Actuant (ATU) Misses Q1 Earnings on High Debt, Shares Dip - Analyst Blog

Diversified machinery firm Actuant Corporation (ATU) reported weak results for first-quarter fiscal 2015 (ended Nov 30, 2014). Investor's sentiments were weak on the stock, with the shares declining 2.2% post the earnings release.

Adjusted earnings, before special items, came in at 38 cents per share, down 13.6% from the year-ago value and missing the Zacks Consensus Estimate of 43 cents by 11.6%. The bottom line also experienced a sequential decline of 19.1%.

 

Revenues
Actuant generated net revenues of $327.8 million, decreasing 3.5% year over year and also lagging the Zacks Consensus Estimate of $338 million. Approximately 1% slip in core sales and adverse foreign exchange rate changes were responsible for the year-over-year fall in net revenues.

Cost & Margins

Actuant's cost of sales declined 3.4% year over year, representing 61.3% of net revenue versus 61.2% in the year-ago quarter. Gross margin decreased 10 basis points (bps) to 38.7%. Selling, administrative and engineering expenses stood at $82.5 million compared with $81.9 million in the year-ago quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were down 10.8% year over year to $52.4 million.

Segment Performance

Revenues from the Industrial segment grew 4% year over year to $102.4 million. The Hayes Industries acquisition augmented the segments' sales by 8%. However, sales were adversely affected due to 3% headwind from currency changes and 1% decline in core sales. The segment's operating profit margin was 26.1%, down 120 bps year over year owing to acquisition mix.

Energy segment's revenues grew 3.3% year over year to $111.5 million. While core sales improved 6% year over year, the segment experienced an adverse currency effect of 3%. The segment's operating profit margin was 11.2%, up 290 bps year over year.

The Engineered Solution segment's revenues decreased 14.4% year over year to $113.8 million. The divisions' revenue suffered a 5% decline owing to the divestiture of the company's RV product category. Core sales came in 7% lower than the year-ago value while stronger US dollar lowered sales by 2%. The segment's operating profit margin was 5.5% versus 9.9% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting first quarter, Actuant had cash and cash equivalents of $87.3 million, down 20% from $109 million in the previous quarter. Long-term debt stood at $506.2 million, higher than $385.5 million at the end of fourth-quarter fiscal 2014.

Actuant used cash worth $25.1 million in its operating activities, while generating $33 million operating cash flow in the prior-year quarter. Capital spending were $8 million versus $11.3 million in first-quarter fiscal 2014.
During the quarter, Actuant repurchased approximately 3.3 million shares for $104 million. The company's net debt on Nov 30, 2014 was $427 million, which was about $146 million higher than the tally at fiscal 2014. Cash taxes imposed on RV divestiture, unfavorable currency rate volatilities and rising working capital were the factors responsible for the remarkable rise in Actuant's debt burden.

Outlook

Actuant believes that falling oil prices in the current global market would subsequently lower the operational costs of its Industrial and Energy segments. For full-year fiscal 2015, the company expects to generate sales within $1.33 – 1.37 billion. Furthermore, with the help of $150 million free cash, the company aims to implement new strategic growth programs in the near future. In the upcoming quarter, Actuant expects earnings per share in the range of 25 cents –30 cents.

Other Stocks to Consider

With a market capitalization of $1.82 billion, Actuant currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include ScanSource, Inc. (SCSC), iRobot Corporation (IRBT) and Adobe Systems Inc. (ADBE). All three stocks carry a Zacks Rank #2 (Buy).
 

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