Actuant Reports Fourth Quarter and Full Year Fiscal 2014 Results; Provides 2015 Guidance; New Share Repurchase Program Announced

Actuant Corporation (NYSE: ATU) today announced results for its fourth quarter and fiscal year ended August 31, 2014.

Highlights

• Fourth quarter sales growth of 8% with acquisitions, net of divestitures, adding 7%, foreign currency translation of 2% and a core sales decline of 1%. Continued growth in Energy and Engineered Solutions, with difficult comparisons in Industrial.
• Diluted earnings per share from continuing operations (“EPS”) were $0.51 (excluding RV divestiture gain and offsetting restructuring expense), 11% above the prior year’s $0.46 (excluding a prior year income tax gain). See attached reconciliation of earnings.
• Repurchased three million shares of common stock for approximately $100 million in the quarter, and an additional 1.8 million shares since fiscal year end. Actuant’s Board of Directors approved a new seven million share buy-back program this week.
• Completed previously announced sale of the RV business for approximately $35 million; recognized a $13.5 million pre-tax gain ($2.8 million after tax) in the fourth quarter.
• Introduced fiscal 2015 sales and EPS guidance of $1.425-1.475 billion and $2.05-2.15, respectively.

Mark E. Goldstein, Chief Executive Officer of Actuant, commented, “Results for the fourth quarter were largely in line with our guidance. Our overall financial performance continues to reflect markets and economies around the world that are challenged to find consistent growth. During the quarter, we recognized a gain on the sale of our RV business, the last of several portfolio streamlining actions taken during the year. In addition, we accelerated into the quarter certain restructuring actions initially anticipated to occur in fiscal 2015, and therefore were not included in fourth quarter guidance. We have taken actions to improve long-term margins, yet our results continue to be impacted by unfavorable segment mix, uneven demand, and challenging production line moves. We continue to focus on building shareholder value including investing in Growth and Innovation (G+I), executing on cost reduction activities and repurchasing outstanding shares.”

Consolidated Results

Continuing Operations

Consolidated sales for the fourth quarter were $354 million, 8% higher than the $327 million in the comparable prior year quarter. Core sales declined 1% while acquisitions, net of divestitures, added 7% and foreign currency translation contributed 2% to total sales growth. Fiscal 2014 fourth quarter net earnings and EPS from continuing operations were $35.6 million, or $0.51 per share, compared to $45.1 million and $0.60 per share in the comparable prior year quarter. Fourth quarter fiscal 2014 results included a gain on the RV divestiture, as well as accelerated restructuring charges, which on an after-tax basis largely offset one another. Excluding a non-recurring, non-cash tax gain of $10.6 million, or $0.14 per diluted share, fourth quarter fiscal 2013 EPS from continuing operations was $0.46.

Sales for the year ended August 31, 2014 were $1.400 billion, 9% higher than the $1.280 billion in the prior year. Excluding the net 5% acquisition less divestiture impact, and 1% foreign currency translation benefit, year-to-date core sales increased 3%. Earnings and EPS from continuing operations for the twelve months ended August 31, 2014 were $141.5 million, or $1.95 per diluted share, compared to $147.6 million, or $1.98 per diluted share for the comparable prior year period. Excluding the previously mentioned favorable tax adjustment, fiscal 2013 EPS from continuing operations was $1.84.

Commenting on the full year results, Goldstein stated, “Our performance in fiscal 2014 was impacted by weak global economic conditions, however, we are successfully positioning the company for future scalable and profitable growth. Highlights of the year include portfolio simplification through business unit and product line divestitures, restructuring activities, G+I successes, robust capital deployment, and leadership changes. We also generated free cash flow to net earnings conversion in excess of 100% for the 14th consecutive year. This allowed us to deploy over $30 million in acquisitions and $284 million in share repurchases, yet maintain year-end net debt to EBITDA leverage of just 1.1X. In summary, despite lackluster economic conditions, Actuant’s employees strengthened the Company and I am appreciative of their customer focus and hard work.”

Discontinued Operations

The Company completed the sale of the Electrical segment on December 13, 2013, and therefore financial results for periods prior thereto are reported in the discontinued operations section of the statement of earnings. Fiscal 2014 earnings from discontinued operations also include the net gain on the divestiture.

New Seven Million Share Repurchase Authorization

The Company also announced that its Board of Directors approved a new seven million share repurchase program earlier this week. Approximately $100 million of cash was deployed on the purchase of approximately three million shares of stock in the fourth quarter. In addition, approximately $60 million was deployed on 1.8 million shares since fiscal year end, resulting in no shares remaining under the previous March 2014 seven million share authorization.

Business Divestiture

On June 13, 2014, the Company sold its RV business to Drew Industries for approximately $35 million. The business, reported within the Engineered Solutions segment, had annual revenues of approximately $30 million. Included in the fourth quarter and fiscal 2014 income statement is a $13.5 million pre-tax gain on the divestiture in operating profit, and approximately $10.7 million of income taxes netting to an after-tax gain of $2.8 million or approximately $0.04 per share.

Segment Results

Industrial Segment
(US $ in millions)

Fourth quarter fiscal 2014 Industrial segment sales were $112 million, 1% higher than the prior year. Excluding a 7% benefit from the acquisition of Hayes Industries and 1% from foreign currency translation, core sales declined 7%. Global Integrated Solutions sales were significantly lower than the prior year’s record levels, with the fourth quarter representing the most difficult comparison of the fiscal year. Quarterly demand for Enerpac’s industrial tool product line was flat with the prior year as growth in Europe and AsiaPac offset soft activity in North America and China. Demand by end market remains uneven. Despite lower sales, fourth quarter operating profit margin expanded 60 basis points year-over-year due to favorable sales mix and tight cost control.

