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Actuant (EPAC) Up 2.4% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Actuant (EPAC). Shares have added about 2.4% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Enerpac Tool Q1 Earnings Meet, Sales Lag Estimates

Enerpac Tool reported mixed results for first-quarter fiscal 2021 (ended Nov 30, 2020). Its earnings were in line with estimates, while sales lagged the same by 1.9%.

In the quarter, its adjusted earnings per share were 9 cents, meeting the Zacks Consensus Estimate. However, the bottom line declined 25% from the year-ago quarter’s 12 cents.

The company’s earnings improved from 2 cents recorded in the previous quarter.

Revenue Detail

In the reported quarter, the company’s revenues were $119.4 million, reflecting an 18.6% decline from the year-ago quarter’s figure. The top line also lagged the Zacks Consensus Estimate of $121.7 million. The performance was adversely impacted by the pandemic, weak oil & gas prices, and divestiture impact.

Notably, the company’s revenues improved 7.3% from the previous quarter.

Organic sales in the quarter were down 18% year over year due to a 25% fall in service revenues and a 16% decline in product sales. Divestitures/acquisitions (net) adversely impacted revenues by 2%, while movements in foreign currency had a positive impact of $1.5 million on the results.

New products accounted for nearly 10% of quarterly sales. Notably, the company launched three product families during the quarter.

The segmental information is briefly discussed below.

Industrial Tools & Services (93.9% of first-quarter fiscal 2021 net sales): Revenues in the quarter totaled $112.2 million, reflecting a 17.3% decline from the year-ago figure. The segment’s core sales decreased 17%, while divestitures/acquisitions (net) had an adverse impact of 2%. Foreign currency translation boosted the segment’s sales by 2%.

The year-over-year decrease was mainly due to the adverse impacts of the pandemic on demand as well as due to weak oil prices.

Geographically, the segment’s core sales decreased in low 20% in the Asia Pacific and increased in low-single digits in Europe. In the Americas, core sales were down in high-teens and in mid 30% in the Middle East on a year-over-year basis.

Other (6.1% of first-quarter fiscal 2021 net sales): Revenues in the segment totaled $7.3 million, down 34.5% from the year-ago figure.

Margin Profile

In the reported quarter, Enerpac Tool’s cost of sales decreased 17.7% year over year to $64.2 million. It represented 53.7% of the quarter’s net sales compared with 53.2% in the year-ago quarter. Gross profit declined 19.5% year over year to $55.3 million. Gross margin declined 50 basis points (bps) year over year to 46.3%. Selling, administrative and engineering expenses decreased 15.7% year over year to $43.7 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $14.6 million, down 24.9% year over year. The adjusted EBITDA margin was 12.2% compared with 13.3% in the year-ago quarter.

Adjusted operating income was $9.4 million in the quarter, reflecting a year-over-year decline of 37.2%. Adjusted operating margin in the quarter was 7.9% compared with 10.2% in the year-ago quarter. Net financing costs declined 74.5% year over year to $1.7 million.

Enerpac Tool benefited from $6 million in cost savings realized from the temporary actions undertaken by the company.

Balance Sheet and Cash Flow

Exiting first-quarter fiscal 2021, Enerpac Tool’s cash and cash equivalents totaled $158.6 million, up 4.2% from $152.2 million at the end of the last reported quarter. Long-term debt was stable sequentially at $255 million.

The company’s net debt to adjusted EBITDA was 1.9X at the end of the first quarter, marking an increase from 1.8X at the fourth-quarter end.

The company generated net cash of $8.9 million from its operating activities in the first quarter, reflecting an increase from $4.1 million used in the year-ago quarter. Capital spending totaled $1.9 million, down 40.2% year over year. During the quarter, the company refrained from repurchasing its shares, while paid out cash dividends of $2.4 million.

Outlook

Enerpac Tool is still wary about the uncertainties related to the coronavirus outbreak and, hence, refrained from providing projections for fiscal 2021 (ending Aug 31, 2021). However, the company anticipates the quarter’s results to follow the first-quarter trend.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 19.35% due to these changes.

VGM Scores

At this time, Actuant has a subpar Growth Score of D, a grade with the same score on the momentum front. 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

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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