Earnings Analysis For Actuant Corp.

| About: Actuant Corporation (ATU)

Actuant Corp. (NYSE:ATU) reports preliminary financial results for the year ended 2012-08-31.

Actuant Corp. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Actuant Corp. 's analysis versus peers uses the following peer-set: Parker-Hannifin Corp (NYSE:PH), Rotork PLC (OTC:RTOXF), Crane Co. (NYSE:CR), BELIMO Holding AG (BEAN), Sun Hydraulics Corp. (NASDAQ:SNHY) and CKD Corp.(6407-JP). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2012-08-31 2011-08-31 2010-08-31 2009-08-31 2008-08-31
Revenues 1,605.3 1,445.3 1,160.5 1,239.8 1,663.9
Revenue Growth % 11.1 24.5 (6.4) (25.5) 14.1
Net Income 87.3 124.5 70.4 23.9 122.5
Net Income Growth % (29.9) 77.0 195.0 (80.5) 16.8
Net Margin % 5.4 8.6 6.1 1.9 7.4
ROE % 8.9 15.0 9.5 3.5 21.7
ROA % 4.3 6.8 4.4 1.5 7.7

Valuation Drivers

Actuant Corp. 's current Price/Book of 2.1 is about median in its peer group. The market expects Actuant Corp. to grow faster than the median of its chosen peers (PE of 25.8 compared to peer median of 18.6) and to improve its current ROE of 8.8% which is below its peer median of 22.4%. Thus, the market seems to expect a turnaround in Actuant Corp. 's current performance.

The company does not seem to have a viable operating strategy as is evident from low net profit margins (currently 5.4% vs. peer median of 8.8%) and poor asset turns (currently 0.8x compared to peer median of 1.2x). We classify this operating model as problematic relative to its peers. Actuant Corp. 's net margin has declined 3.2 percentage points from last year's high and is now below its five-year average net margin of 6.2.

Economic Moat

Actuant Corp. 's revenues have changed in-line with its peers (year-on-year change in revenues is 11.1%) but its earnings have lagged (annual reported earnings have changed by -29.9% compared to the peer median of -16.0%), implying that the company has less control over its costs relative to its peers. Actuant Corp. is currently converting every 1% of change in revenue into -2.7% change in annual reported earnings.

Actuant Corp. 's return on assets is less than its peer median currently (4.3% vs. peer median 10.4%). It has also had less than peer median returns on assets over the past five years (4.9% vs. peer median 8.2%). This performance suggests that the company has persistent operating challenges relative to peers.

The company's gross margin of 40.0% is around peer median suggesting that Actuant Corp. 's operations do not benefit from any differentiating pricing advantage. In addition, Actuant Corp. 's pre-tax margin is less than the peer median (7.5% compared to 12.0%) suggesting relatively high operating costs.

Growth & Investment Strategy

Actuant Corp. has grown its revenues faster than its peers (9.0% vs. 4.6% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 25.8. Overall, we classify the company's growth prospects as superior relative to its peers.

Actuant Corp. 's annualized rate of change in capital of 7.9% over the past three years is around its peer median of 7.9%. This investment has generated a less than peer median return on capital of 7.3% averaged over the same three years. The below median return implies that the company is not investing well.

Earnings Quality

Actuant Corp. reported relatively weak net income margins for the last twelve months (5.4% vs. peer median of 8.8%). This weak margin performance and relatively conservative accrual policy (5.9% vs. peer median of 3.3%) suggest the company might likely be understating its net income, possibly to the extent that there might even be some sandbagging of the reported net income numbers.

Actuant Corp. 's accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Company Profile

Actuant Corp. is a diversified industrial company. The company designs, manufactures and distributes a broad range of industrial products and systems to various end markets. It operates through four business segments: Industrial, Energy, Electrical and Engineered Solutions. The Industrial segment designs, manufactures and distributes branded hydraulic and mechanical tools to the maintenance, industrial, infrastructure and production automation markets. Its primary products include high-force hydraulic tools, highly engineered heavy lifting solutions, workholding solutions and concrete stressing products. This segment markets its products through Enerpac, Simplex, Precision Sure-Lock and Milwaukee Cylinder brand names. The Energy segment provides joint integrity products and services, as well as umbilical, rope and cable solutions to the global oil & gas, power generation and energy markets. It also provides manpower services, including machining, engineering and maintenance activities. This segment markets its products primarily through Hydratight, D.L. Ricci, Morgrip, Cortland, FibronBX, Puget Sound Rope, Biach and Selantic brands. The Electrical segment designs, manufactures and distributes broad range of electrical products to the retail DIY, wholesale, original equipment manufacturer, solar, utility, marine and other harsh environment markets. This segment provides the retail DIY market with a variety of electrical tools and consumables such as wire strippers, electrical meters, connectors, terminals, cable ties, staples and other wire management products and conduit bending equipment under the Gardner Bender, Del City and A.W. Sperry brands. The Engineered Solutions segment is a global designer and assembler of customized position and motion control systems and other industrial products to various transportation and other niche markets. This segment provides technical and highly engineered products, including actuation systems, mechanical power transmission products, engine air flow management solutions, rugged electronic instrumentation and flexible power transmission systems. Actuant Corp was founded in 1910 and is headquartered in Menomonee Falls, WI.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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