We reaffirmed our long-term Neutral recommendation on Actuant Corporation (ATU) on Apr 2, 2013, as risk reward remains fairly balanced for the stock at this juncture.
Why the reiteration?
Actuant’s earnings per share of 38 cents in fiscal second quarter of 2013, reported on Mar 20, beat the Zacks Consensus Estimate of 37 cents by a penny. However, the results declined by 11.6% year over year, primarily due to seasonality.
Total revenue of $370.4 million in the quarter beat the Zacks Consensus Estimate of $365.0 million by 1.5%. Core sales decreased 6.0% while acquisitions contributed 4.0%. Revenue declined 2.0% compared with the year-ago revenue of 378.0 million.
Estimates have moved equally in either direction for fiscal 2013 and 2014, over the past 30 days. The movements have resulted in unchanged consensus estimates at $2.18 and $2.42 per share for fiscal 2013 and 2014, respectively.
Actuant predicts irregular end-market demand along with an unfavorable market economy for fiscal 2013. Due to this uncertainty, Actuant has pulled down its earlier forecast decline in revenue of 1%-3% to a decline of 3%-5%. It expects EPS to range between $2.15 and $2.25, although the company is skeptical about attaining the earnings within the expected range.
Actuant has a good history of successful acquisitions, which has been of great help for revenue generation. Also, the company is successfully managing its margins, even in adverse scenarios. It is expected that the Engineered Solutions segment will experience margin improvement in the coming quarters as a result of cost reduction efforts as well as higher production levels.
Engineered Solutions segment’s revenue is likely to reduce in the future, leading to a decline in Actuant’s total revenue, due to the divestiture of Nielsen Sessions business unit.
Other Stocks to Consider
Actuant currently carries a Zacks Rank #3 (Hold). Other diversified machinery companies worth a look are Stanley Black & Decker Inc. (SWK), Kennametal Inc. (KMT) and Active Power Inc. (ACPW); each of which carries a Zacks Rank #2 (Buy).
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