Actuant Reports Second Quarter Results

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Actuant Reports Second Quarter Results

MILWAUKEE--(BUSINESS WIRE)-- Actuant Corporation (NYS: ATU) today announced results for its second quarter ended February 28, 2013.

Highlights

  • Delivered second quarter sales and earnings at the high end of the guidance ranges.
  • Total sales were $370 million, down 2% year-over-year with acquisitions contributing 4% and core sales declining 6%.
  • Diluted earnings per share ("EPS") of $0.38, 12% lower than the comparable prior year period.
  • Operating profit margins were 11.3%, a 180 basis point reduction from the prior year due primarily to the impact of lower sales and production levels.
  • Revised full year sales and EPS guidance to $1.575-1.600 billion and $2.15-2.25, respectively.

Robert C. Arzbaecher, Chairman and CEO of Actuant commented, "We delivered results for the second quarter at the high end of our sales and EPS guidance. During the normally seasonally weak quarter, we experienced generally subdued activity in the global industrial markets reflecting both cautious spending and continued destocking initiatives by OEM customers. While economic conditions remain weak in most end markets and regions, we have kept our organization agile and are anticipating both seasonal and core growth in the second half of the fiscal year. I want to thank our global team for their solid execution in the quarter."

Consolidated Results

Consolidated sales for the second quarter were $370 million, 2% lower than the comparable prior year quarter. Core sales declined 6% with acquisitions contributing 4% and the consolidated impact of foreign exchange negligible. Fiscal 2013 second quarter net earnings were $28.4 million compared to $32.2 million in the comparable prior year quarter. EPS of $0.38 in the second quarter of fiscal 2013 was 12% lower than the $0.43 in the comparable prior year quarter.

Sales for the six months ended February 28, 2013 were $748 million, 3% below the $771 million in the comparable prior year period. Excluding the 4% impact of acquisitions, year-to-date core sales declined 7%. Earnings and EPS for the six months ended February 28, 2013 were $64.8 million, or $0.87 per diluted share, compared to $69.3 million, or $0.94 per diluted share for the comparable prior year period.

Segment Results

 

Industrial Segment

(US $ in millions)

 
 Three Months Ended Six Months Ended
February 28, February 29,February 28, February 29,
2013201220132012
Sales$99.0$98.3$200.1$198.6
Operating Profit$26.4$26.7$53.4$54.6
Operating Profit %26.6%27.1%26.7%27.5%
 

Second quarter fiscal 2013 Industrial segment sales were $99 million, 1% higher than the prior year. Despite the difficult prior year comparison, core sales increased 1% driven by higher global Integrated Solutions activity. North America and the AsiaPac region saw the strongest growth, with year-over-year core sales declines in Europe and China. Second quarter operating profit margin of 26.6% was in line with expectations and modestly lower than the prior year due to unfavorable mix.

Energy Segment

(US $ in millions)

 
 Three Months Ended Six Months Ended
February 28, February 29,

February 28,

 February 29,
20132012

2013

2012
Sales$80.8$78.9$171.6$159.4
Operating Profit$9.7$11.6$25.1$24.8
Operating Profit %12.0%14.7%14.6%15.6%
 

Fiscal 2013 second quarter year-over-year Energy segment sales increased 2% to $81 million. Excluding the 3% impact from acquisitions, core sales declined 1% from the prior year's robust levels. Hydratight's core sales increased during the quarter reflecting solid MRO spending in oil & gas, partially offset by difficult comparisons to last year's strong North American nuclear maintenance activity. Cortland had a core sales decline which was primarily due to lower activity in non-energy markets such as defense, as well as modest push-outs of energy related business. Second quarter operating profit declined despite the modest growth in revenue due to an approximate $2.5 million earn-out reserve reduction in the prior year.

Electrical Segment

(US $ in millions)

 
 Three Months Ended Six Months Ended
February 28, February 29,February 28, February 29,
2013201220132012
Sales$69.9$77.1$139.3$159.9
Operating Profit$5.1$5.8$12.9$10.8
Operating Profit %7.3%7.5%9.3%6.7%
 

Electrical segment fiscal 2013 second quarter sales were $70 million, 9% lower than the comparable prior year quarter. Similar to the first quarter, the core sales decline was primarily attributable to lower solar inverter shipments and industrial transformer demand. The marine and internet markets generated modest core sales increases in the quarter. Second quarter operating profit margin was essentially unchanged from the prior year despite the impact of lower volumes, due to favorable mix and the net benefit of restructuring actions.

Engineered Solutions Segment

(US $ in millions)

 
 Three Months Ended Six Months Ended
February 28, February 29,February 28, February 29,
2013201220132012
Sales$120.7$123.6$236.6$252.9
Operating Profit$8.3$13.3$15.9$32.3
Operating Profit %6.9%10.7%6.7%12.8%
 

Second quarter fiscal 2013 Engineered Solutions segment sales decreased 2% from the prior year to $121 million. Excluding the 10% benefit from acquisitions, year-over-year core sales declined 12%, a sequential improvement from the 17% decline last quarter. Second quarter sales continued to be impacted by OEM destocking in the heavy-duty truck, off-highway equipment and auto markets. Demand in the global agriculture market was flat with the prior year. Second quarter operating profit margin declined year-over-year, but was up sequentially. The impact of lower volumes was partially offset by the benefit of cost reduction actions taken in the segment.

