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Actuant Braves Margin Loss Risks With Robust Growth Drivers

Published 12/21/2017, 09:18 PM
Updated 07/09/2023, 06:31 AM

On Dec 22, we issued an updated research report on Actuant Corporation (NYSE:ATU) .

The company currently carries a Zacks Rank #3 (Hold) but has a favorable VGM Score B. Moreover, over the last 60 days, the Zacks Consensus Estimate for the stock has moved north for both fiscal 2018 and 2019.

Inside Story

Actuant reported better-than-expected first-quarter fiscal 2018 (ended Nov 30, 2017) results on Dec 20. Notably, core sales during the quarter were up 6% year over year. Robust Engineered Solutions and Industrial segmental performance majorly backed the stellar results.

The company expects that the improving global industrial market conditions and elevated demand for standard industrial tools will continue to boost revenues of its Industrial segment. Also, higher sales secured from major end markets (like agriculture, heavy-duty truck and off-highway equipment) are anticipated to boost top-line performance of the Engineered Solutions segment.

The company is also trying to become a high-performing company on the back of strategic divestitures. In August 2016, the company divested its Sanlo business to reshuffle its portfolio with more profitable businesses. Moreover, in December 2017, Actuant divested its Viking SeaTech business for streamlining the company’s Energy business. The move will limit Actaunt’s exposure to upstream, offshore oil & gas markets in the near future.

Moreover, Actuant intends to boost its competency on the back of strategic acquisitions. For instance, in December 2017, the company acquired Mirage Machines, Ltd. from Acteon, for broadening its product offerings in the flange facing and hot tapping categories. Specifically, the company noted that the buyout will complement Actuant’s Energy segment's Hydratight business, and create rental and service business opportunities.

However, over the last three months, Actuant’s shares lost 9.3%, as against 10.2% growth recorded by the industry.

We notice that core sales of the company’s Energy segment dipped 12% year over year in the fiscal first quarter. The company stated that the downside primarily stemmed from dismal sales secured from the Viking and Hydratight businesses. Actuant noted that the ongoing trend of customer maintenance deferrals, scope reductions and push-outs lowered revenues across all the major energy end-markets. We fear that persistence of this trend would continue to weigh over the company’s Energy segment’s results in the quarters ahead.

Moreover, Actuant mentioned that its margins in the reported quarter were hurt due to sales-mix headwinds, sustained investments made in commercial effectiveness moves and rise in the cost of one-time warranty provisioning. Also, closure of certain legacy projects and price inflation of some inputs also weighed over margins in the reported quarter. These issues might continue to thwart Actuant’s profitability.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

ABB Ltd (NYSE:ABB) currently carries a Zacks Rank #2 (Buy). The company pulled off an average positive earnings surprise of 11.67% in the last four quarters. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Acco Brands Corporation (NYSE:ACCO) has a Zacks Rank #2. The company generated an average positive earnings surprise of 81.89% over the trailing four quarters.

Altra Industrial Motion Corp. (NASDAQ:AIMC) also holds a Zacks Rank #2. The company recorded an average positive earnings surprise of 17.30% during the same time frame.

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ABB Ltd (ABB): Free Stock Analysis Report

Actuant Corporation (ATU): Free Stock Analysis Report

Altra Industrial Motion Corp. (AIMC): Free Stock Analysis Report

Acco Brands Corporation (ACCO): Free Stock Analysis Report

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