A month has gone by since the last earnings report for Actuant (EPAC). Shares have lost about 6.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Actuant due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Actuant Q1 Earnings and Revenues Beat Estimates
Actuant reported first-quarter fiscal 2020 results (ended Nov 30, 2019), wherein earnings and revenues surpassed the Zacks Consensus Estimate by 33.33% and 7.1% respectively.
The company’s adjusted earnings of 12 cents per share exceeded the Zacks Consensus Estimate of 9 cents. On a year-over-year basis, the bottom-line figure increased 9.1% supported by higher operating profits, reduced interest expenses and favorable tax rates.
Forex Woes & Divestitures Hurt Revenues
Actuant generated revenues of $146.7 million in the fiscal first quarter, reflecting a 7.5% decline from the year-ago figure. However, the top line surpassed the Zacks Consensus Estimate of $137 million.
Organic sales in the quarter were flat. While unfavorable movements in foreign currencies hurt net sales by 1%, divestitures/ exits had an adverse impact of 6% on net sales.
The company’s sales are represented under two heads. A brief discussion on them is provided below:
Industrial Tools & Services: Revenues totaled $135.6 million, reflecting 8.8% decline from the year-ago figure. The segment’s core sales also decreased 1% due to adverse impacts of global uncertainties. Additionally, forex woes had a 1% adverse impact on sales.
Other: Revenues totaled $11.1 million, up roughly 12.1% from the year-ago figure. The improvement was driven by growth in medical sales.
In the reported quarter, Actuant’s cost of sales decreased 11.5% year over year to about $78 million. It represented 53.2% of the quarter’s net sales compared with 55.6% in the year-ago quarter. Gross margin expanded 250 basis points (bps) to 46.8%. Selling, administrative and engineering expenses decreased 2.4% to $51.8 million.
As a percentage of net sales, selling, administrative and engineering expenses represented 35.3% compared with 33.5% a year ago. Adjusted EBITDA amounted to $19.4 million, relatively flat year over year. Adjusted EBITDA margin was 13.3% compared with 12.3% in the year-ago quarter. While adjusted operating income increased 0.6% to roughly $15 million, adjusted operating margin increased 80 bps to 10.2%. Net financing costs declined 8.2% to $6.7 million.
Balance Sheet and Cash Flow
Exiting the fiscal first quarter, Actuant’s cash and cash equivalents totaled $206.8 million, down 2.1% from $211.2 million at the end of the last reported quarter. Long-term debt balance decreased 36.8% sequentially to $286.2 million. Notably, the company repaid debts of $175 million in the quarter under review. Actuant’s net debt to adjusted EBITDA was 0.8x at the fiscal first-quarter end compared with 2.1x at the end of year-ago quarter.
In the quarter, the company’s cash used by operating activities came in at $22.9 million, down from $29.1 million in the year-ago quarter. Capital spending totaled $4.6 million, down 40.3%.
Actuant believes that its commitment toward building solid product brands, focus on growth initiatives, cost-saving actions and exit from certain product lines (low-margin) in the first quarter will likely boost its profitability in fiscal 2020 (ending August 2020). However, it is cautious about the risks arising from uncertainties in its end markets.
For fiscal 2020, the company anticipates adjusted earnings of 68-81 cents per share versus 73 cents recorded in fiscal 2019. The tax rate in the year is predicted to be 20%.
Sales are projected to be $575-$600 million, whereas it recorded $655 million in fiscal 2019. Core sales growth will likely be (3%)-1% in fiscal 2020, with industrial tool growth of (1%)-3% and Cortland growth of 0-4%. Meanwhile, services revenues are expected to decline 5-9%.
Adjusted EBITDA will likely be $94-$104 million, whereas it recorded $96 million in fiscal 2019. Cash flow from operations is predicted to be $62-$85 million, capital expenditure is likely to be $10-12 million and free cash is expected to be $50-$75 million.
For second-quarter fiscal 2020, adjusted earnings are anticipated to be 8-12 cents per share and sales are likely to be $133-$140 million. Adjusted EBITDA will likely be $16.5-$19.5 million.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted -25% due to these changes.
Currently, Actuant has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Actuant has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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