Actuant Reports Fourth Quarter and Full Year Fiscal 2017 Results; Provides Fiscal 2018 Guidance

Actuant Corporation (NYSE: ATU) today announced results for its fourth quarter and fiscal year ended August 31, 2017.

Highlights

• Consolidated sales and core sales were flat with the comparable prior year quarter as foreign currency rate changes increased sales 1% and net acquisition & divestitures were a 1% headwind. Solid core sales growth in both the Industrial and Engineered Solutions segments was offset by difficult market conditions in the Energy segment.
• GAAP diluted earnings (loss) per share (“EPS”) was $(1.65) in the fourth quarter of fiscal 2017 versus $0.29 in the comparable prior year period. Adjusted EPS was $0.19, which excludes fourth quarter fiscal 2017 restructuring charges as well as impairment and divestiture charges associated with the planned Viking SeaTech sale, compared to adjusted EPS of $0.30 in the comparable prior year period (see Consolidated Results below and the attached reconciliation of earnings).
• Strong cash flow resulting in the 17th consecutive year of free cash flow conversion in excess of 100% of adjusted net earnings.
• Signed definitive agreements to sell the Viking SeaTech business to Acteon, a global subsea services provider and acquire Mirage Machines, a $12 million revenue provider of industrial and energy maintenance tools, from Acteon.
• Introduced fiscal 2018 sales and adjusted EPS guidance in the range of $1.100-1.130 billion and $1.05-$1.15, respectively.

Randy Baker, President and CEO of Actuant, commented, “The fourth quarter came in largely as expected, with continued positive momentum within industrial tools, broad-based OEM production increases within Engineered Solutions, offset by persistent challenges within the served energy markets. The higher volumes delivered solid incremental profits within both Industrial and Engineered Solutions, however, Energy decrementals more than offset these gains. Adjusted EPS of $0.19 was in line with the previously provided guidance range. Most importantly, we delivered strong fourth quarter cash flow, extending our track record of cash conversion in excess of 100% of adjusted net earnings. Also significant was the action taken on reshaping the portfolio, reaching an agreement to divest the offshore mooring business and acquire an attractive tool tuck-in for Hydratight. In summary, while many challenges remain, I am confident in the progress we are making on our commercial, operational, and portfolio management strategies and I want to extend my appreciation to the entire Actuant organization for their hard work and accomplishments in 2017.”

Consolidated Results

Consolidated sales for the fourth quarter were $276 million, flat with the prior year’s sales level. Core sales were also flat as the benefit from foreign currency of 1% was offset by a 1% divestiture impact. Fiscal 2017 fourth quarter net loss and EPS were $(98.8) million and $(1.65), compared to earnings of $17.4 million and $0.29, respectively, in the comparable prior year quarter. Fiscal 2017’s fourth quarter included restructuring charges of $1.3 million net of tax ($0.02 per share), as well as $108.9 million in impairment and divestiture charges related to the pending sale of the Viking SeaTech business, net of tax ($1.82 per share). Fourth quarter 2016 results included restructuring charges of $2.1 million net of tax ($0.03 per share) and a $1.6 million, or $0.02 per share after-tax gain on the Sanlo product line divestiture. Excluding these items, adjusted EPS for the fourth quarter of fiscal 2017 was $0.19 compared to $0.30 in the comparable prior year period (see attached reconciliation of earnings).

Sales for the year ended August 31, 2017 were $1,096 million, 5% lower than the $1,149 million in the prior year. Excluding the 1% negative impact of foreign currency and negligible impact of net acquisitions/divestitures, fiscal 2017 core sales decreased 4%. Fiscal 2017 net loss and EPS were $(66.2) million and $(1.11), respectively. The comparable fiscal 2016 net loss was $(105.2) million or $(1.78) per share. Excluding restructuring, impairment and divestiture charges, the 2017 director and officer transition charges and one-time income tax benefit, fiscal 2017 adjusted EPS was $0.83 compared to $1.22 in the comparable prior year period (see attached reconciliation of earnings).

