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Why Is Actuant (ATU) Down 15.3% Since Last Earnings Report?

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BancorpSouth (BXS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

It has been about a month since the last earnings report for Actuant (ATU). Shares have lost about 15.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Actuant Beats on Q4 Earnings, To Reshape Segments in '19

Actuant delivered better-than-expected results in the fourth quarter of fiscal 2018 (ended Aug 31, 2018.) This was the company's second consecutive quarter of positive earnings beat.

This industrial tool maker's adjusted earnings per share in the reported quarter were 39 cents, reflecting increase of 11.4% from the Zacks Consensus Estimate of 35 cents. On a year-over-year basis, the bottom line expanded 105.3% from the year-ago tally of 19 cents. The improvement came on the back of healthy segmental business and improving margin.

For fiscal 2018, Actuant's adjusted earnings were $1.09, up 31.3% from the year-ago tally of 83 cents. This also surpassed the Zacks Consensus Estimate of $1.06.

Segmental Performance Drives Revenues

In the reported quarter, Actuant generated sales of $301.4 million, increasing 9.3% from the year-ago quarter. The improvement was driven by 10% growth in organic sales, partially offset by 1% adverse impact from unfavorable movements in foreign currencies. It's worth noting here that gains from Equalizer and Mirage buyouts, as well as impact from Viking divestiture, had less than 1% positive impact on sales.

Further, the top line surpassed the Zacks Consensus Estimate of $288.9 million by roughly 4.3%.

The company reports net sales under three segments — Industrial, Energy and Engineered Solutions. The segmental information is briefly discussed below:

Revenues from the Industrial segment were $111.6 million, increasing 11.3% year over year. It accounted for 37% of the reported quarter's sales.

The segment's core sales grew 10% while Equalizer buyout added 1%. Demand for standard industrial tools was healthy while sales for heavy lifting technology grew handsomely and that for concrete tensioning products improved slightly.

Revenues from Energy segment totaled $77.5 million, increasing 12.9% from the year-ago tally. It accounted for 25.7% of the reported quarter's sales.

Core sales grew 15% while foreign currency translation had a negative 2% impact on sales. Growth in maintenance activities in the North Sea and the Middle East strengthened the Hydratight business. Moreover, rise in demand from medical, oil & gas market, and other (non-energy) markets boosted Cortland sales.

Revenues from the Engineered Solutions segment grew 5.2% year over year to $112.3 million. It accounted for 37.3% of the reported quarter's sales.

The segment's core sales grew 6% and foreign currency translation had 1% negative impact. Business flourished in off-highway markets — including forestry, agriculture and mining. Moreover, truck sales in Europe increased, partially offset by the decline recorded in China.

For fiscal 2018, Actuant's net sales were $1,182.6 million, increasing 7.9% year over year. Furthermore, the top line was above the Zacks Consensus Estimate of $1.17 billion.

Margins Improve Y/Y

In the reported quarter, Actuant's cost of sales increased 7.9% year over year to $193.3 million. It represented 64.1% of sales compared with 65% in the year-ago quarter. Gross margin improved 90 basis points (bps) year over year to 35.9%. Selling, administrative and engineering expenses decreased 1.4% year over year to $70.9 million. As a percentage of sales, it represented 23.5% versus 26.1% in the year-ago quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $43.2 million, up 49.6% year over year. Adjusted EBITDA margin in the reported quarter was 14.3% versus 10.5% in the year-ago quarter. Adjusted operating income increased 64.7% year over year to $32.2 million while adjusted operating margin grew 360 bps to 10.7%.

Balance Sheet and Cash Flow

Exiting fourth-quarter fiscal 2018, Actuant had cash and cash equivalents of $250.5 million, up 32.2% from $189.5 million at the end of the last-reported quarter. Long-term debt balance decreased 1.4% sequentially to $502.7 million.

In the quarter under review, the company generated net cash of $70.5 million from operating activities, increasing 93.5% year over year. Capital spending totaled $2.2 million, down 59.2% year over year.

In fiscal 2018, the company's net cash from operating activities totaled $106.1 million and capital expenditure was $20.9 million. During the fiscal, the company paid dividend amounting to $2.4 million.

Outlook

Actuant believes emphasis on development of products, better serving customers and enhancement of operational efficiency will help deliver sound results in fiscal 2019. Moreover, the company's initiatives to restructure its portfolio, including the planned divestment Cortland Fibron, will work in Actuant's favor.

For fiscal 2019, the company anticipates adjusted earnings per share of $1.09-$1.20. This projection includes the impact of 12 cents per share, relating to the increase in tax rate from 10% in fiscal 2018 to 20% in fiscal 2019. Sales are projected to be $1.21-$1.24 billion, reflecting year-over-year growth of 3-5%.

The company will start reporting results under two business segments — Industrial Tools & Services, and Engineered Components & Systems — from the first quarter of fiscal 2019. Industrial Tools & Services sales for the fiscal are predicted to grow 3-5% year over year, including mid-single-digit growth in both the first and the second half of the fiscal. Sales growth for Engineered Components & Systems is anticipated to be 2-5%, including low-single-digit growth in the first half and mid-single-digit growth in the second half.

EBITDA is anticipated to be $155-$165 million. Incremental costs, amounting to $3-$4 million, are predicted from the tariff implemented under Section 301.

Free cash flow will likely be $80-$85 million.

For the fiscal first quarter, adjusted earnings are anticipated to be 20-25 cents per share and sales to be $295-$305 million. Core sales are predicted to be 2-5%. EBITDA will likely be $33-$38 million and effective tax rate will be 10-15%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.21% due to these changes.

VGM Scores

At this time, Actuant has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Actuant 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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