Premium diversified machinery company Actuant Corporation ATU reported better-than-expected results for first quarter fiscal 2016. Quarterly results surpassed expectations, but were adversely affected by lower demand in the general industrial, oil & gas, mining and agricultural markets. Moreover, margins were hurt by unfavorable sales mix, variations in purchase price and weaker absorption as well as production led by inventory de-stocking.
Quarterly earnings came in at 31 cents per share, down 18.4% year over year. However, the bottom line was 29.2% higher than the Zacks Consensus Estimate of 24 cents.
Revenues, Cost & Margins
In first quarter fiscal 2016, Actuant generated net revenue of $305 million, down 6.9% year over year. However, the top line surpassed the Zacks Consensus Estimate of $278 million.
The company’s cost of sales was $196.4 million in the quarter, down 2.2% year over year. Gross margin decreased 310 basis points (bps) to 35.6%. Selling, administrative and engineering expenses were $72.9 million, down from $82.5 million recorded a year ago.
For the quarter, the company reported adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $41.6 million, down from the year-ago tally of $52.4 million.
Balance Sheet and Cash Flow
Exiting first quarter, Actuant had cash and cash equivalents of $171.9 million, up 1.8% from $168.8 million reported on Aug 31, 2015. Long-term debt was $580.6 million, down from $584.3 million recorded at the end of fiscal 2015.
Actuant generated cash worth $20.4 million from its operating activities as against $19.2 million of cash used in the prior-year quarter. Capital spending totaled $5.5 million, down from $8 million in first quarter fiscal 2015.
During the quarter, Actuant used roughly $5 million of cash for repurchasing shares of common stock and around $2 million for paying annual dividend.
Segmental Performance
Revenues from the Industrial segment fell 13.2% year over year to $88.9 million. Unfavorable currency translation, weak industrial demand, poor energy and mining activity levels, stiff inventory management and reduced consumer expenses were the major reasons behind the decline in revenues.
Energy Segment revenues increased 2.1% year over year to $113.8 million. Improved Cortland and Hydratight sales supported the year-over-year improvement.
Revenues from the Engineered Solution Segment fell 10% year over year to $102.4 million. Poor off-highway equipment and agriculture sales, coupled with adverse currency translation, hurt segmental revenues on a year-over-year basis.
Outlook
Notwithstanding weak oil & gas business, sluggish activities in non-energy markets and currency headwind issues, Actuant has raised its guidance for full-year fiscal 2016. The company anticipates revenues within $1.17–1.20 billion compared with the previous projection of $1.16–$1.20 billion; while earnings are expected to come in a range of $1.25–$1.40 per share compared with the earlier estimation of 1.20–$1.40 per share. Revenues for second quarter fiscal 2016 are expected within $270–$280 million; while earnings will likely come in a range of 17–22 cents per share (eliminating restructuring expenses).
Actuant’s guidance for second quarter fiscal 2016 takes into account the negatives of seasonal slowdown. In spite of the above-mentioned issues, the company retains a positive outlook driven by expectations of benefits from restructuring activities, increased cash flow and lucrative acquisitions.
Stocks to Consider
Actuant Corporation presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Aggreko plc ARGKF, Franklin Electric Co., Inc. FELE and Energy Recovery, Inc. ERII. All three stocks hold a Zacks Rank #2 (Buy).
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