Actuant Corporation Form 10-Q Summary
Filing identity: The supplied filing is for Actuant Corporation, not Enerpac Tool Group Corp. It covers the three and nine months ended May 31, 2016, within fiscal 2016. The financial statements are unaudited.
Business Context and Reporting Period
Actuant operated through three segments: Industrial, Energy, and Engineered Solutions. Its products and services served industrial, infrastructure, oil and gas, power generation, vehicle, agricultural, mining, and other markets. Management reported broadly weak demand, customer inventory reductions, reduced energy capital spending, and foreign-currency headwinds.
Key Financial Metrics
| Metric | Three months ended May 31, 2016 | Three months ended May 31, 2015 | Nine months ended May 31, 2016 | Nine months ended May 31, 2015 |
|---|---|---|---|---|
| Net sales | $305.3 million | $320.1 million | $873.6 million | $948.9 million |
| Gross profit | $107.5 million | $118.6 million | $307.1 million | $355.3 million |
| Gross margin | 35.2% | 37.0% | 35.1% | 37.4% |
| Operating profit (loss) | $28.3 million | $43.0 million | $(118.4) million | $24.8 million |
| Operating margin | 9.3% | 13.4% | (13.5)% | 2.6% |
| Net earnings (loss) | $21.2 million | $38.0 million | $(122.6) million | $(2.2) million |
| Diluted EPS | $0.36 | $0.63 | $(2.08) | $(0.04) |
| Cash provided by operating activities | Not provided for the quarter | Not provided for the quarter | $75.0 million | $43.6 million |
- Liquidity: Cash and cash equivalents were $137.1 million at May 31, 2016, down from $168.8 million at August 31, 2015. Approximately $128.9 million was held outside the United States and $8.2 million domestically.
- Debt: Total senior indebtedness was $588.1 million, consisting of a $300.0 million term loan and $288.1 million of 5.625% senior notes. Current debt maturities were $15.0 million and long-term debt was $573.1 million.
- Revolver availability: The revolver had $592.1 million of unused capacity, of which $183.0 million was available for borrowing after applicable limitations. The company was in compliance with its debt covenants.
- Balance sheet: Total assets were $1.47 billion and shareholders’ equity was $523.8 million. Goodwill was $529.4 million and other intangible assets were $255.9 million.
- Capital allocation: The company spent $14.1 million repurchasing 600,000 shares during the first nine months and paid $2.4 million in dividends. It had repurchased 20.3 million shares cumulatively, with 7.7 million shares remaining authorized for repurchase.
Material Changes Versus the Prior Comparable Period
- Third-quarter sales declined 5% and nine-month sales declined 8%. Core sales, excluding acquisitions and currency effects, declined 5% in the quarter and 6% year to date.
- Foreign-currency translation reduced sales by approximately $3 million in the quarter and $40 million year to date.
- Gross margin decreased to 35.2% from 37.0% in the quarter and to 35.1% from 37.4% year to date, reflecting lower production volumes, unfavorable mix, and restructuring activity.
- Year-to-date results included $186.5 million of impairment charges, compared with $84.4 million in the prior-year period. The 2016 charge primarily affected the Energy and Engineered Solutions segments.
- Year-to-date operating results shifted from a $24.8 million profit to a $118.4 million loss, and net loss increased to $122.6 million from $2.2 million.
- Operating cash flow improved by $31.4 million to $75.0 million, principally due to lower tax payments and improved working-capital management.
- Investing cash use increased to $87.7 million from $16.3 million, primarily because of $80.7 million spent on two acquisitions and $15.6 million of capital expenditures.
- Two acquisitions were completed: Larzep for $15.9 million and the FourQuest Energy Middle East, Caspian, and North African business for $64.3 million. Together they contributed $7.3 million of third-quarter sales.
Segment Performance
| Segment | Third-quarter sales | Year-over-year change | Third-quarter operating margin | Nine-month operating result |
|---|---|---|---|---|
| Industrial | $95.8 million | Down 8% | 22.7%, versus 28.2% | $59.0 million profit |
| Energy | $101.3 million | Up 2% | 10.7%, versus 12.9% | $115.8 million loss, including impairment |
| Engineered Solutions | $108.3 million | Down 8% | 3.4%, versus 7.1% | $37.9 million loss, including impairment |
Guidance, Outlook, Risks, and Unusual Items
- Management expected fourth-quarter fiscal 2016 consolidated core sales to decline 9% to 10% from the prior year.
- Management expected $25 million of restructuring charges during fiscal 2016 and 2017; $11.5 million had been recorded through May 31, 2016. Programs included facility consolidation, headcount reductions, production relocation, and administrative centralization.
- Management stated that cash on hand, revolver availability, and expected operating cash flow should fund operations, acquisitions, debt service, share repurchases, and capital expenditures for the foreseeable future.
- Energy-market weakness, excess capacity, reduced exploration and drilling, and lower customer capital spending materially affected the Cortland and Viking businesses.
- Weak off-highway and agricultural markets, OEM inventory destocking, lower production schedules, and delayed vehicle launches affected Engineered Solutions and the maximatecc business.
- The company identified continuing risks from foreign exchange, interest rates, commodity costs, competitive pricing, restructuring execution, acquisitions, potential future impairment charges, cybersecurity, litigation, product liability, environmental matters, and debt covenant compliance.
- Outstanding letters of credit were $19.1 million. The company also had contingent lease obligations with a discounted present value of $16.3 million relating to previously divested or spun-off businesses.
- The company recognized a third-quarter income tax benefit of $0.8 million, including a $2.3 million discrete benefit. Tax-rate comparisons were also affected by prior-year tax-reserve adjustments and global tax planning.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the filing is Actuant Corporation, while the request metadata identifies Enerpac Tool Group Corp.
- Assess whether the projected fourth-quarter 9% to 10% core-sales decline and weak industrial, energy, and OEM demand persisted.
- Monitor goodwill and long-lived asset sensitivity, particularly for Cortland, Viking, and maximatecc, because management disclosed substantial impairment risk if projections deteriorate.
- Verify restructuring savings, remaining restructuring costs, and their effect on operating margins and cash flow.
- Review debt maturities, revolver availability, leverage and interest-coverage compliance, and the start of scheduled term-loan amortization on June 30, 2016.
- Evaluate the liquidity implications of foreign cash concentration, acquisition spending, share repurchases, and future capital requirements.
- Consider the comparability of earnings because of large impairment charges, restructuring costs, acquisitions, foreign-exchange effects, and discrete tax benefits.