ATU Actuant Corp

Actuant Corporation (NYSE: ATU) today announced results for its second quarter ended February 28, 2014.

Highlights

• Total sales increased 9% compared to the prior year with core sales growth of 4% (total sales excluding the impact of acquisitions, divestitures and foreign exchange rates) and acquisitions contributing 5%.
• Diluted earnings per share from continuing operations (“EPS”) were $0.30, down from $0.35 in the prior year comparable quarter due to a higher effective income tax rate.
• Repurchased 2.6 million shares of common stock for $94 million in the quarter, completing the prior seven million share repurchase authorization. Actuant’s Board of Directors approved a new seven million share buy-back program.
• Finalized the sale of the Electrical business which resulted in a net gain in discontinued operations. Proceeds were used to reduce debt and fund share repurchases.
• Introduced third quarter EPS guidance in the range of $0.60-0.65 per share.

Mark E. Goldstein, Chief Executive Officer of Actuant commented, “On a consolidated basis, results in the quarter were generally in line with our forecast and reflected the normal seasonal slowdown. The 4% core sales growth includes significantly improved activity in Energy and continued solid growth in Engineered Solutions. Industrial’s core sales decline reflected cautious spending patterns by customers as well as negative North American weather and facility relocation impacts. We are pleased with the progress we are making on some of the operational issues within Energy that we highlighted last quarter. However, the impact of segment mix, choppy demand, and other inefficiencies related to facility closures and relocations weighed on consolidated profit margins. While our pre-tax income increased year-over-year, tax expense doubled, resulting in a decline in year-over-year second quarter EPS.”

Consolidated Results

Continuing Operations

Consolidated sales for the second quarter were $328 million, 9% higher than the $300 million in the comparable prior year quarter. Core sales increased 4% while acquisitions contributed 5% to total sales. Despite sizeable movements in emerging market currency exchange rates, the net foreign currency translation impact on a consolidated basis was negligible due to the stronger Euro and British Pound. Fiscal 2014 second quarter net earnings and EPS from continuing operations were $22.3 million, or $0.30 per share, compared to $25.8 million and $0.35, respectively, in the comparable prior year quarter.

Sales for the six months ended February 28, 2014 were $667 million, 10% higher than the $608 million in the comparable prior year period. Excluding the 6% benefit of acquisitions, year-to-date core sales increased 4%. Earnings and EPS for the six months ended February 28, 2014 were $55.3 million, or $0.74 per diluted share, compared to $56.4 million, or $0.76 per diluted share for the comparable prior year period

Discontinued Operations

Results from discontinued operations represent the financial results of the Electrical business for all periods presented. The Company completed the sale of the segment on December 13, 2013 and the $19.1 million of earnings from discontinued operations in the second quarter of fiscal 2014 includes the net gain on the divestiture.

New Seven Million Share Repurchase Authorization

The Company also announced that its Board of Directors approved a new seven million share repurchase program. During the quarter, the Company completed its prior share repurchase authorization. “Since the approval of the initial seven million share buy-back authorization, $214 million of capital was returned to shareholders, and over $300 million was deployed on acquisitions,” stated Goldstein. “We have the strongest balance sheet in our history and will continue to deploy capital with our priorities being internal growth, acquisitions, and opportunistic share repurchases.”

Segment Results

Industrial Segment

(US $ in millions)

  Three Months Ended   Six Months Ended February 28, February 28, 2014   2013 2014   2013 Sales $93.6 $99.0 $192.2 $200.1 Operating Profit $26.5 $26.4 $53.4 $53.4 Operating Profit % 28.3% 26.6% 27.8% 26.7%  

Second quarter fiscal 2014 Industrial segment sales were $94 million, 5% lower than the prior year. This 5% core sales decline was due to lower global Integrated Solutions activity compared to the prior year’s robust levels as well as continued tepid Industrial Tool demand, notably in the mining maintenance market. In addition, a plant relocation and severe weather hindered North American volumes in the quarter. Second quarter operating profit margin of 28.3% was 170 basis points higher than the comparable prior year period due to favorable mix and effective cost management.

