On Jan 7, 2015, we issued an updated research report on premium industrial goods manufacturer Actuant Corporation (ATU). The activities of the company involve designing, manufacturing and distribution of various industrial products and systems in more than 30 countries. Despite achieving sufficient success since its inception in 1910, Actuant currently faces several risks in trade.
Problems to Consider
Actuant fared poorly in the last reported quarter. Both earnings and revenues lagged the respective year-ago tallies. Improvement in Energy segment’s sales was offset by weak performance in the Industrial and Integrated Solutions’ business. Stronger U.S. dollar, higher income tax rates and uncertain litigation charges were the three primary reasons responsible for Actuant’s weak earnings in first-quarter fiscal 2015.
The company’s debt burden also rose significantly by almost $146 million year over year. This escalation in debt expenses was caused by the necessity to generate greater working capital for funding the organic and inorganic growth plans of the company. However, we perceive that benefits of such growth schemes might be nullified by mounting interest expenses in the upcoming quarters.
Furthermore, Actuant operates in a highly competitive industry. In order to stay ahead of its peers, the company needs to keep inventing products and technologies. This involves a huge research and development expenditure, which may prove futile if it does not yield to higher demand and incremental revenues. This also reduces the company’s price control over its products, leading to market share loss and declines in sales and operating margins.
Improvement Scopes
Despite a drastic fall in global oil prices, Actuant’s Energy segment revenues in first-quarter fiscal 2015 increased 3.3% year over year to $111.5 million. The improvement was primarily driven by stronger Viking business in certain prominent marketplaces of Australia and Southeast Asia. Operating profit of the segment increased by 290 basis points due to a favorable product mix, higher sales and lower retention deal amortization of Viking.
The company shares a high brand value in the market and constantly attempts at maximizing its stakeholders’ value through strategic dividend hike and share repurchase programs. In order to combat the negative impacts of market uncertainties, Actuant is introducing specialized cost-reduction initiatives, capital deployment plans and new technology innovation measures.
With a market capitalization of $1.67 billion, Actuant currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Adept Technology Inc. (ADEP), Advanced Emissions Solutions, Inc. (ADES) and AO Smith Corp. (AOS). All the three stocks hold a Zacks Rank #2 (Buy).
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