Actuant Corporation Form 10-Q Summary
Reporting period: Three and nine months ended May 31, 2017. The filing is for Actuant Corporation, although the request metadata identifies Enerpac Tool Group Corp. Actuant operated through Industrial, Energy, and Engineered Solutions segments.
Financial Results and Position
| Metric | Q3 FY2017 | Q3 FY2016 | 9M FY2017 | 9M FY2016 |
|---|---|---|---|---|
| Net sales | $295.4 million | $305.3 million | $820.1 million | $873.6 million |
| Gross profit | $102.8 million | $107.5 million | $283.2 million | $307.1 million |
| Gross margin | 34.8% | 35.2% | 34.5% | 35.2% |
| Operating profit (loss) | $27.3 million | $28.3 million | $49.0 million | $(118.4) million |
| Operating margin | 9.2% | 9.3% | 6.0% | (13.6)% |
| Net earnings (loss) | $22.5 million | $21.2 million | $32.6 million | $(122.6) million |
| Diluted EPS | $0.37 | $0.36 | $0.54 | $(2.08) |
- Sales declined 3% in the quarter and 6% year to date. Core sales were flat in the quarter and down 6% year to date after excluding acquisitions, divestitures, and currency effects.
- Gross margins were broadly consistent with the prior year. Selling, administrative, and engineering expenses were $70.1 million in the quarter and $205.6 million year to date.
- Cash provided by operating activities was $51.4 million year to date, compared with $75.0 million in the prior-year period. Capital expenditures were $22.9 million, producing approximately $28.5 million of operating cash flow after capital expenditures.
- Cash and cash equivalents were $199.0 million at May 31, 2017, including $172 million held by foreign subsidiaries and approximately $27 million domestically. The current ratio was approximately 2.3 based on reported current assets and liabilities.
- Total senior indebtedness was $572.6 million, consisting of a $285.0 million term loan and $287.6 million of 5.625% Senior Notes. Net long-term debt was $539.3 million, with $30.0 million of current maturities.
- The $600 million revolving facility had $595.7 million unused, but only $104.8 million was immediately available under current covenant limitations. The Company was compliant with its leverage and interest coverage covenants.
Material Changes Versus the Prior Comparable Period
- Industrial sales increased 5% in the quarter and year to date; third-quarter operating margin improved to 23.6% from 22.7%.
- Energy sales decreased 18% in the quarter and 20% year to date. Third-quarter operating profit fell to $0.9 million from $10.9 million, reflecting weak oil and gas demand, project cancellations or deferrals, and low utilization.
- Engineered Solutions sales increased 3% in the quarter but declined 2% year to date. Third-quarter operating profit increased to $8.1 million from $3.7 million, supported by higher volumes and prior restructuring actions.
- The prior-year nine-month results included $186.5 million of impairment charges, including $140.9 million in Energy and $45.7 million in Engineered Solutions. The current period included no impairment charges.
- Current-year results included $7.8 million of director and officer transition charges and $5.4 million of restructuring charges, compared with $11.5 million of restructuring charges in the prior-year period.
- Term-loan repayments totaled $11.3 million year to date, and $0.5 million of Senior Notes were redeemed. No shares were repurchased during the period.
Guidance, Outlook, Commentary, and Risks
- Management expected full-year fiscal 2017 sales to decline modestly because of inconsistent demand in oil and gas, mining, infrastructure, commercial construction, off-highway vehicles, and agriculture, although sequential conditions were easing in some markets.
- Management anticipated approximately $2 million to $3 million of additional restructuring charges through the balance of fiscal 2017 and early fiscal 2018. It expected incremental pretax cost savings of approximately $5 million to $8 million during the balance of fiscal 2017 and fiscal 2018.
- The Company was pursuing strategic alternatives for its offshore mooring component to reduce upstream and offshore exposure. Depending on the outcome, significant future cash and non-cash charges could result.
- Tax benefits from certain tax-planning initiatives were not expected to recur because related tax attributes were no longer available and tax laws had changed.
- Key risks include continued weakness in energy markets, competitive pricing and cost inflation, foreign-currency movements, leverage and covenant compliance, impairment risk, restructuring execution, acquisition integration, supplier dependence, litigation, environmental matters, cybersecurity, and international political or regulatory developments.
- Letters of credit totaled $16.1 million. The Company also had contingent lease obligations with a discounted present value of $13.8 million related to previously divested or spun-off businesses. Management did not expect these matters to have a material adverse effect.
Investor Verification Items
- Confirm the issuer identity: the supplied filing is for Actuant Corporation, not explicitly Enerpac Tool Group Corp.
- Assess whether Energy segment weakness and the offshore mooring strategic review could result in additional impairments, restructuring costs, or divestiture losses.
- Reconcile cash availability: $199 million of consolidated cash versus approximately $105 million of immediately available revolver capacity, including the location and potential repatriation restrictions on foreign cash.
- Monitor the scheduled increase in quarterly term-loan repayments beginning June 30, 2017, and the 2020 credit-facility maturity and 2022 Senior Notes maturity.
- Evaluate the sustainability of earnings given nonrecurring tax benefits, restructuring savings, transition charges, and the absence of prior-year impairment charges.
- Verify the impact of foreign exchange, customer demand, working-capital requirements, and the planned restructuring actions on future cash flow.