Actuant Corporation (ATU - Analyst Report) delivered adjusted earnings per share (EPS) of 60 cents in its third quarter of fiscal 2012, a penny ahead of the Zacks Consensus Estimate and 19% above the year-ago quarter’s EPS of 51 cents. Solid results in the U.S. and the Energy segment helped offset some end-market softness in Europe and China.
Including debt financing costs, EPS in the quarter stood at 45 cents. Including discontinued operations, EPS in the year ago quarter was 49 cents.
Total revenue of $429 million, was in line with the Zacks Consensus Estimate but 9% above the year ago revenue of $393 million. Core sales increased 4% and acquisitions contributed 8%. Weaker Euro had a negative impact of 3%.
Cost & Margin Performance
Cost of products sold increased 10% to $263 million in the quarter and as a percentage of revenues increased by 50 basis points to 61.3%. Gross profit increased 8% to $166 million but gross margin slipped 50 basis points to 38.7%.
Selling, general and administrative expenses increased 2% to $91 million in the quarter and as a percentage of revenues decreased 150 basis points year over year. Actuant reported operating income of $67.7 million, up 18% year over year. Operating margin expanded 100 basis points to 16% in the quarter.
The Industrial Segment posted a 2% year-over-year increase to reach revenues of $110 million. Core sales increased 5%, while foreign currency had a negative impact of 3%. The segment’s operating income increased 4% to $30.7 million in the quarter. Demand was strong across all end markets and geographies.
Energy Segment’s revenues increased 24% year over year to $96 million. Core sales increased 23% reflecting continued higher activity levels across all end markets. Maintenance spending in oil & gas, refinery, petrochemical and power generation markets, along with higher capital project activity in offshore energy, was instrumental in driving growth. The segment reported an operating profit of $18.5 million, up 37% year over year due to higher volumes.
Revenues at the Electrical segment increased 7% year over year to $86 million. Core sales increased 10%, reflecting higher volumes in the solar, utility, industrial, retail and marine after-market channels. However, a weaker Euro had a negative impact of 3%. The segment reported an operating profit of $8.8 million, up from $5.5 million in the year-ago quarter due to higher volumes and improved Mastervolt profitability.
The Engineered Solution segment’s revenue increased 8% to $137 million. Acquisitions contributed 23% to growth which was offset by the negative impact of the Euro (4%), and an 11% decline in core sales. Results reflected lower OEM production levels for heavy-duty trucks in China and Europe as well as a decline in automotive sales.
However, string demand was noted in North American heavy-duty truck, construction and agriculture markets. The segment’s operating income declined 8% to $18.5 million due to the lower core sales, partially offset by favorable acquisition mix.
As of May 31, 2012, Actuant had cash and cash equivalents of $80.1 million, substantially higher than $44.2 million as of August 31, 2011. The company generated cash flow from operating activities of $77 million compared with $74 million in the year ago quarter. As of May 31, 2012, the debt-to-capitalization ratio improved to 28% from 36% as of August 31, 2011.
For fiscal 2012, the company estimates sales in the range of $1.60–1.61 billion and EPS in the $2.03–2.08 range. Free cash flow is projected to be in the range of $180–185 million.
For fiscal 2013, the company anticipates irregular end-market demand, particularly in Europe and China. Core sales growth is estimated at 3–5% with full year revenues in the band of $1.665–$1.700 billion. Higher volumes, lower interest expenses and completed share repurchases are expected to culminate in EPS, which could be in the range of $2.15–$2.30. Free cash flow is expected to be between $195 and $200 million.
Actuant’s acquisition pipeline is robust and given its strong balance sheet, it is well positioned invest in growth opportunities and also fund share buy-backs. However, uncertainty in Europe remains a headwind. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Headquartered in Menomonee Falls, Wisconsin, Actuant Corporation designs, manufactures, and distributes industrial products and systems worldwide. It operates through four segments: Industrial, Energy, Electrical and Engineered Solutions. It competes with Eaton Corporation (ETN - Analyst Report) , Kennametal Inc. (KMT - Analyst Report) and Parker Hannifin Corporation (PH - Analyst Report) .