 

Energy Segment

(US $ in millions)

  Three Months Ended   Six Months Ended February 28, February 28, 2014   2013 2014   2013 Sales $106.0 $80.8 $214.0 $171.6 Operating Profit $9.5 $9.7 $18.4 $25.1 Operating Profit % 9.0% 12.0% 8.6% 14.6%  

Fiscal 2014 second quarter year-over-year Energy segment sales increased 31% to $106 million. Excluding the 21% benefit from acquisitions and the unfavorable 1% foreign currency exchange rate change impact, core sales increased 11% from the prior year. Hydratight experienced a significant sequential improvement in core sales growth, notably in North American and Asia Pacific maintenance activity. Cortland’s core sales growth reflects higher demand for synthetic rope, seismic and defense products. Viking revenues in the quarter continue to be impacted by mobilization delays on secured contracts and delayed decisions by project sponsors on active bids. While margins declined year-over-year due to acquisition and sales mix, they improved 70 basis points sequentially from the first quarter level, despite seasonally weaker second quarter revenue.

 

Engineered Solutions Segment

(US $ in millions)

  Three Months Ended   Six Months Ended February 28, February 28, 2014   2013 2014   2013 Sales $128.2 $120.7 $261.2 $236.6 Operating Profit $9.5 $8.3 $22.7 $15.9 Operating Profit % 7.4% 6.9% 8.7% 6.7%  

Second quarter fiscal 2014 Engineered Solutions segment sales increased 6% from the prior year to $128 million. Excluding the 1% decline from product line divestitures, core sales increased 7%. Second quarter sales continued to benefit from strong European heavy-duty truck demand. In addition, the segment experienced higher activity in the China truck market along with increased agriculture sales, notably from new products. Second quarter operating profit margin increased 50 basis points year-over-year due to the higher volumes, partially offset by relocation inefficiencies associated with several complex facility moves.

Corporate and Income Taxes

Corporate expenses for the second quarter of fiscal 2014 were $6.5 million, $0.9 million below the comparable prior year period due to cost reduction efforts. The Company’s effective income tax rate for the quarter of 29.0% was higher than the prior year’s 15.7%. It was also above the approximate 25% guidance provided for the quarter due primarily to the mix of global earnings by tax jurisdiction.

Financial Position

Net debt declined approximately $158 million in the quarter to $235 million (total debt of $390 million less $155 million of cash). The Company received gross proceeds of approximately $258 million from the December 2013 sale of the Electrical business which were used to fund divestiture costs, reduce debt and repurchase approximately $94 million of common stock. Free cash flow in the quarter was impacted by a build in working capital, which should reverse later in the year, and higher capital spending. At February 28, 2014, the Company had a net debt to EBITDA leverage ratio of 0.9, and $600 million in revolver availability.

Outlook

Goldstein continued, “We are seeing modestly improving order activity and trends. This, coupled with the progress our businesses continue to make on operating efficiencies and processes, provides optimism for stronger financial performance in the second half of fiscal year 2014. We are maintaining our expectation for full year core sales growth of 3-5% and revenue of $1.410-$1.450 billion. EPS is expected to be at the lower end of our $2.00-2.10 forecast based on our current visibility. We continue to anticipate full year free cash flow of approximately $190 million.

We expect third quarter sales to be in the $370-380 million range, with EPS of $0.60-0.65. The third quarter outlook incorporates the normal sequential uptick in activity experienced across nearly all of our underlying businesses, as well as an effective income tax rate in the low teens.

Actuant’s continued focus on our core strategies of operational excellence, high growth market expansion, Growth + Innovation, and strategic acquisitions positions us well for 2014 and beyond."

Conference Call Information

An investor conference call is scheduled for 10 am CT today, March 19, 2014. Webcast information and conference call materials will be made available on the Actuant company website (www.actuant.com) prior to the start of the call.

