Manufacturers

Actuant 2Q Earnings Surpass Wall Street Expectations

MILWAUKEE — Actuant Corporation today announced results for its fiscal 2019 second quarter ended February 28, 2019.

“We continued to execute successfully against our strategic plan, as demonstrated by the strong 12% core growth in our IT&S segment despite weather related challenges in the quarter,” said Randy Baker, President and CEO. “The investments we have made in our commercial processes are yielding results, and we believe IT&S is well positioned for continued growth. Additionally, the restructuring actions we took in 2018, along with the decision to focus solely on standard product in our Heavy Lifting product offering, have provided improved profitability in the current fiscal year. EC&S had a solid quarter as well, driven by solid execution of their plan, core sales growth in the Americas and strong profit improvement.”

Baker continued, “As we plan for our future as a pure-play industrial tool company, we are focused on delivering world class operating margins aligned with our strategy. To further that objective, we are initiating a restructuring program centered on achieving savings both from the integration of the Enerpac and Hydratight businesses and in our corporate structure by better leveraging and consolidating certain global support functions, facilities and spend. We expect to achieve $12-$15 million of annual savings and anticipate completing these actions within 18-24 months. The one-time total cost of these actions is projected to be $15-$20 million. Additionally, during the quarter, we made significant progress toward optimizing our portfolio of businesses with the announcement of our intent to divest the EC&S segment and closing the sale of Precision-Hayes International and Cortland Fibron. We are confident that focusing on growing our high quality and high margin IT&S business and pursuing this sale is the best way to maximize value for Actuant’s shareholders while securing a positive future for EC&S and its talented employees around the world.”

Consolidated Results

(US$ in millions)

Three Months Ended Feb 28 Six Months Ended Feb 28
2019 2018 2019 2018
Sales $271.9 $275.2 $564.4 $564.1
Operating Profit $16.4 $9.8 $7.0 $24.5
Adjusted Op Profit $23.3 $17.1 $50.8 $38.4
Adjusted Op Profit % 8.6% 6.2% 9.0% 6.8%
Earnings (Loss) per Share $0.04 $(0.30) $(0.24) $(0.22)
Adjusted Earnings per Share $0.19 $0.13 $0.46 $0.31
Net Income (Loss) $2.8 $(18.2) $(14.7) $(13.0)
EBITDA $23.1 $19.5 $21.8 $44.0
Adjusted EBITDA $30.1 $26.8 $65.6 $57.9
EBITDA % 8.5% 7.1% 3.9% 7.8%
Adjusted EBITDA % 11.1% 9.7% 11.6% 10.3%
  • Consolidated net sales for the second quarter were $271.9 million, slightly lower than the $275.2 million recorded in the comparable prior year quarter. Core sales improved 7% year-over-year, while foreign currency rate changes decreased net sales by 4% and the impact of divestitures (Precision-Hayes International and Cortland Fibron) also reduced net sales by 4%.
  • Fiscal 2019 second quarter net income and EPS were $2.8 million and $0.04, compared to a net loss of $(18.2) million and EPS of $(0.30), respectively, in the comparable prior year quarter.
    • Fiscal 2019 second quarter earnings included impairment and other divestiture charges of $6.9 million ($6.7 million, or $0.11 per share, after tax) related to the Precision-Hayes International, Cortland and EC&S divestitures, along with $2.0 million ($0.04 per share) of charges primarily related to U.S. tax reform.
  • Fiscal 2018 second quarter earnings included restructuring charges of $4.3 million ($3.8 million, or $0.06 per share, after tax), impairment and other divestiture charges of $3.0 million ($12.4 million, or $0.21 per share, after tax), $8.4 million ($0.14 per share) related to U.S. tax reform and $1.4 million ($0.02 per share) for equity compensation deferred tax adjustments.
  • Excluding impairment, other divestiture and restructuring charges, adjusted EPS for the second quarter of fiscal 2019 was $0.19, compared to $0.13 in the comparable prior year period (see attached reconciliation of earnings).
  • Consolidated net sales for the six months ended February 28, 2019 were $564.4 million, compared to $564.1 in the prior year period. Core sales improved 4% year-over-year while foreign currency rates decreased net sales 3% and the net impact of acquisitions and divestitures decreased net sales by 1%.
  • Fiscal 2019’s first half net loss and EPS were $(14.7) million and $(0.24), respectively, compared to a net loss and EPS of $(13.0) million and $(0.22), respectively, in the comparable prior year period.

