(ATU) Actuant’s Earnings Beat and Revenue Misses

Actuant Corporation (ATU) delivered adjusted earnings per share (EPS) of 55 cents in the fourth quarter of fiscal 2012, a penny ahead of the Zacks Consensus Estimate and 10% higher than the year-ago quarter EPS of 50 cents. Including impairment charges related to the Mastervolt business, the company reported a loss per share of 23 cents compared to 55 cents a share earned in the year ago quarter.

Total revenue of $405 million fell short of the Zacks Consensus Estimate of $410 million but inched up 0.5% from the year-ago revenue of $403 million. Core sales increased 3% and acquisitions contributed 2%. Weaker Euro had a negative impact of 5%.
Cost & Margin Performance
Cost of products sold remained flat at $248 million in the quarter and as a percentage of revenues, decreased 40 basis points to 61.2%. Gross profit increased 2% to $157 million and gross margin increased 40 basis points to 38.8%.
Selling, general and administrative expenses crept up 1% to $91.7 million in the quarter and as a percentage of revenues, increased 20 basis points year over year. Actuant reported an operating loss of $4.4 million compared to an operating profit of $56.9 in the year-ago quarter.
Adjusted operating profit was $65 million, up 2% from $64 million a year ago. Operating margin expanded 20 basis points to 16.2% in the quarter.
Segment Performance
The Industrial Segment posted a 2% year-over-year increase in revenues to $111 million. Core sales increased 7%, while foreign currency had a negative impact of 5%. The segment’s operating income was $29.5 million versus $$28.6 million in the year-ago quarter. The improvement was primarily driven by strong industrial tool demand in North America.
Energy Segment’s revenues increased 13% year over year to $93 million while core sales climbed 14%. 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 $18.8 million, up from $17.2 million in the year-ago quarter.
Revenues at the Electrical segment jumped 10% year over year to $83 million. Core sales increased 7%, reflecting higher volumes in the solar, industrial, retail and marine after-market channels. However, a weaker Euro had a negative impact of 3%. The segment reported an operating profit of $8.3 million, up from $6.5 million in the year-ago quarter due to higher volumes and improved Mastervolt profitability.
The Engineered Solution segment’s revenue decreased 10% to $118 million. Acquisitions contributed 5% to growth, which was offset by the negative impact of the Euro (5%), and a 14% 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. The segment’s operating income declined to $10.1 million from $16.1 million in the prior-year quarter on lower volumes.
Fiscal 2012 Performance
For fiscal 2012, Actuant reported adjusted EPS of $2.08, ahead of the Zacks Consensus Estimate by a penny and 24% higher than $1.68 earned in fiscal 2011. Fiscal results were also at the higher end of the company’s guided rage of $2.03–2.08.
Including debt refinancing and impairment charges, the company reported EPS of $1.17, down 22% from $1.50 in the prior year.
Total revenue of $1.6 billion fell marginally short of the Zacks Consensus Estimate of $1.6 billion but increased 11% from the year-ago revenue of $1.4 million. Reported revenue was at the lower end of the company’s guidance of $1.60–1.61 billion.
Financial Position
As of fiscal 2012 end, Actuant had cash and cash equivalents of $68 million compared with $44.2 million as of fiscal 2011 end. The company generated cash flow from operating activities of $182 million compared with $171 million in the prior year. As of August 31, 2012, the debt-to-capitalization ratio improved to 27.4% from 36.4% as of August 31, 2011.
Actuant completed the acquisition of CrossControl in the fourth quarter. The company repurchased 2.7 million common shares for $63 million in fiscal 2012, including 0.9 million shares for $24 million in the fourth quarter.
For fiscal 2013, the company anticipates irregular end-market demand, particularly from Europe and China but moderate growth in U.S. Core sales growth is estimated at 3–5% with full year revenues in the band of $1.68 to $1.72 billion, up from the previous estimate of $1.665–$1.700 billion.
Higher volumes, lower interest expenses and completed share repurchases are expected to be beneficial to EPS, which is projected in the range of $2.20-2.30, up from the previous expectation of $2.15–$2.30. In the first quarter of fiscal 2013, total sales are expected in the range of $390-395 million and EPS between 48 cents and 52 cents.
Our Take
Actuant’s acquisition pipeline is robust and remains well positioned to invest in growth opportunities and also fund share buybacks based on its strong balance sheet. The company’s acquisition of CrossControl AB, which serves key end markets such as mining, cargo handling, forestry, construction and rail aligns with Actuant’s strategic growth themes including infrastructure and natural resources.
Earlier in March, the company acquired Turotest, a leader in the design and manufacture of instrument panels, gauges and senders serving the Brazilian agriculture and industrial markets. The acquisition adds to the agriculture platform, which the company has identified as a key-growth end market.
This acquisition will enable the company to extend its reach into the growing agriculture, construction and mobile equipment markets in Latin America. However, currency translation and uncertainty in Europe remain headwinds. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
For 2013, the company is targeting record sales, earnings and cash flow, reflecting benefit of its diverse business portfolio, operational capabilities and focus on its G+I initiatives.
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), Kennametal Inc. (KMT) and Parker Hannifin Corporation (PH).

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