Safe Harbor Statement

Certain of the above comments represent forward-looking statements made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Management cautions that these statements are based on current estimates of future performance and are highly dependent upon a variety of factors, which could cause actual results to differ from these estimates. Actuant’s results are also subject to general economic conditions, variation in demand from customers, the impact of geopolitical activity on the economy, continued market acceptance of the Company’s new product introductions, the successful integration of acquisitions, restructuring, operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material and labor cost increases, foreign currency fluctuations and interest rate risk. See the Company’s Form 10-K filed with the Securities and Exchange Commission for further information regarding risk factors. Actuant disclaims any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

About Actuant Corporation

Actuant Corporation is a diversified industrial company serving customers from operations in more than 30 countries. The Actuant businesses are leaders in a broad array of niche markets including branded hydraulic tools and solutions; specialized products and services for energy markets and highly engineered position and motion control systems. The Company was founded in 1910 and is headquartered in Menomonee Falls, Wisconsin. Actuant trades on the NYSE under the symbol ATU. For further information on Actuant and its businesses, visit the Company's website at www.actuant.com.

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  Actuant Corporation Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited)               February 28, August 31, 2014 2013   ASSETS Current assets Cash and cash equivalents $ 155,017 $ 103,986 Accounts receivable, net 233,951 219,075 Inventories, net 164,994 142,549 Deferred income taxes 16,326 18,796 Other current assets 30,116 28,228 Assets of discontinued operations   -     272,606   Total current assets 600,404 785,240   Property, plant and equipment, net 208,179 201,496 Goodwill 749,782 734,952 Other intangible assets, net 372,034 376,692 Other long-term assets   28,735     20,952     Total assets $ 1,959,134   $ 2,119,332       LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 153,726 $ 154,049 Accrued compensation and benefits 45,824 43,800 Current maturities of debt 2,250 - Income taxes payable 32,849 14,014 Other current liabilities 63,646 56,899 Liabilities of discontinued operations   -     53,080   Total current liabilities 298,295 321,842   Long-term debt 387,750 515,000 Deferred income taxes 95,114 115,865 Pension and postretirement benefit accruals 12,283 20,698 Other long-term liabilities 64,591 65,660   Shareholders' equity Capital stock 15,633 15,399 Additional paid-in capital 80,622 49,758 Treasury stock (214,010 ) (104,915 ) Retained earnings 1,266,116 1,188,685 Accumulated other comprehensive loss (47,260 ) (68,660 ) Stock held in trust (4,123 ) (3,124 ) Deferred compensation liability   4,123     3,124   Total shareholders' equity   1,101,101     1,080,267     Total liabilities and shareholders' equity $ 1,959,134   $ 2,119,332     Actuant Corporation Condensed Consolidated Statements of Earnings (Dollars in thousands except per share amounts) (Unaudited)               Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 