Actuant Corporation (ATU)

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Actuant Corporation (ATU)

F3Q10 (05/31/2010) Earnings Call Transcript

June 17, 2010 11:00 a.m. ET

Executives

Karen Bauer - Director, IR

Bob Arzbaecher - CEO

Andy Lampereur - CFO

Analysts

Wendy Caplan - SunTrust

Ingrid Aja - JPMorgan

Charlie Brady - BMO Capital Markets

Ajay Kejriwal - FBR Capital Markets

Jamie Sullivan - RBC Capital Markets

Allison Poliniak - Wells Fargo Securities

Presentation

Operator

Welcome to the Actuant Corporation's third quarter fiscal 2010 earnings conference call. We are conducting a live meeting to coincide with the audio conference. If you would like to view the presentation online, please refer to your meeting invitation for details. (Operator Instructions)

It is now my pleasure to turn the conference over to Karen Bauer, Actuant's Director, Investor Relations.

Karen Bauer

Good morning and welcome to Actuant's third quarter fiscal 2010 earnings conference call. On the call with me today are Bob Arzbaecher, Actuant's Chief Executive Officer; and Andy Lampereur, Chief Financial Officer. I'd like to point out that our earnings release and the slide presentation supplementing today's call are available in the Investors section of our website.

Before we start, let me offer the following cautionary note. During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Investors are cautioned that forward-looking statements are inherently uncertain and that there are a number of factors that could cause actual results to differ materially from these statements. These factors are outlined in our SEC filings.

With that, I would turn the call over to Bob.

Bob Arzbaecher

Thank you, Karen. As you can see in our release this morning, we reported sales and earnings above the high end of our previous guidance. EPS, excluding restructuring and last year's impairment, was up 45% year-over-year, with 16% core sales growth and solid EBITDA margin improvement.

Free cash flow was outstanding at $46 million for the quarter. We continue to do a great job of effectively managing working capital and our capital during this recovery. As you will hear later in the call, we are again raising our fiscal 2010 guidance for free cash flow.

We completely four tuck-in acquisitions during the last quarter or at least since we reported to you last, all in line with the strategic growth areas of Industrial and Energy segments.

With these opening remarks, I'll turn it over to Andy to go through the quarterly results, and I'll come back and cover a few topics, including our preliminary 2011 guidance.

Andy Lampereur

Thank you, Bob, and good morning, everyone. What a difference a year makes! It sure is a lot more satisfying talking about improved results as opposed to explaining recession-driven sales and profitability declines. We benefited from 16% core growth and margin expansion this quarter, which exceeded our guidance and consensus.

To recap the third quarter at a high level, sales of $335 million were up 17% from last year, reflecting improving demand in three of our sports segments as well as a net benefit of acquisitions, divestitures and foreign currency changes.

On a GAAP basis, we reported diluted earnings per share from continuing operations of $0.30 a share compared to $0.06 a year ago. These results include restructuring costs for both years and an impairment charge last year and therefore requires an explanation.

Our restructuring costs in the quarter were in line with the expectations. Last quarter, we said there'd be about $5 million of restructuring costs in the back half of fiscal 2010, and we recognized about half of those in the third quarter. There were no changes to our restructuring costs or savings estimates that we provided on last quarter's earnings call.

If we exclude the restructuring costs and last year's impairment charge, third quarter EPS from this year was $0.32 a share compared to $0.22 a share last year, a 45% improvement. While we're still below pre-recession business activity levels, we're definitely encouraged by the many positive signs in the quarter, the best sales adjusted EPS and margins that we've seen in the last six quarters.

I'll review sales and margins next at a consolidated level and then spend a few moments on each of our segments.

Our consolidated sales for the quarter of $335 million were the highest we've seen since the first quarter of 2009. The momentum we reported in last quarter's earnings call continued this quarter with core sales growth of 16%. With the exception of the Energy segment, all segments posted core sales gains led by a 43% increase in Engineered Solutions due to a sharp rebound in OEM demand in vehicle markets, as well as a 20% increase in the Industrial segment.

Foreign currency was not a big issue for the third quarter as a significant dollar strengthening happened in May when two-thirds of our quarter was already in the books. Currency movements actually contributed 1% to overall sales growth in the quarter versus the prior year, but there will be a headwind in the fourth quarter and all of fiscal 2011. We'll provide more color on currency later on the call when we talk about our outlook and guidance.

The combination of restructuring-driven cost savings that we've talked about in the last few quarters as well as a 17% overall sales gain this quarter resulted in a 53% increase in operating profit excluding restructuring and impairment charges.

Consolidated operating profit margins expanded 280 basis points to 12.2% from the third quarter of a year ago and 310 basis points sequentially from last quarter. All segments except Energy reported year-over-year profit margin expansion, and all four were up sequentially from last quarter. Equally as important, EBITDA margins exceeded 15% for the first time in the last six quarters despite less than optimal sales mix.

Read the rest of this transcript for free on seekingalpha.com