Manufacturers

Enerpac Reports Q3 Loss, Misses Revenue Estimates

MILWAUKEE — Enerpac Tool Group Corp. (formerly Actuant) today announced results for its fiscal 2020 third quarter ended May 31, 2020.

“The challenging and unprecedented macroeconomic environment caused by the COVID-19 pandemic significantly impacted our third quarter results. Consistent with sharp declines in order rates reported by other industrial companies in April, we saw order rate declines of 30-40% starting in late March through May. However, we remained focused on keeping our employees safe, serving our customers and preserving our ability to execute our strategy,” said Randy Baker, Enerpac Tool Group’s President and CEO.

Baker continued, “We took proactive steps to quickly address an abrupt and significant change in demand brought on by the pandemic. By adjusting our cost structure, we were able to achieve the low end of our target decremental margin range, preserve liquidity, and maintain a strong balance sheet. Our commitment to our strategy continues to pay off as we achieved a new product vitality in excess of 10% for the third quarter in a row. We believe the actions we have taken to date and our development of plans for a range of recovery scenarios position Enerpac Tool Group to excel as the market recovers from this global pandemic.”

Consolidated Results from Continuing Operations

  • Consolidated net sales from continuing operations for the third quarter were $101.9 million, compared to $178.1 million in the prior year third quarter. Core sales decreased 38% year-over-year, with product sales down 35% and service down 47%. The net impact of acquisitions and divestitures/strategic exits decreased net sales by an additional 7%, and the impact of foreign currency benefited sales 2%.
  • Fiscal 2020 third quarter net loss from continuing operations and loss per share from continuing operations were ($4.9) million and ($0.08), respectively, compared to net income from continuing operations and EPS of $26.9 million and $0.43, respectively, in the third quarter of fiscal 2019. Fiscal 2020 third quarter net loss from continuing operations included:
    • A net impairment and divestiture gain of $1.4 million ($1.0 million or $0.02 per share, after tax);
    • Restructuring charges of $3.3 million ($2.2 million or $0.04 per share, after tax), primarily related to the restructuring plan announced in March 2020 to reduce redundant segment and corporate costs along with facility consolidations; and
    • Purchase accounting charges of $0.2 million ($0.2 million after tax).
  • Fiscal 2019 third quarter net income from continuing operations included an impairment benefit of $13.0 million ( $13.0 million or $0.21 per share, after tax) related to the reversal of the held for sale treatment of the Cortland U.S. business, restructuring charges of $1.1 million ($0.8 million benefit or $0.01 per share, after tax) primarily related to IT&S restructuring, accelerated debt issuance costs of $0.5 million ($0.4 million or $0.01 per share, after tax) related to the modification of our revolving credit facilities, a depreciation/amortization true-up of $1.7 million ($1.3 million or $0.02 per share, after tax) resulting from Cortland assets being reclassified into assets held for use, and $3.1 million ($0.05 per share) of charges primarily related to U.S. tax reform.
  • Excluding restructuring, impairment & divestiture charges and purchase accounting charges, adjusted loss per share from continuing operations was ($0.06) for the third quarter of fiscal 2020 compared to adjusted EPS of $0.29 in the comparable prior year period.
  • Consolidated net sales for the nine months ended May 31, 2020 were $381.9 million, compared to $496.4 million in the prior year period. Core sales decreased 17% year-over-year, while the net impact of acquisitions and divestitures/strategic exits decreased net sales by 6% and the impact of foreign currency was minimal.
  • Consolidated net income from continuing operations and EPS for the nine months ended May 31, 2020 were $5.4 million and $0.09, respectively, compared to net income from continuing operations and EPS of $11.2 million and $0.18, respectively, in the comparable prior year period.

Industrial Tools & Services

(1) Excludes $1.8 million of restructuring charges, $1.4 million of net impairment and divestiture gains, and $0.2 million of purchase accounting charges in the third quarter of fiscal 2020 compared to $1.1 million of restructuring charge s in the three and nine months ended May 31, 2019. The nine months ended May 31, 2020 excludes $4.0 million of restructuring charges, $3.6 million of net impairment and divestiture gains and $0.4 million of purchase accounting charges.

  • Third quarter fiscal 2020 net sales were $92.9 million, 44% lower than the prior fiscal year’s third quarter. Core sales decreased 39% year-over-year, while the net impact of acquisitions and divestitures/strategic exits decreased net sales 7% and the impact of foreign currency increased sales 2%.
  • The decrease in revenue is attributable to the sharp and significant decline in demand driven by the COVID-19 pandemic, volatile oil pricing and the anticipated year-over-year service decline in the Middle East.
  • Adjusted operating profit margin of 8.9% in the quarter decreased year-over-year primarily due to reduced volume, offset by a decrease in spend.

Corporate Expenses and Income Taxes ( excluding restructuring items)

  • Corporate expenses from continuing operations for the third quarter of fiscal 2020 were $8.2 million, $1.3 million lower than the comparable prior year period, primarily resulting from lower medical claims, reduced fees for third-party services, lower incentive compensation costs and restructuring actions.
  • The third quarter effective income tax rate from continuing operations of approximately -7% was lower than the third quarter fiscal 2019 rate of approximately 19%.

Discontinued Operations

Discontinued operations represent operating results for the divested EC&S segment through the October 31, 2019 completion date of the divestiture as well as the ancillary impacts from certain retained liabilities subsequent to the completion date. During the third quarter of fiscal 2020 we finalized the customary working capital settlement negotiations which provided an additional $1.3 million of proceeds as compared to the previously disclosed sales price. As a result, an additional gain on sale of $0.4 million was recorded through discontinued operations in the current quarter.

Balance Sheet and Leverage

Net debt at May 31, 2020 was approximately $123 million (total debt of $287 million less $164 million of cash), which is consistent with the prior quarter. Net Debt to Adjusted EBITDA from continuing operations was 1.8x at May 31, 2020. As previously disclosed, the company purchased approximately 500,000 shares in the third quarter of fiscal 2020 at an average price of $19.25 for a total of $9.7 million.

**Adjusted EBITDA from continuing operations is calculated for the twelve months then ended.

Outlook

Given uncertainty related to the duration and magnitude of the COVID-19 global pandemic and the recovery of its core markets, the Company previously withdrew its full year financial guidance.

Baker said, “We are beginning to see increased business activity as economies gradually reopen in Asia, Europe and the U.S., which has translated into an improved sequential order rate. No region has normalized yet but we now see product order rates at approximately 20% below June of the prior year versus the 30-40% decline we experienced in April and May. While we are encouraged by recent commercial activity and improved order rates, it is still unclear whether current order rates will be sustained as well as when demand and market conditions will normalize to pre-pandemic conditions.”

Baker continued, “We will continue to navigate these uncertain times by remaining focused on employee safety and managing what we can control to drive long term shareholder value. We are confident in our strategy, which is supported by our strong balance sheet and our dedicated and talented workforce and we believe we are positioned well to succeed as the world recovers from the pandemic.”

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