Actuant To Divest Segment, Focus On Industrial Tool Business

Actuant Corporation (NYSE:ATU) recently announced its intention to divest its Engineered Components & Systems (EC&S) segment in an effort to completely focus on its Industrial Tools & Services (IT&S) segment. The announcement came after the sale of the company’s Precision-Hayes International businesses and the successful realignment of its business operations into EC&S and IT&S segments. The strategic move is in sync with its transformation plan to become a pure play industrial tools and services company.

The company’s EC&S segment is engaged in serving on and off-highway Original Equipment Manufacturers. Notably, the segment consists of highly engineered components of agriculture, transportation, construction and other vertical markets offered by the company. The IT&S segment is a leading provider of high-force hydraulic tools and equipment for diverse industrial and infrastructure markets. The segment includes primary business, Enerpac, which enables it to generate high operating profit margins and solid core sales.

Actuant believes the divestment will allow it to solely focus on its best-performing business and provide higher returns to shareholders. Notably, with the divestment, the company intends to create a leading industrial tool company and generate earnings before interest, tax, depreciation and amortization margins of more than 20% over time.

Our Take

Actuant believes that elevated demand for recently-launched products and ongoing investments made in core businesses, pricing initiatives and strength in Tools business will boost its near-term revenues. This along with greater operational efficacy is expected to improve profitability in the quarters ahead. For fiscal 2019 (ending August 2019), the company currently anticipates generating organic revenue growth in the range of 3-5%.

In the past month, the Zacks Rank #3 (Hold) stock has yielded 6.2% return, outperforming the industry’s rise of 3.6%.

However, material cost inflation has been an issue for Actuant, of late. The Section 232 and 301 tariffs levied on certain U.S. imported products (like steel and aluminium) have significantly escalated raw material expenses for the company. Notably, the company expects that material cost inflation will adversely impact its business by nearly $10 million in fiscal 2019.

Key Picks

Some better-ranked stocks in the Zacks Industrial Products sector are listed below:

DXP Enterprises, Inc. (NASDAQ:DXPE) sports a Zacks Rank #1 (Strong Buy). The company pulled off a positive average earnings surprise of 112.62% in the past four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Atkore International Group Inc. (NYSE:ATKR) also carries a Zacks Rank of 1. The company generated a positive average earnings surprise of 27.58% in the trailing four quarters.

iRobot Corporation (NASDAQ:IRBT) flaunts a Zacks Rank of 1. The company delivered a positive average earnings surprise of 102.97% in the last four quarters.

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