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Actuant (ATU) Q4 Earnings Surpass Estimates, Revenues Miss

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Actuant Corporation reported fourth-quarter fiscal 2019 results (ended Aug 31, 2019), wherein earnings surpassed the Zacks Consensus Estimate by 16.67%. This was the company’s sixth consecutive quarter of earnings beat. However, revenues in the quarter missed the estimate by 6.15%.

Before we proceed further, it is worth mentioning that the company will be divesting its Engineered Components & Systems segment to an affiliate of One Rock Capital Partners, LLC, for building a sound industrial tool and services business. The divestment will be completed in the fourth quarter of the calendar year 2019.

Furthermore, on Sep 23, the company has adopted a new business name, Enerpac Tool Group. It will start trading on the NYSE under ‘EPAC’ ticker symbol from Oct 7. However, the change of legal corporate name is subjected to its shareholders’ approval. The annual meeting of shareholders is anticipated to take place in January 2020.

Impressive Bottom-Line Performance

In the quarter under review, Actuant’s adjusted earnings of 21 cents per share exceeded the Zacks Consensus Estimate of 18 cents. On a year-over-year basis, the bottom-line figure remained flat as the impact of weak sales and operating profits was offset by reduced interest expenses and favorable tax rates.

For fiscal 2019 (ended Aug 31, 2019), adjusted earnings came in at 73 cents per share, reflecting 49% growth year over year. The reported figure also surpassed the Zacks Consensus Estimate of 70 cents by 4.3%.

Weak Organic Sales and Forex Woes Hurt Revenues

Actuant generated revenues of $158.3 million in the fiscal fourth quarter, reflecting a 4.9% decline from the year-ago figure. The top line also fell short of the Zacks Consensus Estimate of $168.7 million by roughly 6.2%.

Organic sales in the quarter decreased 3% due to softness in Europe and planned exit from certain services businesses in North America. Meanwhile, business in medical end market was strong.

Notably, unfavorable movements in foreign currencies adversely impacted net sales by 2%.

The segmental information is briefly discussed below:

Industrial Tools & Services (91.3% of fourth-quarter fiscal 2019 net sales): Revenues at this segment totaled $144.6 million, reflecting a 5.7% decline from the year-ago figure. The segment’s core sales also decreased 4% due to adverse impacts of global uncertainties and exit from certain services businesses in North America. Additionally, forex woes had a 2% adverse impact on sales.

Other (8.7% of fourth-quarter fiscal 2019 net sales): Revenues at this segment totaled $13.7 million, up roughly 4.7% from the year-ago figure. The improvement was driven by growth in medical sales.

For fiscal 2019, the company’s net sales were $654.8 million, up roughly 2.1% from the previous year. However, the top line lagged the Zacks Consensus Estimate of $665.3 million by 1.6%.

Weak Margin

In the reported quarter, Actuant’s cost of sales decreased 4.1% year over year to $89.3 million. It represented 56.4% of the quarter’s net sales compared with 55.9% in the year-ago quarter. Gross margin contracted 40 basis points (bps) year over year to 43.6%. Selling, administrative and engineering expenses decreased 2% year over year to $49.9 million. As a percentage of net sales, selling, administrative and engineering expenses represented 31.5% compared with 30.6% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) amounted to $23.4 million, down 8.2% year over year. The adjusted EBITDA margin was 14.8% compared with 15.3% in the year-ago quarter. While adjusted operating income decreased 5.2% year over year to $19.1 million, adjusted operating margin contracted 30 bps to 12.06%. Net financing costs declined 22% year over year to $6.6 million.
 
Balance Sheet and Cash Flow

Exiting fourth-quarter fiscal 2019, Actuant’s cash and cash equivalents totaled $211.2 million, up 4.9% from $201.3 million at the end of the last reported quarter. Long-term debt balance decreased 3.4% sequentially to $452.9 million. Notably, the company repaid debts of $15 million in the quarter under review. Actuant’s net debt to adjusted EBITDA was 1.7x at the fourth-quarter end versus 1.9x at the end of year-ago quarter.

In fiscal 2019, the company generated cash of $53.8 million from operating activities, down roughly 49.2% from $106.1 million generated in the previous year. Capital spending totaled $26.8 million, up 28.2% year over year.

Actuant used $22.5 million for purchasing roughly one million shares in fiscal 2019, while distributed dividends totaling $2.4 million.

Outlook

Actuant believes that its commitment toward building solid product brands, focus on growth initiatives and exiting non-profitable businesses will be profitable in fiscal 2020 (ending Aug 31, 2020). However, it is cautions about the risks arising from economic uncertainties in its end markets.

For fiscal 2020, the company anticipates adjusted earnings to be 68-81 cents per share, down from 73 cents recorded in fiscal 2019. The tax rate in the year is predicted to be roughly 20%.

Sales are projected to be $575-$600 million, down from $655 million recorded in fiscal 2019. The top-line guidance includes the impact of $55 million related to service restructuring and divestitures of product line, $7 million of forex woes, development of new products, commercial actions and soft market conditions.  

Core sales growth will likely be within (3%)-1% in fiscal 2020, with industrial tool growth of (1%)-3% and Cortland growth of 0-4%. Meanwhile, services revenue is expected to decline 5-9%.

Adjusted EBITDA will be within $94-$104 million compared with $96 million recorded in fiscal 2019. Cash flow from operations is predicted to be $62-$85 million, while capital expenditure is likely to be $10-12 million and free cash is expected to be $50-$75 million.

For first-quarter fiscal 2020, adjusted earnings are anticipated to be 8-12 cents per share and sales are likely to be $135-$144 million. Adjusted EBITDA will be within the $17.5-$20.5 million range.

Actuant Corporation Price, Consensus and EPS Surprise

Actuant Corporation Price, Consensus and EPS Surprise

Actuant Corporation price-consensus-eps-surprise-chart | Actuant Corporation Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $1.5 billion, Actuant currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Industrial Products sector are Crawford United Corporation (CRAWA - Free Report) , Graham Corporation (GHM - Free Report) and Chart Industries, Inc. (GTLS - Free Report) . While Crawford United sports a Zacks Rank #1 (Strong Buy), Graham and Chart Industries carry 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 Chart Industries and Crawford United improved for the current year while remained stable for Graham. Further, earnings surprise for the last reported quarter was 11.76% for Crawford United, 100% for Graham and 11.48% for Chart Industries.

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