Actuant Management Discusses Q3 2012 Results - Earnings Call Transcript

Actuant (ATU)

Q3 2012 Earnings Call

June 20, 2012 11:00 am ET

Executives

Karen Bauer - Communications & Investor Relations Leader

Robert C. Arzbaecher - Chairman, Chief Executive Officer and President

Andrew G. Lampereur - Chief Financial Officer and Executive Vice President

Mark E. Goldstein - Chief Operating Officer and Executive Vice President

Analysts

Charles D. Brady - BMO Capital Markets U.S.

James Bank

Robert Barry - UBS Investment Bank, Research Division

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

Ann P. Duignan - JP Morgan Chase & Co, Research Division

Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division

Jamie Sullivan - RBC Capital Markets, LLC, Research Division

Michael J. Wherley - Janney Montgomery Scott LLC, Research Division

R. Scott Graham - Jefferies & Company, Inc., Research Division

James Kawai - SunTrust Robinson Humphrey, Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Actuant Corporation's Third Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, June 20, 2012. It is now my pleasure to turn the conference over to Karen Bauer, Actuant's Director of Investor Relations and Communications.

Karen Bauer

Good morning, and welcome to Actuant's Third Quarter Fiscal 2012 Earnings Conference Call. On the call with me today are Bob Arzbaecher, Actuant's Chief Executive Officer; Mark Goldstein, Chief Operating Officer; and Andy Lampereur, Chief Financial Officer. I would 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.

Consistent with prior quarters, we will utilize the one question and one follow-up rule in order to keep today's call to an hour. Thank you in advance for following this practice.

And with that, I'll turn the call over to Bob.

Robert C. Arzbaecher

Thank you, Karen, and thanks for joining us on today's call. We're very pleased with our third quarter results, which came in pretty much in line with expectations. Given the macro headlines, volatility in some of our end markets and FX headwinds, the third quarter was a great example of the performance consistency you get with a diverse portfolio like Actuant. We called for moderated growth rates, up against the third -- a strong third quarter comparison of last year, and that's precisely what happened. On the top line, we saw robust growth from the Energy segment, up 23% for the quarter. Industrial and Electrical also delivered solid core, with Mastervolt now in the calculation and contributing nicely.

Engineered Solutions, as expected, was down due to European truck and auto. EPS was at the high end of guidance, driven by margin expansion, even with the FX headwind. Finally, our free cash flow was outstanding. We completed the acquisition of Turotest for the quarter, a nice tuck-in for Maxima platform and an important addition as we try to grow Actuant in Brazil.

And finally, we completed a number of capital structure actions during the quarter to take advantage of historically low interest rates and putting Actuant in great shape to fund both organic and acquisition growth for the foreseeable future.

We'll cover all these topics in more detail in the call, as well as add some color to our 2013 guidance we provided. At this point, I'll turn it over to Andy to go through the specifics for the quarter. Andy?

Andrew G. Lampereur

Thank you, Bob, and good morning, everyone. It was an all around good quarter with strong execution evidenced in our operating results, acquisitions, stock repurchases and refinancing activities. I'll first dissect our operating results. Sales of $429 million were at the high end of our guidance range and up 4% core above last year, excluding the impact of acquisitions and foreign currency headwinds. Operating profit grew 17% year-over-year, faster than the overall 9% increase in sales, meaning we once again had operating profit margin expansion this quarter. Our net income and earnings per share were both adversely impacted by the $17 million pretax refinancing charge in the quarter related to converting our former 2% convertible bonds into stock, retiring the old 6 7/8% senior notes and canceling an interest rate swap agreement in conjunction with the refinancing.

On an after-tax basis, this was a $10.5 million charge or $0.15 a share net reduction to EPS. I'll cover the details on the refinancing later in the call. Excluding these charges, EPS was $0.60 a share, up 18% over the comparable prior year period.

Now I'll provide more color on our results starting first with the sales line. Third quarter sales in total were up 9% consisting of 4% core growth and 8% from acquisitions. The combination of which was partially muted by 3% foreign currency rate headwinds. The 4% core growth was in line with our guidance and our internal expectations and a clear moderation from last quarter's strong 8% core growth. All 3 geographic regions being the Americas, Europe and Asia-Pac showed year-over-year growth, with the Americas, not surprisingly, leading the way. Growth did moderate in Europe as the quarter progressed, and we expect this to continue in the fourth quarter. From a segment level perspective, Energy was a clear leader with 23% core growth, followed by Electrical with 10%, Industrial 5% and Engineered Solutions down 11%. I'll provide more color later on the call by segment.

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