A month has gone by since the last earnings report for Enerpac (EPAC). Shares have lost about 2.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Enerpac due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Enerpac Tool Q4 Earnings and Revenues Lag Estimates
Enerpac Tool reported weaker-than-expected results for fourth-quarter fiscal 2020 (ended Aug 31, 2020). Its earnings and sales in the quarter lagged the Zacks Consensus Estimate by 71.4% and 6.8%, respectively.
In the quarter, the company’s adjusted earnings per share were 2 cents, lagging the Zacks Consensus Estimate of 7 cents. Also, the bottom line declined 90.5% year over year from the year-ago quarter’s 21 cents.
Nevertheless, the company’s earnings improved from a loss of 6 cents per share recorded in the previous quarter.
For fiscal 2020, the company’s adjusted earnings were 18 cents per share, down from the Zacks Consensus Estimate of 23 cents. Also, earnings declined 75.3% year over year.
The company generated revenues of $111.4 million in the fiscal fourth quarter, reflecting a 29.7% decline from the year-ago quarter’s figure. The top line also lagged the Zacks Consensus Estimate of $119.5 million. New products accounted for more than 10% of quarterly sales.
Organic sales in the quarter were down 27% year over year due to a 45% fall in service revenues and a 23% decline in product sales. Divestitures/acquisitions (net) adversely impacted revenues by 4%, while movements in foreign currency had a positive impact of 1%.
Geographically, the company’s core sales decreased in low 30% in the Asia Pacific and in mid-teens in Europe. In the Americas, core sales were down in mid-20% and in high 30% in the Middle East on a year-over-year basis.
The company noted that fourth-quarter revenues increased 9.3% on a sequential basis.
The segmental information is briefly discussed below.
Industrial Tools & Services (92.5% of fourth-quarter fiscal 2020 net sales): Revenues in the segment totaled $103 million, reflecting a 28.7% decline from the year-ago figure. The segment’s core sales decreased 26%, while divestitures/acquisitions (net) had an adverse impact of 4%. Forex woes had a positive impact of 1%.
Other (7.5% of fourth-quarter fiscal 2020 net sales): Revenues in the segment totaled $8.3 million, down 39.4% from the year-ago figure.
For fiscal 2020, the company’s revenues were $493.3 million, lagging the Zacks Consensus Estimate of $501.2 million by 1.6%. On a year-over-year basis, revenues decreased 24.7%.
In the reported quarter, Enerpac Tool’s cost of sales decreased 25.1% year over year to $66.9 million. It represented 60.1% of the quarter’s net sales compared with 56.4% in the year-ago quarter. Gross profit declined 35.6% year over year to $44.5 million. Gross margin declined 370 basis points (bps) year over year to 39.9%. Selling, administrative and engineering expenses decreased 24.5% year over year to $37.7 million.
Adjusted EBITDA were $10.4 million, down 55.5% year over year. The adjusted EBITDA margin was 9.4% compared with 14.8% in the year-ago quarter.
Adjusted operating income was $4.6 million in the quarter, reflecting a decline of 75.7% from the year-ago quarter. Adjusted operating margin in the quarter was 4.2% compared with 12.1% in the year-ago quarter. Net financing costs declined 49.6% year over year to $3.3 million.
Enerpac Tool benefited from $9 million in cost savings realized from the temporary actions undertaken by the company.
Balance Sheet and Cash Flow
Exiting fourth-quarter fiscal 2020, Enerpac Tool’s cash and cash equivalents totaled $152.2 million, down 7% from $163.6 million at the end of the last reported quarter. Long-term debt was down 11% sequentially at $255 million.
During the quarter, the company raised $295 million from revolving credit facilities while maid repayments of $40 million. Also, it used $287.6 million to redeem 5.625% senior notes.
The company’s net debt to adjusted EBITDA was 1.8x at the fourth-quarter-end, same as the previous-quarter figure.
The company generated net cash of $12.5 million from its operating activities in the fourth quarter, reflecting a year-over-year decline of 76.2%. Capital spending totaled $2.8 million, down 9.6% year over year. During the quarter, the company refrained from repurchasing its shares and paying out dividends.
Enerpac Tool is still wary about the uncertainties related to the coronavirus outbreak and hence, refrained from providing projections for fiscal 2021 (ending Aug 31, 2021). However, the company anticipates business activities to improve sequentially during the year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a flat trend in estimates review. The consensus estimate has shifted -32.76% due to these changes.
At this time, Enerpac has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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.
Enerpac has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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