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Actuant (ATU) Up 10.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the las t earnings report for Actuant (ATU). Shares have added about 10.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Actuant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recen t earnings report in order to get a better handle on the important drivers.

Actuant Beats Q1 Earnings Estimates, Lowers Sales View

Actuantreported better-than-expected results for the first quarter of fiscal 2019 (ended Nov 30, 2018), the positive earnings surprise being 12.5%. This was the company's third consecutive quarter of positive earnings beat.

This industrial tool maker's adjusted earnings per share in the reported quarter were 27 cents, surpassing the Zacks Consensus Estimate of 24 cents. On a year-over-year basis, the bottom line increased 42.1% from the year-ago tally of 19 cents. The improvement came on the back of healthy organic growth and improving margins.

Organic Growth Drives Revenues

Actuant generated sales of $292.5 million in the reported quarter, reflecting growth of 1.2% from the year-ago tally. The improvement was driven by 3% growth in organic sales, partially offset by roughly 2% adverse impact of unfavorable movements in foreign currencies. It is worth noting here that gains from Equalizer and Mirage buyouts, as well as adverse impact of Viking divestiture, had a negligible impact on sales.

However, the top line lagged the Zacks Consensus Estimate of $299 million by roughly 2.2%.

The company reports net sales under two segments - Industrial Tools & Services (IT&S), and Engineered Components & Systems (EC&S). Earlier, the company used to report under three segments - Industrial, Energy and Engineered Solutions. The segmental information is briefly discussed below:

Industrial Tools & Services (50.8% of first-quarter fiscal 2019 net sales): This segment's revenues in the reported quarter totaled $148.7 million, reflecting growth of 4.7% from the year-ago tally. The segment's core sales grew 4% while Equalizer and Mirage buyouts added 2%, partially offset by adverse forex impacts of 1%.

Engineered Components & Systems (49.2% of first-quarter fiscal 2019 net sales): This segment's revenues in the quarter under review totaled $143.9 million, down roughly 2.1% from the year-ago tally. The segment's core sales improved 2% while both unfavorable movements in foreign currencies and divestiture of Viking had 2% adverse impact.

Margins Improve Y/Y

In the reported quarter, Actuant's cost of sales decreased 0.3% year over year to $187.5 million. It represented 64.1% of sales compared with 65.1% in the year-ago quarter. Gross margin improved 100 basis points (bps) year over year to 35.9%. Selling, administrative and engineering expenses decreased 1.7% year over year to $73.2 million. As a percentage of sales, it represented 25% versus 25.8% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $35.5 million, up 14.3% year over year. Adjusted EBITDA margin in the reported quarter was 12.1% versus 10.8% in the year-ago quarter. Adjusted operating income increased 29.3% year over year to $27.5 million while adjusted operating margin grew 200 bps to 9.4%.

Balance Sheet and Cash Flow

Exiting first-quarter fiscal 2019, Actuant's cash and cash equivalents were $203.4 million, down 18.8% from $250.5 million at the end of the las t report ed quarter. Long-term debt balance decreased 1.5% sequentially to $495.4 million.

In the quarter under review, the company used cash of $29.1 million for its operating activities, higher than 20.5 million used in the year-ago quarter. Capital spending totaled $7.7 million, down 3% year over year.

During the reported quarter, the company paid dividend amounting to $2.4 million.

Events

As disclosed, Actuant completed the divestment of upstream oil & gas business of Cortland Fibron on Dec 19, 2018. Further, it is progressing well with divestitures of Precision-Hayes International and Cortland US businesses.

Outlook

Actuant believes that emphasis on the development of products, better serving customers and enhancement of operational efficiency will help it deliver sound results in fiscal 2019. Moreover, the company's initiatives to restructure its portfolio will work in its favor.

For fiscal 2019, the company reaffirmed its adjusted earnings per share projection of $1.09-$1.20. This projection includes the impact of 12 cents per share, relating to the increase in tax rate from 10% in fiscal 2018 to 20% in fiscal 2019.

Sales projection has been revised down from $1.21-$1.24 billion to $1.15-$1.19 billion. The revision was primarily due to forex woes and divestment of the Cortland Fibron business. The new guidance reflects year-over-year growth of 3-5%.

Free cash flow will likely be $80-$85 million.

For the fiscal second quarter, adjusted earnings are anticipated to be 15-20 cents per share and sales are likely to be $268-$278 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -12.6% due to these changes.

VGM Scores

At this time, Actuant has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Actuant has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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