Actuant (ATU) Down 3.6% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Actuant Corporation (NYSE:ATU) . Shares have lost about 3.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Second-Quarter Fiscal 2017 Results

Actuant reported mixed second-quarter fiscal 2017 (ended Feb 28, 2017) results.

Earnings: Quarterly adjusted earnings (eliminating impact of restructuring expense of $0.03 per share) came in at $0.11 per share, a penny lower than the Zacks Consensus Estimate of $0.12. Also, the bottom line came in lower than the year-ago tally of $0.21.

Revenues: Actuant’s second-quarter fiscal 2017 net revenue of $258.9 million edged down 1.7% year over year. However, the top line surpassed the Zacks Consensus Estimate of $250 million.

Core sales during the quarter were down 3% year over year, adverse foreign currency movements hurt sales by 1%, while acquisition and divestitures accounted for the remaining 2%.

Cost & Margins: The company’s cost of sales was $171.5 million in the quarter, marginally down 0.4% year over year.

Gross margin contracted 90 basis points (bps) to 33.7%. The decline was stemmed by poor sales volumes.

Selling, administrative and engineering expenses came in at $67 million, down from $67.2 million recorded in the prior-year quarter.

For the fiscal second quarter, the company’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin was 9.8%, down 160 bps year over year.

Segmental Performance: Revenues from the Industrial segment increased 12.8% year over year to $91.6 million.

Energy Segment revenues declined 15.4% year over year to $72.9 million. The segment’s core sales plunged 21% year over year.

Revenues from the Engineered Solutions Segment decreased 1.7% year over year to $94.3 million.

Balance Sheet and Cash Flow: Actuant exited the fiscal second quarter with cash and cash equivalents of $171.9 million, down from $179.6 million as of Aug 31, 2016. Long-term debt came in at $547.1 million, down from $561.7 million at the end of fiscal 2016.

In the quarter under review, Actuant generated cash worth $1.9 million from its operating activities, as compared with $7.6 million recorded in the prior year. Capital spending totaled $9.6 million, up from $5.5 million in second-quarter fiscal 2016.

Guidance for Third-Quarter Fiscal 2017

Actuant anticipates sales within the range of $290–$300 million for third-quarter fiscal 2017. Earnings are projected to lie within the range of $0.38–$0.43 per share.

Outlook: In the fiscal second quarter, core sales of the company’s Industrial and Engineered Solutions segments turned around after witnessing several dismal quarters. Actuant intends to make a number of investments in new product lines as well as niche growth markets. Robust sales, diligent revitalization and restructuring actions are likely to bolster near-term earnings. However, tepid conditions prevailing in the energy markets might limit growth.

Actuant narrowed its fiscal 2017 earnings guidance from $1.10–$1.30 per share to $1.10–$1.20 per share.

The company reaffirmed its revenue guidance in the $1.075–$1.125 billion range for fiscal 2017. However, Actuant estimates core sales to be down 2–5%.

For fiscal 2017, free cash flow is predicted to lie in the band of $85–95 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

VGM Scores

At this time, Actuant's stock has a poor Growth Score of 'F', however its Momentum is doing a bit better with a 'D'. Following the exact same course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.