Actuant Downgraded to Sell - Analyst Blog

On Dec 27, Zacks Investment Research downgraded Actuant Corporation (ATU) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold), on lower-than-expected earnings for the first quarter of fiscal 2014.

Why the Downgrade?

In December, Actuant reported earnings per share of 44 cents in the first quarter of fiscal 2014, missing the Zacks Consensus Estimate of 46 cents by 4.4%. Sales of $340 million were adversely impacted by 1% from negative foreign currency translations. The company recorded a 2% year-over-year decline in sales from the Industrial segment to $99 million, due to lower global activity in the Integrated Solutions business.

Although the Energy segment's sales improved 19% year over year to $108 million, the core sales decreased 1%. The company operates in roughly 30 countries, which are important contributors to the total revenue. However, international presence also increases the company's exposure to foreign currency risks, various environmental and economical laws as well as cultural diversity. This may lead to severe operational disruptions for the company.

Additionally, the company operates in a highly competitive industry. In order to stay ahead of its peers, Actuant needs to keep inventing products and technologies. This involves huge research and development expenditure which may prove futile if customers are not convinced.

For the second quarter of fiscal 2014, Actuant anticipates revenues in the range of $330.0 million to $340.0 million. Earnings per share are expected in the range of 29 cents to 33 cents.

Following the results, the Zacks Consensus Estimate for fiscal second-quarter of 2014 decreased 15.4% to 33 cents per share. The estimate for fiscal 2014 dropped 2.9% to $2.02 per share, while a decline of 2.6% to $2.29 per share was projected for fiscal 2015.

Other Stocks to Consider

Actuant currently carries a market capitalization of $2.7 billion. Some better-ranked stocks to watch out for in the industry include Xylem Inc. (XYL), Barnes Group Inc. (B) and Flow International Corporation (FLOW). While Xylem and Barnes Group carry a Zacks Rank #1 (Strong Buy), Flow International holds a Zacks Rank #2 (Buy).