Business Context and Reporting Period
This Form 10-Q was filed by Actuant Corporation, the predecessor company associated with Enerpac Tool Group, for the quarter and six months ended February 29, 2012. Actuant operated as a diversified global manufacturer across four segments: Industrial, Energy, Electrical, and Engineered Solutions.
The filing is unaudited and covers the second quarter of fiscal 2012. Comparability with the prior year was affected by acquisitions, foreign currency movements, and the sale of the European Electrical business in fiscal 2011.
Financial Performance and Position
| Metric | Three months ended February 29, 2012 | Prior year | Six months ended February 29, 2012 | Prior year |
|---|---|---|---|---|
| Net sales | $378.0 million | $330.7 million | $770.8 million | $649.1 million |
| Gross profit | $141.3 million | $125.0 million | $293.9 million | $246.9 million |
| Gross margin | 37.4% | 37.8% | 38.1% | 38.0% |
| Operating profit | $49.5 million | $37.0 million | $106.7 million | $78.6 million |
| Operating margin | 13.1% | 11.2% | 13.8% | 12.1% |
| Earnings from continuing operations | $32.2 million | $22.1 million | $69.3 million | $48.8 million |
| Diluted EPS from continuing operations | $0.43 | $0.30 | $0.94 | $0.66 |
| Net earnings | $32.2 million | $7.9 million | $69.3 million | $33.8 million |
- Second-quarter sales increased 14%; six-month sales increased 19%. Consolidated core sales growth, excluding acquisitions, divestitures, and foreign exchange, was 8% for both periods.
- Operating profit increased 34% in the quarter and 36% year to date. Management attributed margin improvement to higher volumes, favorable mix, pricing actions, lower incentive compensation, improved operating leverage, and cost-reduction initiatives.
- The effective tax rate was 23.0% for the quarter and 23.1% year to date, compared with 21.8% and 21.1%, respectively, in the prior-year periods.
- Six-month operating cash flow was $52.0 million, compared with $20.3 million in the prior year. Capital expenditures were $10.5 million and acquisition spending was $18.9 million.
- Cash and cash equivalents were $58.4 million at February 29, 2012, compared with $44.2 million at August 31, 2011. Net primary working capital was $299 million, or 20% of sales, unchanged as a percentage of sales from the prior year.
- Total debt was $525.1 million, including $520.1 million of long-term debt. The company had $540.5 million of available and unused revolver capacity and was in compliance with all debt covenants.
Material Changes Versus the Prior Comparable Period
- Industrial sales rose 11% in the quarter and 13% year to date; operating margins increased to 27% and 28%, respectively, from 23% in both prior-year periods.
- Energy sales rose 28% in the quarter and 20% year to date, supported by oil and gas, power generation, maintenance, and capital-project demand. Margins increased to 15% and 16% from 11% and 14%.
- Electrical sales increased 10% in the quarter and 27% year to date, partly reflecting the Mastervolt acquisition. Margins were 8% in the quarter and 7% year to date.
- Engineered Solutions sales increased 12% in the quarter and 18% year to date, primarily due to the Weasler acquisition. Excluding acquisitions and foreign exchange, core sales declined 9% in the quarter and 5% year to date, reflecting weaker European and Chinese vehicle production and difficult comparisons.
- Net earnings comparisons benefited materially from the absence of the prior-year loss from discontinued operations. The fiscal 2011 sale of the European Electrical business resulted in a $15.8 million pretax disposal loss and a $14.2 million net loss in the second quarter of fiscal 2011.
- In February 2012, the company acquired Jeyco Pty Ltd. for $18.6 million in cash plus $2.2 million of deferred purchase price. The acquisition added $12.0 million of goodwill and $5.5 million of intangible assets.
- The company repurchased approximately 1 million shares for $20.4 million during the six months. The remaining authorization at February 29, 2012 was 6,000,720 shares.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected continued core sales growth and operating-margin expansion in Industrial and Energy, supported by strong mining, industrial, infrastructure, oil and gas, and power-generation markets.
- Management expected Electrical growth to continue, but identified commodity costs, pricing execution, European solar incentives, and North American end-market demand as significant variables.
- Management expected Engineered Solutions core sales to decline during the balance of fiscal 2012 because of difficult prior-year comparisons and weaker European auto and truck shipments.
- Management stated that cash, operating cash flow, and available credit were expected to satisfy operating, debt-service, stock-repurchase, acquisition, and capital-expenditure requirements for the foreseeable future. The filing does not provide a formal numerical earnings or revenue forecast.
- Subsequent to quarter end, the company acquired Turotest for approximately $8.1 million in cash plus $5.5 million of deferred purchase price.
- On March 28, 2012, the company called all outstanding 2% Convertible Notes for redemption. If converted before redemption, the notes could result in issuance of approximately 6.0 million shares.
- The company announced a planned $300 million issuance of 5.625% Senior Notes due 2022 and a tender offer for its $250 million of 6.875% Senior Notes due 2017. The filing states that the new debt proceeds were intended to fund the tender offer and general corporate purposes.
- Restructuring costs were $0.9 million in the quarter and $1.4 million year to date. The restructuring reserve was $4.1 million at February 29, 2012.
- Key risks include global economic conditions; end-market demand; competition and pricing; material, labor, and overhead costs; acquisitions and integration; foreign exchange, interest-rate, and commodity exposure; supply-chain conditions; regulatory and tax changes; and leverage and debt-covenant compliance.
- Outstanding letters of credit were $8.4 million. The company also remained contingently liable for certain former-subsidiary leases with discounted future minimum payments of approximately $4.0 million. Management did not expect litigation, environmental matters, or other contingencies to have a material adverse effect.
Important Facts for Investors to Verify
- Confirm the registrant identity and corporate-name history because the filing is under Actuant Corporation, while the request identifies Enerpac Tool Group.
- Assess the sustainability of reported growth after separating core growth from acquisitions and foreign exchange, particularly for Mastervolt, Weasler, and Jeyco.
- Review Engineered Solutions exposure to European and Chinese vehicle production and the effect of weaker OEM schedules on future margins.
- Verify the completion and economics of the April 2012 convertible-note redemption, new Senior Notes issuance, and Senior Notes tender offer.
- Monitor leverage, covenant compliance, refinancing costs, and potential dilution from the convertible notes.
- Reconcile cash generation with working-capital needs, acquisitions, share repurchases, dividends, and capital expenditures.
- Review warranty reserves, restructuring obligations, unrecognized tax benefits, foreign-currency exposure, and litigation and lease contingencies.