2014   2013 2014   2013   Net sales $ 327,770 $ 300,468 $ 667,326 $ 608,277 Cost of products sold   203,323     184,290     411,099     367,731 Gross profit 124,447 116,178 256,227 240,546   Selling, administrative and engineering expenses 79,240 73,339 161,158 148,199 Amortization of intangible assets   6,226     5,968     12,441     12,002 Operating profit 38,981 36,871 82,628 80,345   Financing costs, net 6,262 6,260 13,012 12,582 Other expense (income), net   1,326     (37 )   2,467     607 Earnings from continuing operations before income tax expense 31,393 30,648 67,149 67,156   Income tax expense   9,089     4,814     11,840     10,771 Earnings from continuing operations 22,304 25,834 55,309 56,385 Earnings from discontinued operations, net of income taxes   19,088     2,601     22,120     8,393 Net earnings $ 41,392   $ 28,435   $ 77,429   $ 64,778   Earnings from continuing operations per share Basic $ 0.31 $ 0.35 $ 0.76 $ 0.77 Diluted 0.30 0.35 0.74 0.76   Earnings per share Basic $ 0.57 $ 0.39 $ 1.07 $ 0.89 Diluted 0.56 0.38 1.04 0.87   Weighted average common shares outstanding Basic 72,227 72,946 72,656 72,869 Diluted 73,773 74,416 74,392 74,343   Actuant Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)           Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 2014 2013 2014 2013   Operating Activities Net earnings $ 41,392 $ 28,435 $ 77,429 $ 64,778 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 15,761 14,451 31,965 28,898 Net gain on disposal of businesses (26,339 ) - (26,339 ) - Stock-based compensation expense 6,509 3,651 10,612 7,128 Benefit for deferred income taxes (2,656 ) (2,862 ) (11,064 ) (6,018 ) Amortization of debt discount and debt issuance costs 423 496 983 992 Other non-cash adjustments 124 5 (743 ) (172 ) Changes in components of working capital and other: Accounts receivable (2,271 ) (8,260 ) 4,769 (3,721 ) Inventories (10,149 ) 7,166 (21,783 ) (4,152 ) Prepaid expenses and other assets 1,978 4,939 (1,071 ) (1,204 ) Trade accounts payable (15,395 ) (10,733 ) (12,835 ) (22,281 ) Income taxes payable (10,210 ) (3,883 ) (13,399 ) (2,722 ) Accrued compensation and benefits 6,268 1,526 3,673 (12,427 ) Other accrued liabilities   (1,498 )   (6,883 )   (5,314 )   (8,776 ) Net cash provided by operating activities 3,937 28,048 36,883 40,323   Investing Activities Proceeds from sale of property, plant and equipment 95 200 2,008 1,177 Proceeds from sale of businesses, net of transaction costs 243,386 - 243,386 - Capital expenditures (10,969 ) (4,037 ) (22,226 ) (11,726 ) Business acquisitions, net of cash acquired   -     -     -     (83 ) Net cash provided by (used in) investing activities 232,512 (3,837 ) 223,168 (10,632 )   Financing Activities Net repayments on revolving credit facilities and other debt (113,000 ) - (125,000 ) - Principal repayments on term loan - (1,250 ) - (2,500 ) Purchase of treasury shares (93,743 ) (1,679 ) (109,095 ) (8,821 ) Payment of contingent consideration (339 ) (1,350 ) (753 ) (1,350 ) Stock option exercises and related tax benefits 15,241 5,299 25,803 10,772 Cash dividend   -     -     (2,919 )   (2,911 ) Net cash provided by (used in) financing activities (191,841 ) 1,020 (211,964 ) (4,810 )   Effect of exchange rate changes on cash   867     (2,719 )   2,944     (2,242 ) Net increase in cash and cash equivalents 45,475 22,512 51,031 22,639 Cash and cash equivalents - beginning of period   109,542     