Actuant Corp (ATU) Beats On Q3 Earnings, Trims FY17 View

Actuant Corporation’s (ATU) third-quarter fiscal 2017 (ended May 31, 2017) earnings and revenues marginally surpassed the Zacks Consensus Estimate. However, both top- and bottom-line results of the company lagged the respective year-ago tallies, primarily due to the challenging conditions prevailing in the global energy market.

Earnings and Revenues

Adjusted earnings in the quarter (eliminating the quarterly restructuring charges and one-time income tax gain of 5 cents) came in at 32 cents per share, a penny higher than the Zacks Consensus Estimate.

However, the bottom-line figure fell short of the year-ago tally of 40 cents per share. The company even noted that the quarterly earnings result missed its previously projected guidance range of 38-43 cents per share. Unfavorable segment sales mix and poor energy maintenance activity mainly weighed over the bottom-line performance.

Net sales in the reported quarter came in at $295.4 million, marginally higher than the Zacks Consensus Estimate of $294 million. However, the top line came in lower than the year-ago figure of $305.3 million. The year-over-year downside was due to adverse impacts of foreign currency translation, divestitures and acquisitions.

Core sales growth in the quarter was nearly flat year over year, as growth in core sales of the company’s Industrial and Engineered Solutions’ segment was offset by decline in core sales of the Energy segment.

Segmental Details

Industrial segment’s sales during the quarter came in at $100.5 million, climbing 4.9% year over year. The upside was backed by sturdy industrial tool and concrete tensioning product’s sales. Notably, businesses were fairly good across all major end markets.

Engineered Solutions segment’s revenues were $111.4 million, up 2.9% year over year. The upside was stemmed by solid customer production rates in almost all the off-highway markets. In addition, the Chinese heavy-duty truck original equipment manufacturer’s demand remained robust during the reported quarter.

Energy segment’s sales came in at $83.5 million, dropping 17.6% year over year. Poor upstream offshore oil & gas demand, as well as lower sales accrued from the company’s Hydratight business, dented the segment’s sales in the quarter.

Costs and Margins

Cost of goods sold in the fiscal third quarter declined 2.6% year over year to $192.6 million. Gross profit margin in the quarter came in at 34.8%, contracting 40 basis points (bps) year over year.

Selling, administrative and engineering expenses were $70.1 million, nearly flat year over year. Adjusted operating profit margin was 9.4%, down 100 bps year over year.

Balance Sheet and Cash Flow

Existing the fiscal third quarter, Actuant had cash and cash equivalents worth $199 million, higher than $179.6 million recorded at the end of fiscal 2016. Long-term debt totaled $539.3 million, down from $561.7 million recorded on Aug 31, 2016.

In the quarter under review, Actuant provided cash worth $37.4 million from operating activities, down 19% year over year. Capital expenditure came in at $8.2 million compared to $4.6 million registered in the year-ago quarter.

Outlook

Actuant noted that the persistent industry downturn within its energy business has been more than offsetting the benefits accrued from the ongoing lean revitalization and sales effectiveness activities. However, the company intends to boost its long-term cash flow and profitability by limiting activities within the upstream offshore market. It also anticipates to benefit from the ongoing portfolio management and restructuring efforts.

Based on the existing market conditions, Actuant currently anticipates to generate revenues within the $1.080–$1.090 billion range in fiscal 2017, as against the prior guidance of $1.075–$1.125 billion. Adjusted earnings guidance was lowered to the 82–87 cents per share range from the previous projection of $1.10–$1.20 per share.

Free cash flow is estimated to lie within the range of $65–$70 million, down from the prior guidance of $85–$95 million.

Key Picks

Actuant currently carries a Zacks Rank #4 (Sell). Few better-ranked stocks in the industry are listed below:

Caterpillar Inc. (NYSE:CAT) delivered an average positive earnings surprise of 40.25% over the trailing four quarters and currently boasts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies, Inc. (NYSE:AIT) , which sports a Zacks Rank #1 at present, pulled off an average positive earnings surprise of 9.78% over the last four quarters.

Acco Brands Corporation (NYSE:ACCO) currently carries a Zacks Rank #2 (Buy) and has an average positive earnings surprise of 79.74% for the past four quarters.

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