Corporate and Income Taxes

Corporate expenses for the second quarter of fiscal 2013 were $7.4 million, $0.5 million below the comparable prior year period due primarily to lower incentive compensation provisions. The effective income tax rate for the quarter was lower than the prior year, but up sequentially, reflecting the extension of the US R&D tax credit, the impact of a reduced statutory tax rate on a deferred tax liability balance, as well as tax planning benefits.

Financial Position

Net debt at February 28, 2013 was $304 million (total debt of $395 million less $91 million of cash); approximately $24 million below the prior quarter end and the lowest level in the past five years. Essentially all of Actuant's second quarter cash flow was used to reduce net debt. Common stock repurchases during the quarter amounted to fewer than 0.1 million shares, or approximately $2 million. At February 28, 2013, the Company had a net debt to EBITDA leverage ratio of 1.1, and its entire $600 million revolver available.

Outlook

Commenting on Actuant's outlook, Arzbaecher stated, "When we initially provided our fiscal 2013 guidance, we expected that our first half results would be lower than the prior year, with growth resuming in the back half. Now at the mid-point of the year, we believe we are at this inflection point with the most difficult comparisons behind us. We are seeing indications that market conditions have bottomed and are firming up in some areas, yet inconsistency and uncertainty also persist. As a result, we expect the demand improvement curve to be less steep and modestly pushed out further in calendar 2013 compared to our original expectations.

Given the current economic environment, our first half performance, and the divestiture of an approximate $7 million product line last week, we have modestly adjusted our full year sales and EPS guidance to $1.575-1.600 billion and $2.15- 2.25, respectively. We now expect full year core sales to decline 3 to 5% from the previous negative 1 to 3%. We also expect headwind from the weaker British Pound. Despite modestly weaker than anticipated core sales growth, we expect to continue to be able to manage costs effectively and deliver EPS growth in line with expectations. We are still targeting full year free cash flow of approximately $200 million, but recognize it will be more of a challenge than previously anticipated.

We expect third quarter sales to be in the $410-420 million range. EPS is expected to be in the $0.63-0.68 range compared to $0.60 in the prior year, with continued cost reduction actions and a lower than full year average income tax rate incorporated into the guidance.

Consistent with past practice, all guidance excludes the impact of potential future acquisitions and share repurchases."

Arzbaecher concluded, "We remain focused on investing for long-term growth through Growth + Innovation and acquisitions, while managing costs to drive full year earnings improvement. Actuant is committed to maximizing results and maintaining a strong balance sheet to deliver increased shareholder value."

Conference Call Information

An investor conference call is scheduled for 10am CDT today, March 20, 2013. 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 and electrical tools and supplies; 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.

(tables follow)

 
Actuant Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
    
February 28,August 31,
20132012
 
ASSETS
Current assets
Cash and cash equivalents$90,823$68,184
Accounts receivable, net238,601234,756
Inventories, net217,540211,690
Deferred income taxes23,60422,583
Other current assets 24,862  24,068 
Total current assets595,430561,281
 
Property, plant and equipment, net114,124115,884
Goodwill866,685866,412
Other intangible assets, net430,827445,884
Other long-term assets 16,765  17,658 
 
Total assets$2,023,831 $2,007,119 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable$153,814$174,746
Accrued compensation and benefits45,29758,817
Current maturities of debt10,0007,500
Income taxes payable2,8525,778
Other current liabilities 58,566  72,165 
Total current liabilities270,529319,006
 
Long-term debt385,000390,000
Deferred income taxes129,080132,653
Pension and postretirement benefit accruals26,13726,442
Other long-term liabilities88,81787,182
 
Shareholders' equity
Capital stock15,22115,102
Additional paid-in capital23,8737,725
Treasury stock(71,904)(63,083)
Retained earnings1,226,3461,161,564
Accumulated other comprehensive loss(69,268)(69,472)
Stock held in trust(3,076)(2,689)
Deferred compensation liability 3,076  2,689 
Total shareholders' equity 1,124,268  1,051,836 
 
Total liabilities and shareholders' equity$2,023,831 $2,007,119 
 

Actuant Corporation
Condensed Consolidated Statements of Earnings
(Dollars in thousands except per share amounts)
(Unaudited)
 
  Three Months Ended Six Months Ended
February 28, February 29,February 28, February 29,
2013 20122013 2012
 
Net sales$370,370$378,024$747,618$770,823
Cost of products sold 230,811   236,732  461,073  476,923
Gross profit139,559141,292286,545293,900
 
Selling, administrative and engineering expenses89,97784,763177,807172,872
Amortization of intangible assets 7,638   7,073  15,492  14,291
Operating profit41,94449,45693,246106,737
 
Financing costs, net6,2607,82112,58216,043
Other expense (income), net (36)  (171) 328  486
Earnings before income tax expense35,72041,80680,33690,208
 
Income tax expense 7,285   9,631  15,558  20,859
Net earnings$28,435  $32,175 $64,778 $69,349
 
Earnings per share
Basic$0.39$0.47$0.89$1.02
Diluted0.380.430.870.94
 
Weighted average common shares outstanding
Basic72,94668,06472,86968,242
Diluted74,416
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