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Enerpac Tool (EPAC) Tops Q3 Earnings Estimates, Ups H2 View

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Enerpac Tool Group Corp. EPAC reported better-than-expected results for third-quarter fiscal 2021 (ended May 31, 2021). Its earnings beat estimates by 64.7%, whereas sales surpassed the same by 4.5%.

Notably, the company’s share price increased 7.66% yesterday, ending the trading session at $26.99.

Its adjusted earnings per share in the reported quarter were 28 cents, surpassing the Zacks Consensus Estimate of 17 cents. Also, the bottom line improved from a loss of 6 cents reported in the year-ago quarter.

Revenue Details

In the reported quarter, the company’s revenues were $143.1 million, reflecting 40.4% growth from the year-ago quarter’s figure. The top line gained from strength in markets and solid orders.

The top line also surpassed the Zacks Consensus Estimate of $137 million.

Notably, the company’s revenues improved 19% from the previous quarter.

Organic sales in the quarter under review were up 36% year over year, driven by 23% growth in service revenues and a 40% increase in product sales. Impacts of divestitures/acquisitions (net) were immaterial, while movements in foreign currency had a positive impact of 6% on the results.

The segmental information is briefly discussed below.

Industrial Tools & Services (93.2% of third-quarter fiscal 2021 net sales): Revenues in the reported quarter totaled $133.4 million, reflecting a 43.6% increase from the year-ago figure. The segment’s core sales increased 39%, while divestitures/acquisitions (net) had an immaterial impact on sales. Foreign currency translation boosted the segment’s sales by 6%.

This year-over-year growth in revenues was driven by healthy operating activities as severity related to the pandemic eases.

Other (6.8% of net sales in third-quarter fiscal 2021): Revenues in the segment totaled $9.8 million, up 8.2% from the year-ago figure.

Margin Profile

In the reported quarter, Enerpac Tool’s cost of sales increased 27.3% year over year to $76.3 million. It represented 53.3% of the reported quarter’s net sales compared with 58.8% in the year-ago quarter. Gross profit grew 59.4% year over year to $66.9 million. Gross margin grew 550 basis points year over year to 46.7%. Selling, administrative and engineering expenses decreased 0.7% year over year to $40.5 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $24.4 million, up 271.3% year over year. The adjusted EBITDA margin was 17.1% compared with 6.5% in the year-ago quarter.

Adjusted operating income was $19.5 million in the reported quarter, reflecting an improvement from $0.05 million generated in the year-ago quarter. Adjusted operating margin in the quarter under review was 13.6% compared with 0.1% in the year-ago quarter. Net financing costs declined 70.6% year over year to $1.3 million.

Balance Sheet and Cash Flow

Exiting third-quarter fiscal 2021, Enerpac Tool’s cash and cash equivalents totaled $136.3 million, up 18.2% from $115.3 million at the end of the last reported quarter. Long-term debt was down 7.1% sequentially at $195 million.

In the reported quarter, the company repaid $15 million of the principal amount of the revolving credit facility. Its net debt to adjusted EBITDA was 1.1X at the end of the fiscal third quarter versus 2.1X at the second-quarter end.

Enerpac Tool generated net cash of $11.6 million from its operating activities in the third quarter of fiscal 2021, decreasing 10.7% year over year. Capital spending totaled $3.9 million, up 65.5% year over year. Free cash flow in the reported quarter was $34.5 million, increasing 217.1% year over year.

In the first nine months of fiscal 2021, the company refrained from repurchasing its shares, while paid out cash dividends of $2.4 million.

Outlook

Enerpac Tool anticipates benefiting from market recoveries globally, following the ease in the restrictions related to the pandemic. The company believes that product development, strengthening vertical markets and gains from buyouts will be beneficial in the quarters ahead.

For the second half of fiscal 2021, the company anticipates sales of $290-$295 million, higher than $280-$290 million mentioned earlier. The revised projection pegs fourth-quarter sales at $147-$152 million. Incremental adjusted EBITDA is expected to be at the high end of 35-45% in the second half of the year.

Enerpac Tool Group Corp. Price and Consensus

Enerpac Tool Group Corp. Price and Consensus
Enerpac Tool Group Corp. Price and Consensus

Enerpac Tool Group Corp. price-consensus-chart | Enerpac Tool Group Corp. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $1.5 billion, Enerpac Tool currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Industrial Products sector are Applied Industrial Technologies, Inc. AIT, EnPro Industries, Inc. NPO and Lincoln Electric Holdings, Inc. LECO. While Applied Industrial currently sports a Zacks Rank #1 (Strong Buy), both EnPro and Lincoln Electric carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, earnings surprise for the last reported quarter was 35.64% for Applied Industrial, 44.21% for EnPro and 16.10% for Lincoln Electric.

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