Actuant Reports Third Quarter Results; Provides Fiscal 2014 Outlook

Actuant Reports Third Quarter Results; Provides Fiscal 2014 Outlook

MILWAUKEE--(BUSINESS WIRE)-- Actuant Corporation (NYS: ATU) today announced results for its third quarter ended May 31, 2013.

Highlights

  • Delivered third quarter diluted earnings per share ("EPS") from continuing operations of $0.62, 22% higher than the prior year (excluding prior year debt refinancing costs - see attached reconciliation of earnings.)

  • Sales from continuing operations of $344 million, approximately level with the prior year. Excluding the 3% contribution from acquisitions and -1% foreign currency impact, core sales declined 2% with two of the three segments posting core sales growth.

  • Robust cash flow from operations of $76 million.

  • Announced intent to divest the Electrical segment to refocus on the remaining businesses where Actuant is well positioned to build on identified secular growth trends and emerging market opportunities.

  • Introduced full year fiscal 2014 outlook with sales and EPS from continuing operations expected to be $1.315-$1.340 billion and $1.95- $2.05, respectively.


Robert C. Arzbaecher, Chairman and CEO of Actuant commented, "As expected, the third quarter represented an inflection point for Actuant as we delivered a 22% increase in EPS from continuing operations and improved sequential sales and profit margins. Solid core growth was achieved in both the Industrial and Energy segments, and the sequentially improved Engineered Solutions sales signal OEM destocking efforts are abating. Due to weak economic conditions, we continue to experience subdued activity in our global industrial markets and inconsistent demand. However, we did a good job balancing cost reduction actions and growth investments, as evidenced by our 19.6% EBITDA margins. Our third quarter EPS also benefitted from both lower interest expense and an effective income tax rate. We have asked a lot of our employees this year and I want to thank our world-class global team for their efforts in delivering the results."

Consolidated Results

On June 3, 2013, the Company announced its intent to divest the Electrical segment. The results of operations for this segment, as well as the previously announced non-cash write-down, are reported in discontinued operations in the accompanying Condensed Consolidated Statement of Operations. Operating results for the third quarter and all prior periods have been reclassified for comparability.

Continuing Operations

Consolidated sales for the third quarter of fiscal 2013 were $344 million compared to $343 million in the comparable prior year quarter. Core sales declined 2% with acquisitions contributing 3% and currency translation reducing sales by 1%. Fiscal 2013 third quarter net earnings and EPS from continuing operations were $46.1 million and $0.62, respectively, compared to $27.7 million and $0.36 in the comparable prior year quarter. Results for the third quarter of fiscal 2012 included pre-tax debt refinancing costs of $16.8 million, or $0.15 per diluted share after tax. Excluding these costs, EPS grew 22% year-over-year to $0.62 compared to $0.51 in the prior year quarter. (See attached reconciliation of earnings.)

Sales for the nine months ended May 31, 2013 of $952 million were essentially unchanged from the $954 million in the comparable prior year period. Excluding the 5% impact of acquisitions, and 1% negative impact from foreign currency translation, year-to-date core sales declined 4%. Earnings and EPS from continuing operations for the nine month period were $102.5 million, or $1.38 per diluted share, compared to $89.4 million, or $1.19 per diluted share for the comparable prior year period. Excluding the debt refinancing costs, fiscal 2013 year-to-date EPS from continuing operations of $1.38 was 3% higher than the $1.34 in the prior year. (See attached reconciliation of earnings.)

Discontinued Operations

Discontinued operations represent the operating results for the Electrical segment for all periods presented. The third quarter of fiscal 2013 also includes a $150 million ($2.00 per diluted share) non-cash, after-tax charge from the write-down of the net assets held for sale to their net realizable value.

