBITDA is anticipated to be $155-$165 million. Incremental costs, amounting to $3-$4 million, are predicted from the tariff implemented under Section 301.

Free cash flow will likely be $80-$85 million.

For the fiscal first quarter, adjusted earnings are anticipated to be 20-25 cents per share and sales to be $295-$305 million. Core sales are predicted to be 2-5%. EBITDA will likely be $33-$38 million and effective tax rate will be 10-15%.

Actuant Corporation Price, Consensus and EPS Surprise
 

Actuant Corporation Price, Consensus and EPS Surprise | Actuant Corporation Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $1.7 billion, Actuant currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Industrial Products sector are Colfax Corporation (CFX - Free Report) , DXP Enterprises, Inc. (DXPE - Free Report) and Barnes Group Inc. (B - Free Report) . While both Colfax and DXP Enterprises sport a Zacks Rank #1 (Strong Buy), Barnes Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and next. The average positive earnings surprise for the last four quarters was 7.91% for Colfax, 101.32% for DXP enterprises and 6.88% for Barnes Group.

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