Segment Results

Fourth quarter fiscal 2017 Industrial segment sales were $100 million or 7% higher than the prior year. The weaker US dollar created a 2% currency benefit, resulting in core sales growth of 5%. The year-over-year improvement reflects broad based double digit industrial tool demand growth with solid results across all major geographies and end markets. Concrete tensioning products experienced modest core sales declines and heavy lifting technology activity was significantly lower year-over-year due to the lumpy nature of its project work. Fourth quarter adjusted operating profit margin of 24% improved 40 basis points from the prior year on higher tool sales volumes, but was negatively impacted by continuing inefficiencies associated with the concrete tensioning facility consolidation as well as ongoing investments in commercial and engineering activities.

Fiscal 2017 fourth quarter Energy segment sales declined 25% year-over-year to $69 million. With no net impact from either foreign currency or M&A activities, year-over-year core sales also declined 25%. Hydratight’s core sales rate of change experienced a sequential decline due to the worsening impact of maintenance cancellations, deferrals and scope reductions. The segment also experienced year-over-year declines in upstream offshore oil & gas related demand. However, the non-oil & gas portions of the segment continued to see the benefit of sales growth. Adjusted operating profit margins include significant losses from the upstream offshore oil & gas related product lines, low labor and tool utilization rates associated with the sluggish maintenance activity, and a provision for uncollectible receivables associated with previous work for a now bankrupt nuclear customer.

Fourth quarter fiscal 2017 Engineered Solutions segment sales were $107 million or 18% higher than the prior year. Excluding the 1% favorable currency and 3% Sanlo divestiture impacts, year-over-year core sales increased 20%. Fiscal 2017 sales reflect continued sequential improvement in customer production rates across nearly all served off-highway markets including agriculture and construction, as well as robust sales to China’s heavy-duty truck OEMs. Fourth quarter adjusted operating profit margin improved 470 basis points year-over-year due to higher volumes and the benefit of prior restructuring actions.

Corporate Expenses and Income Taxes

Corporate expenses for the fourth quarter of fiscal 2017 were $6.9 million, or $1.3 million higher than the comparable prior year period primarily due to higher M&A expenses, principally due to the pending Viking and Mirage transactions, and incentive compensation. Excluding the tax benefit on restructuring and impairment and divestiture charges, the effective income tax rate for the fourth quarter was approximately -10% compared to 6% for the comparable prior year period due to tax planning initiatives and the geographic mix of earnings.

Outlook

Baker continued, "Looking into fiscal 2018, we are encouraged by the progress across the organization in sales effectiveness, lean revitalization, and portfolio actions. In addition, the consolidation and simplification of roles as part of our recently announced organizational redesign will forge a stronger, more direct connection across the company and better position our teams to execute Actuant’s long term strategy.

We currently project full year fiscal 2018 sales in the range of $1.100 - 1.130 billion, reflecting a core sales increase of flat to 2%. The first half of the year we expect to see continued difficult comparisons in the energy maintenance market offset by solid growth levels across much of the remainder of the served end markets. We expect these circumstances to reverse in the back half of the fiscal year, with more difficult comparisons in Industrial and Engineered Solutions, and stabilization within Energy.

Adjusted EPS (excluding restructuring and divestiture charges) is expected to be in the range of $1.05-1.15, reflecting modestly higher sales and the benefit of the restructuring actions offset by a higher effective tax rate (estimated in the range of 5-10%) and higher incentive compensation. Given the pending transactions related to the divestiture of Viking SeaTech and acquisition of Mirage, for purposes of our 2018 guidance we have assumed these close simultaneously as of the end of the first fiscal quarter.

Full year free cash flow is expected to be in the range of $85-95 million.

First quarter guidance, which includes Viking sales and operating losses for the entire fiscal quarter, incorporates sales in the $260-270 million range on a flat to 2% core sales decline, and EPS of $0.14-0.19 (excluding restructuring and divestiture charges). The first quarter of fiscal 2018 is expected to contain the most difficult energy maintenance comparable of the year.

As always, our guidance excludes the impact of other potential future acquisitions and divestitures, as well as stock buybacks, which will be incorporated into future quarterly guidance updates as they occur.

In summary, we continue to reinvigorate organic growth and create a more efficient company by improving our execution and reducing structural costs. We believe that these actions, along with portfolio management initiatives, will best position the company to succeed throughout market cycles and improve long term shareholder value.”

Conference Call Information

An investor conference call is scheduled for 10am CT today, September 27, 2017. 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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