Segment Results

Industrial Segment

(US $ in millions)

Three Months Ended May 31,

Nine Months Ended May 31,

2013

2012

2013

2012

Sales

$111.3

$110.1

$311.4

$308.7

Operating Profit

$32.4

$30.7

$85.8

$85.3

Operating Profit %

29.1%

27.9%

27.5%

27.6%

Third quarter fiscal 2013 Industrial segment sales were $111 million, 1% higher than the prior year. Excluding the 1% negative impact of foreign currency translation, core sales increased 2% due to success in executing strategic initiatives including higher global Integrated Solutions, bolting and mining MRO tool sales. Europe and the Asia Pacific region, including China, continue to experience year-over-year core sales declines, albeit at a more modest sequential pace. Third quarter operating profit margin increased 120 basis points to 29.1% on the higher volume, lower incentive compensation and cost containment actions.

Energy Segment

(US $ in millions)

Three Months Ended May 31,

Nine Months Ended May 31,

2013

2012

2013

2012

Sales

$99.2

$96.4

$270.7

$255.8

Operating Profit

$19.7

$18.5

$44.8

$43.4

Operating Profit %

19.9%

19.2%

16.5%

17.0%

Fiscal 2013 third quarter year-over-year Energy segment sales increased 3% to $99 million. Excluding the negative 2% impact from foreign currency translation, core sales were 5% higher than the prior year's robust levels. Deep water related umbilical, cable and rope revenues grew double digits with strong market demand and catch up of deferred shipments from earlier in the year. Cortland's non-energy markets, such as defense, continued to experience weak activity levels. Hydratight's core sales also grew during the quarter reflecting solid MRO spending in global oil & gas, partially offset by difficult comparisons given last year's strong North American nuclear maintenance activity. Third quarter operating profit increased 70 basis points year-over-year, primarily the result of the higher volumes.

Engineered Solutions Segment

(US $ in millions)

Three Months Ended May 31,

Nine Months Ended May 31,

2013

2012

2013

2012

Sales

$133.7

$136.8

$370.3

$389.7

Operating Profit

$12.8

$18.5

$28.7

$50.7

Operating Profit %

9.5%

13.5%

7.7%

13.0%

Third quarter fiscal 2013 Engineered Solutions segment sales decreased 2% from the prior year to $134 million. Excluding the 8% net benefit from acquisitions/divestitures, year-over-year core sales declined 10%. Third quarter sales continued to be impacted by difficult comparisons in the North American heavy-duty truck, agriculture and global off-highway equipment markets. While convertible auto demand in Europe remained weak, European heavy-duty truck sales inflected in the quarter and were higher year-over-year. Third quarter operating profit margin declined due primarily to the impact of lower volumes, unfavorable sales mix and restructuring costs.

Corporate and Income Taxes

Corporate expenses for the third quarter of fiscal 2013 were $7.9 million, $0.9 million below the comparable prior year period due primarily to lower incentive compensation expense. As expected, the effective income tax rate for the quarter was significantly lower than the prior year reflecting the reversal of provisions in prior years for uncertain tax positions upon the lapsing of applicable foreign statutes.

Financial Position

Net debt at May 31, 2013 was $231 million (total debt of $392 million less $161 million of cash); approximately $73 million below the prior quarter end. With the exception of $5 million used for share repurchases (0.16 million shares at an average price of just under $30), essentially all of Actuant's third quarter operating cash flow reduced net debt. At May 31, 2013, the Company's net debt to EBITDA leverage ratio was 0.8, and its entire $600 million revolver was available.

Outlook

Commenting on Actuant's outlook for the remainder of fiscal 2013, Arzbaecher stated, "We expect the inflection in earnings we saw in the third quarter to continue into the fourth quarter, albeit at a more modest rate given a higher prospective effective tax rate. Taking into account current business trends from continuing operations, we expect to complete fiscal 2013 with full year sales of $1.275-1.285 billion and EPS in the $1.85-1.90 range. With another expected strong cash flow quarter, we should finish fiscal 2013 with $190-200 million of free cash flow, representing approximately 115-120% conversion of net earnings (excluding the non-cash discontinued operations write-down.) This would represent our 13th consecutive year of conversion in excess of 100%.

