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Actuant's Products & Restructuring Moves Aid Amid Market Woes

Zacks Equity Research

We have issued an updated research report on Actuant Corporation ATU on Oct 4.

The company is involved in the designing, manufacturing and distribution of various industrial products and systems. Many tailwinds and headwinds are impacting its performance.

A brief discussion of the various factors has been mentioned below.

Actuant stands to gain from the focus on growth investments and initiatives to exit from non-profitable businesses. Also, its solid product portfolio, including seven products that were launched in fourth-quarter fiscal 2019 (ended Aug 31, 2019), is a boon. The flourishing medical business, represented under Cortland, is adding to the tailwinds. The business’ core sales are anticipated to grow 10-15% in fiscal 2020 (ending August 2020).

Its restructuring measures, including lowering costs through headcount reductions, operational improvements and facility consolidations, will likely support margins. Also, strengthening of balance sheet via debt repayments and rewarding shareholders through dividends and share buybacks adds to its appeal.

It is worth mentioning here that Actaunt intends to become a pure-play industrial tool and services business through the divestment of its Engineered Components & Systems segment. Upon the completion of the divestment, the company will primarily focus on general industrial, hydraulic pumps, lifting systems and bolting technology product categories.

Despite the above-mentioned tailwinds and favorable trends with the industry (i.e. favorable policy changes in the country, infrastructure investments, remodeling activities and others); Actuant is wary about uncertainties in its end markets. Also, it is exposed to adverse impacts of unfavorable movements in foreign currencies.

The company’s Industrial Tools & Services segment suffered from softness in Europe and planned exit from certain services businesses in North America in the last quarter of fiscal 2019. Persistence of these issues might be detrimental. For fiscal 2020, the company believes that core sales growth of the tools business of the Industrial Tools & Services segment will be (1%)-1% while the services business will decline 5-9%.

Actuant provided lackluster projections for fiscal 2020. Sales are predicted to be $575-$600 million, down from $655 million recorded in fiscal 2019. Core sales growth will be (3%)-1%. Adjusted earnings are predicted to be 68-81 cents per share, down from 73 cents recorded in fiscal 2019.

Furthermore, the company faces competition from other players in the industry, including Stanley Black & Decker, Inc. SWK, Kennametal Inc. KMT and Lincoln Electric Holdings, Inc. LECO.

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