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Enerpac Tool (EPAC) Swings to Loss in Q3, Revenues Decline Y/Y

Zacks

Performance of Enerpac Tool Group Corp. EPAC in third-quarter fiscal 2020 (ended May 31, 2020) was severely impacted by the coronavirus outbreak and volatile oil and gas prices. Its earnings and sales in the quarter missed the Zacks Consensus Estimate by 150% and 15.47%, respectively.

It is worth mentioning here that the company’s share price declined 3% yesterday, ending the trading session at $16.64.

In the quarter, the company recorded loss of 6 cents per share as against the Zacks Consensus Estimate of earnings of 12 cents per share. Also, the bottom line deteriorated from earnings of 29 cents reported in the year-ago quarter.

Top-Line Detail

The company generated revenues of $101.9 million in the fiscal third quarter, reflecting 42.8% decline from the year-ago figure. The top line also lagged the Zacks Consensus Estimate of $120.53 million. New products accounted for more than 10% of quarterly sales.

Organic sales in the quarter were down 38% year over year due to a 47% fall in service revenues and a 35% decline in product sales. Divestitures/acquisitions (net) adversely impacted revenues by 7%, while movements in foreign currencies had a positive impact of 2%.

Geographically, the company’s sales decreased in low 30% in Asia while decreased in mid 30% in Europe and North America. Also, sales in the Middle East declined in high 50% on a year-over-year basis.

The segmental information is briefly discussed below.

Industrial Tools & Services (91.2% of third-quarter fiscal 2020 net sales): Revenues at the segment totaled $92.9 million, reflecting a 44.3% decline from the year-ago figure. The segment’s core sales decreased 39% while Divestitures/acquisitions (net) had adverse impact of 7%. Forex had positive impact of 2%.

Other (8.8% of third-quarter fiscal 2020 net sales): Revenues at the segment totaled $9 million, down 20.7% from the year-ago figure.

Margin Profile

In the reported quarter, Enerpac Tool’s cost of sales decreased 37.7% year over year to $59.9 million. It represented 58.8% of the quarter’s net sales compared with 54% in the year-ago quarter. Gross margin declined 490 basis points (bps) year over year to 41.2%. Selling, administrative and engineering expenses decreased 22.8% year over year to $40.8 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $6.6 million, down 80.3% year over year. The adjusted EBITDA margin was 6.5% compared with 18.8% in the year-ago quarter.

On the other hand, adjusted operating income was just $52,000, way below $28.3 million in the year-ago quarter. Adjusted operating margin in the quarter was 0.1% compared with 15.9% in the year-ago quarter. Net financing costs declined 36.3% year over year to $4.6 million.

The company benefited from $12 million in cost savings realized from the temporary actions undertaken by the company.

Balance Sheet and Cash Flow

Exiting third-quarter fiscal 2020, Enerpac Tool’s cash and cash equivalents totaled $163.6 million, a slight improvement from $163.4 million at the end of the last reported quarter. Long-term debt was roughly stable sequentially at $286.5 million.

The company’s net debt to adjusted EBITDA was 1.8x at the third-quarter end, same as the year-ago figure.

The company generated net cash of $13 million from its operating activities in the third quarter, reflecting year-over-year decline of 75.2%. Capital spending totaled $2.3 million, down 70.9% year over year. Also, it purchased $9.7 million worth of treasury shares in the quarter.

Outlook

The company is wary about the global uncertainties related to the coronavirus outbreak. It kept its financial projections suspended for fiscal 2020 (ending Aug 31, 2020).

In second-half fiscal 2020, the company anticipates realizing savings of $20 million from the temporary cost-reduction measures taken due to the pandemic. Also, it is working on some other cost-reduction actions that are likely to have permanent impacts. In addition, the company noted that product order rates might show improvement in the quarters ahead as markets gradually reopen.

Also, the company is focused on building a solid product portfolio as well as on improving commercial effectiveness through digital marketing and e-commerce programs and other actions.

Enerpac Tool Group Corp. Price, Consensus and EPS Surprise

Enerpac Tool Group Corp. Price, Consensus and EPS Surprise

Enerpac Tool Group Corp. price-consensus-eps-surprise-chart | Enerpac Tool Group Corp. Quote

Zacks Rank & Other Stocks to Consider

With a market capitalization of $1.1 billion, the company currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the Zacks Industrial Products sector are Altra Industrial Motion Corp. AIMC, Applied Industrial Technologies, Inc. AIT and Kennametal Inc. KMT. While both Altra Industrial and Applied Industrial sport a Zacks Rank #1 (Strong Buy), Kennametal carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, positive earnings surprise for the last reported quarter was 47.73% for Altra Industrial, 2.00% for Applied Industrial and 43.75% for Kennametal.

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