As we look ahead to fiscal 2014, we face a market environment in which low global GDP and uncertainty are likely to persist. Actuant will continue to focus on taking advantage of our broad product and geographic scope to capitalize on profitable growth opportunities. Based on our current view of economic indicators as well as Actuant's business trends and specific growth drivers, we anticipate fiscal 2014 core sales growth of 3-5%. Assuming current foreign currency exchange rates, we expect total sales of $1.315-1.340 billion. The benefit of volume and operational excellence initiatives, partially offset by investments in our best growth opportunities and a higher effective tax rate, should increase EPS to $1.95- 2.05 in fiscal 2014. This represents an increase of approximately 5-10% from fiscal 2013 levels, not including the benefit of potential future acquisitions or share repurchases, which continue to be a priority for the Company. We expect full year free cash flow to be approximately $175 million."

Arzbaecher concluded, "We remain focused on long-term secular growth drivers which provide exciting organic and acquisition driven growth prospects. Given our healthy acquisition pipeline, the strongest balance sheet in our history and continued robust free cash flow generation, we are well positioned financially to capitalize on these strategic growth opportunities."

Conference Call Information

An investor conference call is scheduled for 10am CT today, June 19, 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. This includes statements pertaining to, among other things, the planned divestiture of the Electrical segment, the potential timing thereof, and the prospects and expected financial results of Actuant after the planned transaction. 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.

(tables follow)

Actuant Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

May 31,

August 31,

2013

2012

ASSETS

Current assets

Cash and cash equivalents

$

161,418

$

68,184

Accounts receivable, net

214,683

234,756

Inventories, net

145,226

211,690

Deferred income taxes

22,503

22,583

Other current assets

26,396

24,068

Assets of discontinued operations

264,058

-

Total current assets

834,284

561,281

Property, plant and equipment, net

104,603

115,884

Goodwill

647,150

866,412

Other intangible assets, net

316,986

445,884

Other long-term assets

16,451

17,658

Total assets

$

1,919,474

$

2,007,119

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Trade accounts payable

$

147,898

$

174,746

Accrued compensation and benefits

42,055

58,817

Current maturities of debt

10,000

7,500

Income taxes payable

9,350

5,778

Other current liabilities

51,957

72,165

Liabilities of discontinued operations

52,283

-

Total current liabilities

313,543

319,006

Long-term debt

382,500

390,000

Deferred income taxes

97,745

132,653

Pension and postretirement benefit accruals

25,567

26,442

Other long-term liabilities

68,281

87,182

Shareholders' equity

Capital stock

15,287

15,102

Additional paid-in capital

34,176

7,725

Treasury stock

(76,753

)

(63,083

)

Retained earnings

1,133,364

1,161,564

Accumulated other comprehensive loss

(74,236

)

(69,472

)

Stock held in trust

(3,094

)

(2,689

)

Deferred compensation liability

3,094

2,689

Total shareholders' equity

1,031,838

1,051,836

Total liabilities and shareholders' equity

$

1,919,474

$

2,007,119

Actuant Corporation

Condensed Consolidated Statements of Operations

(Dollars in thousands except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

May 31,

May 31,

May 31,

May 31,

2013

2012

2013

2012

Net sales

$

344,205

$

343,268

$

952,482

$

954,153

Cost of products sold

207,301

204,514

575,032

572,301

Gross profit

136,904

138,754

377,450

381,852

Selling, administrative and engineering expenses

74,323

74,341

222,521

210,806

Amortization of intangible assets

5,539

5,563

17,542

16,237

Operating profit

57,042

58,850

137,387

154,809

Financing costs, net

6,229

7,236

18,811

23,280

Debt refinancing costs

-

16,830

-

16,830

Other expense, net

911

2,591

1,518

3,297

Earnings from continuing operations before income tax expense

49,902

32,193

117,058

111,402

Income tax expense

3,825

4,456

14,596

22,042

Earnings from continuing operations

46,077

27,737

102,462

89,360

Earnings (loss) from discontinued operations, net of income taxes

(139,060

)

6,664

(130,667

)

14,390

Net earnings (loss)

$

(92,983

)

$

34,401

$

(28,205

)

$

103,750

Earnings from continuing operations per share

Basic

$

0.63

$

0.39

$

1.40

$

1.29

Diluted

0.62

0.36

1.38