Segment Results

Industrial Tools & Services Segment (IT&S)

(US$ in millions)

Three Months Ended Feb 28 Six Months Ended Feb 28
2019 2018 2019 2018
Sales $149.5 $137.0 $298.2 $279.0
Operating Profit $26.5 $19.0 $52.9 $39.8
Adjusted Op Profit (1) $26.6 $20.5 $52.9 $42.7
Adjusted Op Profit % (1) 17.8% 15.0% 17.8% 15.3%

(1) Excludes minimal restructuring charges in fiscal 2019 compared to $1.5 million in the second quarter of fiscal 2018 and $2.9 million in the six months ended February 28, 2018.

  • Second quarter fiscal 2019 IT&S segment net sales were $149.5 million, 9% higher than the prior year. Core sales increased 12% and the impact of foreign currency exchange rates decreased net sales by 3% year-over-year.
  • Solid top line growth in both product and service resulted from the continued strength of our end markets and commercial investments. The Americas and the Middle East each experienced double digit top line growth in product and service, respectively.
  • Adjusted operating profit improved as a result of increased sales volume and product margin expansion as well as improved profitability within Heavy Lifting due to our focus on standard product.

Engineered Components & Systems Segment (EC&S)

(US$ in millions)

Three Months Ended Feb 28 Six Months Ended Feb 28
2019 2018 2019 2018
Sales $122.4 $138.2 $266.3 $285.1
Operating Profit (Loss) $(1.4) $(4.4) $(29.7) $(0.4)
Adjusted Op Profit (2) $5.5 $1.2 $14.1 $6.3
Adjusted Op Profit % (2) 4.5% 0.9% 5.3% 2.2%

(2) The second quarter of fiscal 2019 excludes $6.9 million of impairment and other divestiture charges. The second quarter of 2018 excludes $3.0 million of impairment and other divestiture charges, along with $2.6 million of restructuring charges. The six months ended February 28, 2019 excludes restructuring charges of $0.4 million and impairment and other divestiture charges of $43.3 million. The six months ended February 28, 2018 excludes restructuring charges of $3.7 million and $3.0 million of impairment and other divestiture charges.

  • Second quarter fiscal 2019 EC&S segment net sales were $122.4 million, an 11% decrease from the prior year. The divestiture of Precision-Hayes International and Cortland Fibron resulted in a decrease in net sales of $11.8 million (9%) and the strengthening of the US dollar reduced net sales an additional 2%.
  • Core sales were flat due to the ramp up of new platform wins and price realization, which were offset by slightly lower volume in on and off-highway vehicle products and reduced demand in the industrial ropes market. China truck demand stabilized in the quarter, as expected.
  • Adjusted operating profit margin improved due to pricing and operating efficiencies.

Corporate Expenses and Income Taxes

  • Corporate expenses for the second quarter of fiscal 2019 were $8.8 million, $4.2 million higher than the comparable prior year period, primarily resulting from increased medical, stock compensation and consulting expenses.
  • The second quarter effective income tax rate of approximately 26% was in line with expectations but higher than the prior year rate of 14%.

Balance Sheet and Leverage

(US$ in millions)

Period Ending
Feb 28, 2019 Aug 31, 2018 Feb 28, 2018
Cash Balance $170.4 $250.5 $153.6
Debt Balance $485.6 $532.7 $547.3
Net Debt to Adjusted EBITDA 2.1 1.9 3.0
  • Net debt at February 28, 2019 was approximately $315 million (total debt of $486 million less $170 million of cash), which decreased approximately $7 million from the prior quarter and $79 million from second quarter of fiscal 2018. The company paid $40 million of principal against its Term Loan facility during the quarter. Net Debt to Adjusted EBITDA was 2.1x at February 28, 2019.

Outlook

Mr. Baker concluded, “We are pleased with the strong results we achieved in the first half of fiscal 2019. Going forward, we expect that our ongoing actions to become a world class tool company along with cost reductions achieved through our restructuring program will enable us to drive growth and top-tier profitability. We are also continuing to invest strategically in new product development, commercial effectiveness and operational excellence to further drive value and profitability. We are confident that our strategies will unlock enhanced shareholder value.”

The Company reaffirms its outlook for fiscal year 2019 and provides the following outlook for third quarter 2019:

  • Annual sales: $1.15 to $1.19 billion, with annual core sales growth between 3% and 5%;
  • Full year adjusted EPS: between $1.09 and $1.20, which includes an expected tax rate of 20%;
  • Full year free cash flow: $80 to $85 million;
  • Third quarter sales: $295 to $305 million; and
  • Third quarter adjusted EPS: range of $0.40 to $0.45.

All guidance excludes restructuring, impairment and divestiture charges, one-time tax adjustments and the impact of potential future acquisitions, dispositions, share repurchases and tariffs.

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