Actuant Corporation 10-Q Summary
Reporting period: Quarter and nine months ended May 31, 2012; fiscal year ending August 31, 2012. The supplied filing is for Actuant Corporation, not Enerpac Tool Group Corp.; investors should verify the issuer and filing association.
Business Context
Actuant is a diversified global manufacturer organized into Industrial, Energy, Electrical, and Engineered Solutions segments. Its products serve industrial, infrastructure, oil and gas, power generation, electrical, solar, agricultural, automotive, truck, and other equipment markets. Approximately one-half of sales are denominated in currencies other than the U.S. dollar.
Key Financial Metrics
| Metric | Three months ended May 31, 2012 | Three months ended May 31, 2011 | Nine months ended May 31, 2012 | Nine months ended May 31, 2011 |
|---|---|---|---|---|
| Net sales | $429.2 million | $392.8 million | $1,200.0 million | $1,041.9 million |
| Gross profit | $166.1 million | $154.0 million | $460.0 million | $400.9 million |
| Gross margin | 38.7% | 39.2% | 38.3% | 38.5% |
| Operating profit | $67.7 million | $58.0 million | $174.4 million | $136.6 million |
| Operating margin | 15.8% | 14.8% | 14.5% | 13.1% |
| Earnings from continuing operations | $34.4 million | $38.4 million | $103.8 million | $87.2 million |
| Net earnings | $34.4 million | $36.4 million | $103.8 million | $70.2 million |
| Diluted EPS | $0.45 | $0.49 | $1.39 | $0.95 |
| Effective tax rate | 16.1% | 23.0% | 20.9% | 22.0% |
Cash provided by operating activities was $129.3 million for the first nine months, compared with $95.1 million in the prior-year period. Investing cash use was $38.7 million, including $17.5 million of capital expenditures and $29.7 million for acquisitions. Financing cash use was $50.5 million. Cash increased to $80.1 million from $44.2 million at August 31, 2011.
At May 31, 2012, total debt was $398.8 million, including $300.0 million of 5.625% Senior Notes and $98.8 million under the term loan. The company reported $598.3 million of available and unused revolver capacity and stated that it had approximately $80 million of cash and $598 million of available liquidity. It was in compliance with all debt covenants.
Material Changes Versus Prior Comparable Period
- Third-quarter sales increased 9%; nine-month sales increased 15%. Core sales growth, excluding acquisitions and foreign exchange, was 4% for the quarter and 6% year to date.
- Operating profit increased 17% in the quarter and 28% year to date, while operating margins expanded to 15.8% and 14.5%, respectively.
- Net earnings benefited from higher operating profit and lower tax rates but were reduced in the quarter by a $16.8 million pretax debt-refinancing charge. Prior-year net earnings included a $2.0 million quarterly and $17.0 million year-to-date loss from discontinued operations.
- The company issued $300.0 million of 5.625% Senior Notes due 2022 and used the proceeds to redeem its $250.0 million of 6.875% Senior Notes due 2017. Most of the $117.6 million of outstanding 2% Convertible Notes converted into 5,951,440 common shares.
- Debt declined from $525.2 million at August 31, 2011 to $398.8 million at May 31, 2012. The refinancing charge included a tender premium, financing-fee write-off, and termination of interest-rate swaps.
- Fiscal 2012 acquisitions included Jeyco Pty Ltd. for $20.7 million of cash and Turotest Medidores Ltda. for $8.1 million of cash plus $5.3 million of deferred consideration.
- The company repurchased 732,965 shares during May 2012 at an average price of $25.71, with 5,267,755 shares remaining under the authorized program.
Segment Performance and Outlook
| Segment | Q3 2012 Sales | Q3 2012 Operating Profit | Q3 Margin | Management commentary |
|---|---|---|---|---|
| Industrial | $110.1 million | $30.7 million | 27.9% | Strong demand in mining, industrial, and infrastructure markets; core sales growth of 5%. |
| Energy | $96.4 million | $18.5 million | 19.2% | Core sales growth of 23%, supported by oil and gas maintenance, power generation, and offshore energy activity. |
| Electrical | $85.9 million | $8.8 million | 10.3% | Core sales growth of 10%, driven by pricing and improved retail, utility, industrial, and solar demand. |
| Engineered Solutions | $136.8 million | $18.5 million | 13.5% | Acquisitions increased reported sales, but core sales declined 11% because of weaker European and China truck and automotive production. |
Management expected continued strength in Energy and ongoing opportunities from acquisitions and the Growth + Innovation initiative. Industrial growth was expected to moderate because of tougher comparisons. Electrical demand was recovering but remained below pre-recession levels. Engineered Solutions was expected to experience continued core sales declines due to difficult comparisons and weaker European automotive and global truck OEM schedules. No specific quantitative earnings or revenue guidance was provided.
Risks, Contingencies, and Unusual Items
- Key risks include global economic conditions, end-market demand, competition, pricing and cost inflation, foreign currency, interest rates, commodities, supply-chain conditions, acquisitions, leverage, debt covenants, regulatory developments, and the ability to realize restructuring savings.
- Foreign currency translation reduced third-quarter sales by approximately $12 million and nine-month sales by approximately $8 million; accumulated other comprehensive loss was $79.8 million at May 31, 2012.
- Letters of credit totaled $8.5 million. The company also remained contingently liable for certain former-subsidiary leases with a discounted present value of $3.7 million.
- Management stated that existing legal, environmental, and lease contingencies were not expected to have a material adverse effect on financial condition, results of operations, or cash flows.
- The filing identifies no material changes in market-risk exposure and states that disclosure controls were effective, with no material change in internal control over financial reporting during the quarter.
Investor Verification Checklist
- Confirm that the filing belongs to Actuant Corporation and determine whether it is properly associated with the requested Enerpac Tool Group entity.
- Reconcile reported sales growth for acquisitions, foreign exchange, and core operations, particularly in Engineered Solutions.
- Review the debt refinancing terms, 2022 Senior Notes covenants, interest costs, maturity schedule, and future fixed-rate exposure.
- Assess whether Energy strength and Electrical recovery offset expected Engineered Solutions weakness.
- Evaluate the sustainability of the lower effective tax rate and the effect of foreign tax credits, tax-reserve releases, and debt-refinancing tax benefits.
- Monitor goodwill and intangible assets, which totaled approximately $1.33 billion at May 31, 2012, as well as acquisition integration and warranty exposures.