Actuant (EPAC) Holds Investor Day, Discusses Long-Term Goals

Actuant Corporation (NYSE:EPAC) hosted Investor Day 2019 on May 14. The machinery company discussed its priorities, long-term growth targets and projections for fiscal 2020 (ending August 2020).

Before further discussion, it is worth mentioning here that Actuant adopted a new business name, Enerpac Tool Group, on Sep 23, 2019. Its stock started trading on the NYSE under the ticker symbol ‘EPAC’ from Oct 7. However, the change of the legal corporate name is subjected to its shareholders’ approval. The annual meeting of shareholders is anticipated to take place in January 2020.

The company expects its solid product portfolio (with prime focus on general industrial, hydraulic pumps, lifting systems and bolting technology product categories), diversified customer base, robust distribution network globally and effective capital deployment strategies to be advantageous in the years ahead. In addition, an experienced management team will likely be a boon.

Actuant believes that the rising popularity of alternative energy sources like wind, nuclear and others as well as increasing challenges in the infrastructure market and rising popularity in the aerospace market are strengthening the demand for its products. Also, rising complexities in production processes are aiding product demand.

Long-Term Targets

For the next five years (fiscal 2020-2024), the company anticipates core sales growth of 5% (CAGR). Alternatively, it believes that core sales will grow 200-300 basis points above the market. The company anticipates the top-line performance to be driven by benefits from acquired assets, expansion in regions and industries, product innovation, market share gains, and commercial efficiency.

Also, Actuant anticipates achieving earnings before interest, tax, depreciation and amortization (EBITDA) margin of 25% by fiscal 2024. It expects the improvement to be driven by gains from incremental product sales, focus on rental and value-added services, footprint optimization, and cost-reduction plans. The company anticipates cash flow generation to be solid, evident from free cash conversion in excess of 100%.

It anticipates return on invested capital of 20%. The company remains committed to making share buybacks, acquisitions and maintaining a strong balance sheet. It predicts leverage target of 1.5-2.5x.

Projection for Fiscal 2020

Actuant has maintained financial projections for fiscal 2020. A snapshot of the guidance is provided below.

For the fiscal year, it expects adjusted earnings per share of 68-81 cents, suggesting a decline from 73 cents recorded in fiscal 2019. The company predicts tax rate of 20%.

It maintained sales projection at $575-$600 million, indicating a decline from $655 million recorded in fiscal 2019. The top-line guidance includes the impact of $55 million related to service restructuring and divestitures of product line, $7 million of forex woes, product development, commercial actions, and soft market conditions.

The company expects core sales growth of (3%)-1% for fiscal 2020, with rise of (1%)-3% for industrial tool and improvement of 0-4% for Cortland. Meanwhile, it anticipates service revenue decline of 5-9%.

The company projects adjusted EBITDA of $94-$104 million, whereas it reported $96 million in fiscal 2019. It predicts cash flow from operations of $62-$85 million, capital expenditure of $10-12 million and free cash flow of $50-$75 million.

Zacks Rank, Price Performance & Estimate Trend

With a market capitalization of $1.5 billion, Actuant currently carries a Zacks Rank #3 (Hold). In the past month, the company’s shares have gained 9.7% compared with the industry’s growth of 6.4%.

Moreover, in the past 60 days, the Zacks Consensus Estimate for the company’s earnings has dipped 26.7% to 74 cents per share for fiscal 2020 and declined 23.2% to 96 cents for fiscal 2021 (ending August 2021).

Actuant Corporation Price, Consensus and EPS Surprise