Actuant Corporation Form 10-Q Summary
Reporting period: Three and six months ended February 28, 2018. The supplied filing is for Actuant Corporation, not Enerpac Tool Group Corp.; the registrant later became associated with the Enerpac business.
Business Context and Reporting Period
Actuant is a diversified global manufacturer organized into Industrial, Energy, and Engineered Solutions segments. Industrial and Engineered Solutions benefited from stronger industrial, infrastructure, mining, agriculture, and related end markets. Energy remained pressured by oil and gas project cancellations, maintenance deferrals, and scope reductions.
Financial Performance and Liquidity
| Metric | Three Months Ended Feb. 28, 2018 | Three Months Ended Feb. 28, 2017 | Six Months Ended Feb. 28, 2018 | Six Months Ended Feb. 28, 2017 |
|---|---|---|---|---|
| Net sales | $275.2 million | $258.9 million | $564.1 million | $524.7 million |
| Gross profit | $89.7 million | $87.3 million | $190.6 million | $180.4 million |
| Gross margin | 32.6% | 33.7% | 33.8% | 34.4% |
| Operating profit | $9.6 million | $13.2 million | $24.3 million | $21.7 million |
| Operating margin | 3.5% | 5.1% | 4.3% | 4.1% |
| Net earnings (loss) | $(18.2) million | $5.1 million | $(13.0) million | $10.0 million |
| Diluted EPS | $(0.30) | $0.08 | $(0.22) | $0.17 |
- Sales growth: Second-quarter sales increased 6%; six-month sales increased 8%. Foreign currency benefited sales by approximately 5% and 4%, respectively, while acquisitions and divestitures reduced sales by approximately 2% and 1%. Core sales increased 3% in the quarter and 5% year to date.
- Cash flow: Operating cash flow was $(22.1) million for the six months, compared with $14.7 million provided in the prior-year period. Capital expenditures were $12.5 million. Total investing cash use was $47.9 million, including the Viking lease buyout and the Mirage acquisition.
- Cash and working capital: Cash was $153.6 million at February 28, 2018, including approximately $149 million held by foreign subsidiaries. Net primary working capital increased to $240 million, or 22% of sales, from $201 million, or 18%, at August 31, 2017.
- Debt: Total senior indebtedness was $550.1 million, consisting of $262.5 million under the term loan and $287.6 million of 5.625% Senior Notes. Net long-term debt was $517.3 million, with $30.0 million of current maturities. The company repaid $15.0 million of term-loan principal.
- Liquidity: The revolver had $597.1 million of unused capacity, of which $83.7 million was available for borrowing after other restrictions. The company stated that cash, revolver availability, and expected operating cash flow should meet foreseeable operating, debt service, acquisition, and capital expenditure needs.
Material Changes Versus the Prior Comparable Period
- Industrial sales increased 8% in the quarter and 10% year to date, but operating margin declined to 17.0% from 20.1% in the quarter and to 17.9% from 20.8% year to date. Specialty heavy-lifting project cost overruns, production inefficiencies, lower concrete-tensioning volumes, and additional commercial and engineering investments affected profitability.
- Energy sales declined 9% in the quarter and 10% year to date. The segment reported operating losses of $4.5 million and $4.2 million, compared with losses of $0.6 million and profit of $2.6 million, respectively. Results included $3.0 million of Viking-related impairment and divestiture charges in each period.
- Engineered Solutions sales increased 17% in the quarter and 20% year to date. Year-to-date operating profit rose to $8.5 million from $2.6 million, primarily due to higher volumes.
- Restructuring charges increased to $10.1 million year to date from $5.0 million. Prior-year results included $7.8 million of director and officer transition charges that did not recur.
- Net income declined sharply because of substantially higher income tax expense. The company recorded $8.4 million of provisional Tax Cuts and Jobs Act expense and $9.4 million of tax expense related to the Viking divestiture, in addition to other discrete tax items.
- Comprehensive income was $62.8 million for the quarter and $71.0 million year to date, primarily reflecting favorable foreign-currency translation adjustments, including $67.6 million related to the divested business.
Guidance, Outlook, Risks, and Unusual Items
- Management expected fiscal 2018 core sales growth of 2% to 4%, with moderate growth in industrial markets, slower on-highway vehicle demand, and continuing oil and gas headwinds.
- Management expected approximately $2 million to $4 million of additional restructuring charges during the second half of fiscal 2018 and anticipated $10 million to $15 million of incremental pretax cost savings in the second half of fiscal 2018 and fiscal 2019 from restructuring actions.
- The company completed the $8.8 million net-cash sale of the Viking business, exiting offshore mooring and reducing upstream offshore oil and gas exposure. It also acquired Mirage Machines for $16.5 million, including $8.9 million of preliminary goodwill and $4.1 million of intangible assets.
- The Tax Cuts and Jobs Act amounts were provisional and could change as the company completes its analysis of foreign earnings, foreign tax credits, deferred taxes, GILTI, and other provisions. Management also noted the potential for a material foreign valuation-allowance release in late fiscal 2018 or fiscal 2019.
- Key risks include economic and end-market weakness, oil and gas spending reductions, competitive pricing and cost inflation, manufacturing or supplier disruptions, foreign currency volatility, acquisitions and divestitures, restructuring execution, cybersecurity, litigation, environmental matters, impairment risk, and leverage and covenant compliance.
- The company was in compliance with its debt covenants at February 28, 2018. Outstanding letters of credit were $23.4 million, and discounted contingent lease obligations related to previously divested businesses were $12.1 million.
- Management concluded that disclosure controls were effective and reported no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the registrant and corporate-name mapping because the supplied filing identifies Actuant Corporation rather than Enerpac Tool Group Corp.
- Assess whether negative operating cash flow, inventory growth, and increased working capital could constrain debt reduction or acquisition capacity.
- Track Energy segment recovery, the effect of the Viking exit, and the performance contribution from the Mirage acquisition.
- Verify the final tax effects of the Tax Cuts and Jobs Act, including transition-tax, foreign-tax-credit, GILTI, and deferred-tax adjustments.
- Evaluate whether projected restructuring savings offset continuing restructuring charges and operational inefficiencies.
- Monitor the $30.0 million current debt maturities, the $2020 credit-facility maturity, and the $2022 Senior Notes maturity.