Business Context and Reporting Period
Actuant Corporation, the registrant identified in the filing, is a global manufacturer serving industrial, energy, infrastructure, transportation, agriculture and other markets through its Industrial, Energy and Engineered Solutions segments. The filing covers the three months ended November 30, 2017, the first quarter of fiscal 2018, compared with the prior-year quarter. The request metadata identifies Enerpac Tool Group Corp.; the filing text itself identifies Actuant Corporation.
Financial Performance and Liquidity
| Metric | Q1 FY2018 | Q1 FY2017 | Change |
|---|---|---|---|
| Net sales | $289.0 million | $265.8 million | +9% |
| Gross profit | $100.9 million | $93.1 million | +8% |
| Gross margin | 34.9% | 35.0% | Approximately flat |
| Operating profit | $14.7 million | $8.5 million | +73% |
| Operating margin | 5.1% | 3.2% | +190 basis points |
| Net earnings | $5.2 million | $5.0 million | +5% |
| Diluted EPS | $0.09 | $0.08 | +1 cent |
| Net cash from operating activities | $(20.5) million | $12.5 million | Decrease of $33.0 million |
Sales benefited from a 3% favorable foreign-currency effect and 6% core growth. Industrial sales increased 11% to $96.9 million, Energy sales declined 10% to $75.8 million, and Engineered Solutions sales increased 24% to $116.2 million. Segment operating profit was $18.2 million for Industrial, $0.3 million for Energy and $6.3 million for Engineered Solutions.
Cash and cash equivalents were $165.1 million at November 30, 2017, down from $229.6 million at August 31, 2017. Cash included approximately $155 million held by foreign subsidiaries and $10 million held domestically. Cash used in investing activities was $35.6 million, including $27.7 million for a rental asset lease buyout associated with the Viking divestiture, and capital expenditures were $7.9 million.
Total debt was approximately $557.6 million before debt issuance costs, consisting of $270.0 million under the term loan and $287.6 million of 5.625% Senior Notes. Net long-term debt was $524.6 million, with $30.0 million of current maturities. The revolver was undrawn; $597.1 million was unused, of which $93.1 million was available for borrowing. The Company was in compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by strong Industrial and Engineered Solutions demand, partially offset by continued weakness in Energy markets.
- Operating profit improved primarily because the prior-year period included $7.8 million of director and officer transition charges. The improvement was partly offset by $6.6 million of restructuring charges versus $2.9 million previously and higher selling, administrative and engineering expenses.
- Energy operating profit declined to $0.3 million from $3.2 million because of lower volumes, maintenance deferrals, customer scope reductions and restructuring costs.
- Engineered Solutions operating margin improved to 5.5% from 0.8% because of higher volumes and cost-reduction benefits.
- Operating cash flow declined to an outflow of $20.5 million, primarily due to increases in prepaid expenses and other assets and lower accrued compensation and benefits.
- The effective tax rate was 23.5%, compared with a tax benefit rate of 152.4% in the prior-year period. The prior-year benefit included a $2.9 million discrete benefit related to director and officer transition costs.
Guidance, Outlook, Risks and Unusual Items
Management projected fiscal 2018 core sales growth of 1% to 3%, compared with a 4% core sales decline in fiscal 2017. Industrial and Engineered Solutions markets were expected to continue growing, although growth was expected to moderate. Oil and gas capital and maintenance spending was expected to remain a headwind, with quarterly Energy declines expected to moderate as the year progressed.
The Company expected approximately $6 million to $8 million of additional restructuring charges during the remainder of fiscal 2018. It also expected incremental pretax cost savings of approximately $12 million to $14 million for the balance of fiscal 2018 and fiscal 2019 from restructuring initiatives implemented or planned across fiscal 2016 through fiscal 2018.
After quarter-end, the Company completed the sale of the Viking business for $12.0 million in cash, subject to adjustments, and expected to record an additional $15 million to $20 million of after-tax divestiture charges in the second quarter of fiscal 2018. The divestiture exits the offshore mooring market and reduces exposure to upstream offshore oil and gas. The Company also completed the acquisition of Mirage Machines, Ltd. for $17.3 million net of cash acquired, plus potential performance-based consideration.
The Company was evaluating the Tax Cuts and Jobs Act enacted on December 22, 2017 and had not yet determined its full impact. Management also noted potential future valuation allowance releases, non-cash impairment exposure, foreign-exchange volatility, interest-rate risk, commodity costs, supplier dependence, cybersecurity, litigation, environmental matters and risks associated with restructuring, acquisitions, divestitures and debt covenant compliance.
Letters of credit totaled approximately $14.3 million. The discounted present value of contingent lease obligations related to previously divested businesses was $12.8 million. Management stated that existing cash, revolver capacity and anticipated operating cash flow were expected to fund operating, debt-service, acquisition and capital-expenditure requirements for the foreseeable future.
Important Facts for Investors to Verify
- Confirm the registrant and corporate-name transition because the filing identifies Actuant Corporation while the request metadata identifies Enerpac Tool Group Corp.
- Assess whether projected fiscal 2018 core sales growth and the expected moderation in Industrial and Engineered Solutions demand were achieved.
- Track the Viking divestiture accounting, including the expected $15 million to $20 million after-tax charges and final working-capital or other closing adjustments.
- Evaluate the integration and performance of Mirage Machines and any resulting acquisition-related consideration or charges.
- Monitor recurring operating cash generation, working-capital requirements and the concentration of cash held by foreign subsidiaries.
- Review restructuring charges, realized savings and whether the anticipated $12 million to $14 million of incremental savings materialized.
- Assess the effect of the Tax Cuts and Jobs Act, expiration of tax-planning benefits and any valuation allowance changes on future effective tax rates.
- Monitor Energy segment recovery, debt amortization, variable-rate exposure and compliance with the maximum leverage and minimum interest-coverage covenants.