Shares Flat as Actuant Misses on Q2 Earnings - Analyst Blog

Machinery company Actuant Corporation ATU received an assorted response in the stock price after it reported mixed results for the second quarter of fiscal 2014 (ended Feb 28, 2014) on March 19. Subsequent to the results, the company's stock price increased a mere 1.5% to settle at $33.95 on the following day.

Actuant reported earnings per share from continuing operations of 30 cents in the reported quarter, down 14.3% year over year. The earnings also missed the Zacks Consensus Estimate of 32 cents.

Revenues

Actuant's net sales in fiscal second-quarter 2014 were $327.8 million, up 9.1% year over year. Core sales grew 4% year over year and acquisitions added 5.0% to the overall tally. However, revenues missed the Zacks Consensus Estimate of $331.0 million.

Cost & Margins

Actuant's gross profit margin decreased 70 basis points (bps) year over year to 38.0% primarily due to higher cost of sales incurred during the quarter. Selling, administrative and engineering expenses were $79.2 million compared with $73.3 million in the year-ago quarter. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $48.4 million in the year-ago quarter to $53.4 million in the quarter.

Actuant's Segment Performance

The Industrial segment revenues were down 5.5% year over year to $93.6 million. Core sales decreased due to lower integration solutions activity globally. Also, North American volumes dropped due to severe weather and plant relocation in the quarter. The segment's operating profit margin was 28.3%, up 170 bps year over year, resulting from effective cost management.

Energy segment's revenues increased 31.2% year over year to $106.0 million. The increase was attributable to a 21% gain from acquisitions and 11% hike in core sales, which was partially offset by 1% negative currency translation impact. The segment's operating profit margin was 9.0%, down 300 bps year over year.

The Engineered Solution segment's revenues increased 6.2% year over year to $128.2 million. The improvement was due to 7% core sales growth, partially offset by 1% negative impact from previous divestiture. The segment's operating profit margin was 7.4%, up 50 bps year over year.

Balance Sheet/Cash Flow

Exiting the quarter, Actuant had cash and cash equivalents of $155.0 million, up from $109.5 million in the previous quarter. Long-term debt declined 22.8% sequentially to $387.7 million.

Cash flow from operations in the quarter was $3.9 million compared with $28.0 million in the year-ago quarter. The decrease in cash flow was largely due to high capital expenditures in the reported quarter. Total capital spending in the reported quarter was about $11.0 million versus $4.0 million in the prior year quarter.

During the quarter, Actuant repurchased 2.6 million shares worth $94 million to complete its existing share repurchase program. Consequently, management approved a new seven million share buy-back plan.

Outlook: For fiscal 2014, Actuant expects earnings per share at the lower end of its previous guidance range of $2.00 to $2.10. Fiscal revenue guidance is maintained in the range of $1.41 to $1.45 billion. Core sales are expected to grow 3%–5% over fiscal 2013 and free cash flow is anticipated at $190 million.

For the third quarter of fiscal 2014, Actuant anticipates revenues in the range of $370.0 to $380.0 million. Earnings per share are expected in the range of 60 to 65 cents.

Actuant currently has a market capitalization of $2.5 billion and carries a Zacks Rank #4 (Sell). Some better-ranked stocks worth a watch in the machinery industry include Alamo Group, Inc. ALG, Lincoln Electric Holdings Inc. LECO and Plug Power Inc. PLUG. All the three companies have a Zacks Rank #2 (Buy).