Energy Segment
(US $ in millions)

Fiscal 2014 fourth quarter Energy segment sales increased 33% year-over-year to $123 million. Excluding the 23% benefit from the Viking acquisition and 5% from foreign currency translation, core sales increased 5% on a year-over-year basis. Cortland’s sales growth reflected continued robust demand in its oil & gas umbilical and synthetic rope product lines while Hydratight experienced higher maintenance activity, most notably in the Americas. The fourth quarter was Viking’s strongest of the year, with robust growth in the Asia Pacific region more than offsetting modestly weaker demand in the North Sea. Energy segment operating profit margins declined year-over-year due primarily to acquisition, sales and product line mix.

Engineered Solutions Segment
(US $ in millions)

(1) Fourth quarter and full year 2014 excludes the pre-tax $13.5 million gain on the sale of the RV business and includes accelerated restructuring costs of $2.6 million.

Engineered Solutions segment sales for the fiscal 2014 fourth quarter of $119 million were 3% below the prior year. Excluding the 5% headwind from the RV divestiture and 1% foreign currency translation benefit, fourth quarter core sales increased 1%. Sales benefited from higher heavy-duty truck demand in Europe and China. Agriculture sales also grew year-over-year but are moderating, in part due to new product launch comparisons that have anniversaried. Off-highway market demand, most notably in mining and defense, as well as automotive convertible top volumes, declined year-over-year. Adjusted fourth quarter operating profit margins declined year-over-year due primarily to restructuring provisions, learning curves at facilities impacted by current year production line shifts, as well as lower production levels in certain product lines.

Corporate and Income Taxes

Corporate expenses for the fourth quarter of fiscal 2014 were $8.2 million, $1.0 million lower than the comparable prior year period due to lower acquisition-related expenses, partially offset by higher employee benefit costs. The Company’s effective income tax rate for the quarter, excluding the $10.7 million tax on the RV divestiture gain, was approximately 20%, a reduction from the prior year’s adjusted rate.

Financial Position

The Company deployed $100 million of cash during the quarter to repurchase approximately three million shares of common stock. In June, Actuant received gross proceeds of approximately $35 million from the divestiture of the RV business. These items, along with the strong fourth quarter free cash flow, resulted in only a $20 million increase in net debt in the quarter to $281 million (total debt of $390 million less $109 million of cash). At August 31, 2014, the Company had a net debt to EBITDA leverage ratio of 1.1X, and nearly $600 million in revolver availability.

Outlook

Goldstein continued, “Actuant’s fiscal 2015 outlook reflects ongoing market uncertainties and uneven customer demand trends. While certain end markets are experiencing strong demand including energy, others such as off-highway, mining and defense remain challenged. We are currently expecting fiscal 2015 core sales growth of 3-5%. Assuming a modest headwind from the stronger US dollar, we expect total sales of $1.425-1.475 billion. EPS is expected to be in the range of $2.05-2.15 in fiscal 2015, which takes into account several items in addition to core growth including cost savings from prior year actions, additional restructuring initiatives, a lower outstanding share count and a higher effective income tax rate. Finally, we expect full year free cash flow to be in the range of $160-170 million. Shares outstanding are expected to average 66-67 million. As always, our outlook does not take into account any future acquisitions or share repurchases, including the newly approved seven million share authorization.

“We anticipate first quarter fiscal 2015 sales in the $335-345 million range and EPS of $0.40-0.45. The first quarter represents the toughest comparable of the year reflecting the impact of last year’s European truck pre-buy, a significantly higher effective income tax rate, and unfavorable foreign currency translation.”

Goldstein concluded, “We remain focused on driving a scalable business model, investing in our best G+I ideas, and maintaining our flexibility and discipline around capital allocation. With our strong balance sheet and cash flow, and the ability to deploy capital in both acquisitions and share repurchases that are not reflected in our guidance, we believe fiscal 2015 will be a good year for Actuant.”

Conference Call Information

An investor conference call is scheduled for 10 am CT today, October 2, 2014. Webcast information and conference call materials will be made available on the Actuant company website (www.actuant.com) prior to the start of the call.

Safe Harbor Statement

Certain of the above comments represent forward-looking statements made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Management cautions that these statements are based on current estimates of future performance and are highly dependent upon a variety of factors, which could cause actual results to differ from these estimates. Actuant’s results are also subject to general economic conditions, variation in demand from customers, the impact of geopolitical activity on the economy, continued market acceptance of the Company’s new product introductions, the successful integration of acquisitions, restructuring, operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material and labor cost increases, foreign currency fluctuations and interest rate risk. See the Company’s Form 10-K filed with the Securities and Exchange Commission for further information regarding risk factors. Actuant disclaims any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

About Actuant Corporation

Actuant Corporation is a diversified industrial company serving customers from operations in more than 30 countries. The Actuant businesses are leaders in a broad array of niche markets including branded hydraulic tools and solutions; specialized products and services for energy markets and highly engineered position and motion control systems. The Company was founded in 1910 and is headquartered in Menomonee Falls, Wisconsin. Actuant trades on the NYSE under the symbol ATU. For further information on Actuant and its businesses, visit the Company's website at www.actuant.com.

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