68,311     103,986     68,184   Cash and cash equivalents - end of period $ 155,017   $ 90,823   $ 155,017   $ 90,823     ACTUANT CORPORATION SUPPLEMENTAL UNAUDITED DATA FROM CONTINUING OPERATIONS (Dollars in thousands)                               FISCAL 2013 FISCAL 2014 Q1   Q2   Q3   Q4   TOTAL Q1   Q2     Q3     Q4     TOTAL SALES INDUSTRIAL SEGMENT $ 101,122 $ 98,999 $ 111,308 $ 111,191 $ 422,620 $ 98,641 $ 93,571 $ 192,212 ENERGY SEGMENT 90,769 80,794 99,158 92,651 363,372 107,925 106,031 213,956 ENGINEERED SOLUTIONS SEGMENT   115,918       120,675       133,739       123,418       493,750     132,990       128,168                     261,158   TOTAL $ 307,809     $ 300,468     $ 344,205     $ 327,260     $ 1,279,742   $ 339,556     $ 327,770                   $ 667,326     % SALES GROWTH INDUSTRIAL SEGMENT 1 % 1 % 1 % 1 % 1 % -2 % -5 % -4 % ENERGY SEGMENT 13 % 2 % 3 % -1 % 4 % 19 % 31 % 25 % ENGINEERED SOLUTIONS SEGMENT -10 % -2 % -2 % 4 % -3 % 15 % 6 % 10 % TOTAL -1 % 0 % 0 % 2 % 0 % 10 % 9 % 10 %   OPERATING PROFIT (LOSS) INDUSTRIAL SEGMENT $ 27,006 $ 26,350 $ 32,426 $ 31,862 $ 117,644 $ 26,897 $ 26,477 $ 53,374 ENERGY SEGMENT 15,387 9,677 19,736 18,480 63,280 8,923 9,504 18,427 ENGINEERED SOLUTIONS SEGMENT 7,625 8,275 12,754 11,674 40,328 13,190 9,548 22,738 CORPORATE / GENERAL   (6,544 )     (7,431 )     (7,874 )     (9,258 )     (31,107 )   (5,363 )     (6,548 )                   (11,911 ) TOTAL $ 43,474     $ 36,871     $ 57,042     $ 52,758     $ 190,145   $ 43,647     $ 38,981                   $ 82,628     OPERATING PROFIT % INDUSTRIAL SEGMENT 26.7 % 26.6 % 29.1 % 28.7 % 27.8 % 27.3 % 28.3 % 27.8 % ENERGY SEGMENT 17.0 % 12.0 % 19.9 % 19.9 % 17.4 % 8.3 % 9.0 % 8.6 % ENGINEERED SOLUTIONS SEGMENT 6.6 % 6.9 % 9.5 % 9.5 % 8.2 % 9.9 % 7.4 % 8.7 % TOTAL (INCLUDING CORPORATE) 14.1 % 12.3 % 16.6 % 16.1 % 14.9 % 12.9 % 11.9 % 12.4 %   EBITDA INDUSTRIAL SEGMENT $ 29,033 $ 28,471 $ 34,374 $ 33,742 $ 125,620 $ 28,657 $ 27,907 $ 56,564 ENERGY SEGMENT 19,694 14,278 23,977 22,185 80,134 17,923 18,130 36,053 ENGINEERED SOLUTIONS SEGMENT 12,047 12,611 16,700 15,659 57,017 17,365 13,581 30,946 CORPORATE / GENERAL   (6,195 )     (6,582 )     (7,556 )     (8,556 )     (28,889 )   (5,235 )     (6,202 )                   (11,437 ) TOTAL $ 54,579     $ 48,778     $ 67,495     $ 63,030     $ 233,882   $ 58,710     $ 53,416                   $ 112,126     EBITDA % INDUSTRIAL SEGMENT 28.7 % 28.8 % 30.9 % 30.3 % 29.7 % 29.1 % 29.8 % 29.4 % ENERGY SEGMENT 21.7 % 17.7 % 24.2 % 23.9 % 22.1 % 16.6 % 17.1 % 16.9 % ENGINEERED SOLUTIONS SEGMENT 10.4 % 10.5 % 12.5 % 12.7 % 11.5 % 13.1 % 10.6 % 11.8 % TOTAL (INCLUDING CORPORATE) 17.7 % 16.2 % 19.6 % 19.3 % 18.3 % 17.3 % 16.3 % 16.8 %   ACTUANT CORPORATION SUPPLEMENTAL UNAUDITED DATA RECONCILIATION OF GAAP MEASURE TO NON-GAAP MEASURES (Dollars in thousands, except for per share amounts)                                   FISCAL 2013 FISCAL 2014 Q1   Q2   Q3   Q4   TOTAL Q1   Q2     Q3     Q4     TOTAL EARNINGS (LOSS) BEFORE SPECIAL ITEMS (1) NET EARNINGS (LOSS) $ 36,343 $ 28,435 $ (92,983 ) $ 58,253 $ 30,048 $ 36,037 $ 41,392 $ 77,429 LOSS (EARNINGS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX   (5,792 )     (2,601 )     139,060       (13,138 )     117,529     (3,032 )     (19,088 )                   (22,120 ) EARNINGS FROM CONTINUING OPERATIONS 30,551 25,834 46,077 45,115 147,577 33,005 22,304 55,309 INCOME TAX ADJUSTMENT   -       -       -       (10,596 )     (10,596 )   -       -                     -   TOTAL $ 30,551     $ 25,834     $ 46,077     $ 34,519     $ 136,981   $ 33,005     $ 22,304                   $ 55,309     DILUTED EARNINGS (LOSS) PER SHARE, BEFORE SPECIAL ITEMS (1) NET EARNINGS (LOSS) $ 0.49 $ 0.38 $ (1.24 ) $ 0.78 $ 0.40 $ 0.48 $ 0.56 $ 1.04 LOSS (EARNINGS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX   (0.08 )     (0.03 )     1.86       (0.18 )     1.58     (0.04 )     (0.26 )                   (0.30 ) EARNINGS FROM CONTINUING OPERATIONS 0.41 0.35 0.62 0.60 1.98 0.44 0.30 0.74 INCOME TAX ADJUSTMENT   -       -       -       (0.14 )     (0.14 )   -       -                     -   TOTAL $ 0.41     $ 0.35     $ 0.62     $ 0.46     $ 1.84   $ 0.44     $ 0.30                   $ 0.74       EBITDA (2) NET EARNINGS (LOSS) (GAAP MEASURE) $ 36,343 $ 28,435 $ (92,983 ) $ 58,253 $ 30,048 $ 36,037 $ 41,392 $ 77,429 LOSS (EARNINGS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX   (5,792 )     (2,601 )     139,060       (13,138 )     117,529     (3,032 )     (19,088 )                   (22,120 ) EARNINGS FROM CONTINUING OPERATIONS 30,551 25,834 46,077 45,115 147,577 33,005 22,304 55,309 FINANCING COSTS, NET 6,322 6,260 6,229 6,026 24,837 6,750 6,262 13,012 INCOME TAX EXPENSE 5,957 4,814 3,825 776 15,372 2,751 9,089 11,840 DEPRECIATION & AMORTIZATION   11,749       11,870       11,364       11,113       46,096     16,204       15,761                     31,965   EBITDA - EXCLUDING DISCONTINUED OPERATIONS (NON-GAAP MEASURE) $ 54,579     $ 48,778     $ 67,495     $ 63,030     $ 233,882   $ 58,710     $ 53,416                   $ 112,126     FOOTNOTES   NOTE: The total of the individual quarters may not equal the annual total due to rounding.   (1) Earnings (loss) and diluted earnings (loss) per share, excluding special items (income tax adjustments and discontinued operations), represent net earnings (loss) and diluted earnings (loss) per share per the Condensed Consolidated Statements of Earnings net of charges or credits for items to be highlighted for comparability purposes. These measures should not be considered as an alternative to net earnings (loss) or diluted earnings (loss) per share as an indicator of the Company's operating performance. However, this presentation is important to investors for understanding the operating results of the current portfolio of Actuant companies. The total of the individual components may not equal due to rounding.   (2) EBITDA represents net earnings (loss) before financing costs, net, income tax expense, discontinued operations and depreciation & amortization. EBITDA is not a calculation based upon generally accepted accounting principles (GAAP). The amounts included in the EBITDA calculation, however, are derived from amounts included in the Condensed Consolidated Statements of Earnings data. EBITDA should not be considered as an alternative to net earnings or operating profit as an indicator of the Company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. Actuant has presented EBITDA because it regularly reviews this as a measure of the Company's ability to incur and service debt. In addition, EBITDA is used by many of our investors and lenders, and is presented as a convenience to them. However, the EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation.  

Actuant CorporationKaren BauerCommunications & Investor Relations Leader262-293-1562