Enerpac (EPAC) Misses Third Quarter Earnings and Revenue Estimates – June 29, 2022

Enerpac Tool Group Corp. (EPAC Free Report) reported weaker than expected results for the third quarter of fiscal 2022 (ended May 31, 2022). Profits and revenue missed estimates by 44.8% and 1.8%, respectively.

The company’s adjusted earnings per share were 16 cents, lagging Zacks’ consensus estimate of 29 cents. Net income fell 42.6% from 28 cents per share in the year-ago quarter due to higher costs and expenses. Supply chain, inflation and logistics issues were spoilsports.

Income Details

In the quarter under review, the company’s revenue was $151.9 million, reflecting a 6.1% increase over the year-ago quarter figure. Revenue benefited from a good performance in the Industrial Tools & Services and Others segments.

The front row missed Zacks’ consensus estimate of $155 million.

Organic sales in the current quarter increased 10% year-over-year, driven by 12% growth in product sales. Services revenue increased 1%. Currency movements had a negative impact of 4% on revenues for the quarter.

Segment information is briefly discussed below.

Industrial Tools and Services (92.4% of net sales in the third quarter of fiscal 2022): Revenue for the reported quarter totaled $140.4 million, an increase of 5.2% over the figure for the third quarter of fiscal 2022. ‘last year. Year-over-year revenue growth was driven by the global market recovery and the impacts of pricing actions taken by the company.

Other (7.6% of net sales in the third quarter of Fiscal 2022): Segment revenue totaled $11.5 million, up 7.6% from the prior year quarter.

Margin Profile

In the current quarter, Enerpac Tool’s cost of sales increased 4.6% year over year to $79.8 million. It represented 52.5% of net sales in the quarter compared to 53.3% in the prior year quarter. Gross profit rose 7.8% to $72 million. Gross margin jumped 70 basis points to 47.4%.

Gross margin results for the quarter benefited from higher sales, partially offset by the effects of inflation and supply chain issues.

Selling, administrative and engineering expenses increased 55.8% year over year to $63.1 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $18.3 million, down 25%. Adjusted EBITDA margin was 12% versus 17.1% in the prior year quarter.

Adjusted operating income was $13.7 million in the reported quarter, reflecting a decline from $19.5 million in the prior year quarter. Adjusted operating margin was 9% versus 13.6% in the prior year quarter. Net financial expense decreased 29% to $1 million.

Balance sheet and cash flow

At the end of fiscal third quarter, Enerpac Tool’s cash and cash equivalents totaled $123.7 million, down 7.3% from $133.4 million at the end of last quarter published. Long-term debt increased 17.1% sequentially to $205 million.

During the current quarter, the company’s borrowing on the revolving credit facility was $30 million and the repayment on the same source was nil. Its net debt to adjusted EBITDA was 1.1X at the end of the third fiscal quarter compared to 0.6X at the end of the second fiscal quarter.

Enerpac Tool generated net cash from operations of $2.5 million in the third quarter of fiscal 2022. It generated net cash from operations of $11.6 million in the quarter of the previous year. Capital expenditures totaled $2.1 million, down 46.2%. Free cash inflow during the quarter was $1.4 million, compared to cash inflow of $34.5 million in the prior year quarter.

During the quarter, the company did not pay any cash dividends.

Outlook

Enerpac Tool expects healthy demand and a focus on growth to benefit fiscal 2022 (ending August 2022). Additionally, its ASCEND initiatives are likely to improve its operational excellence, production efficiency, and sales and channel coverage, in addition to helping it control operating costs. Headwinds from cost inflation, supply chain issues and logistics issues remain a concern.

For fiscal 2022, Enerpac Tool currently forecasts sales of $560-570 million, down from a previously forecast of $560-580 million. This implies an increase from the previous year’s tally of $528.7 million. Incremental adjusted EBITDA should be 35-45% (maintained).

Zacks Ranking and Stocks to Consider

Enerpac Tool currently carries a Zacks rank #3 (Hold). Some top-ranked companies from Zacks Industrial Products sectors are featured below.

IDEX Corporation (IEX Free Report) currently has a Zacks Rank #2 (Buy). IEX recorded a surprise on earnings for the last four quarters of 2.8% on average. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEX earnings estimates rose 1.9% for 2022 over the past 60 days. Its shares are down 7.5% in the past three months.

Roper Technologies, Inc. (ORP Free Report) currently has a Zacks ranking of 2. Its earnings surprise over the past four quarters was 2%, on average.

Over the past 60 days, ROP earnings estimates have risen 0.4% for 2022. The stock has fallen 18.1% over the past three months.

Ferguson plc (FERG Free Report) currently carries a Zacks Rank #2. Its earnings surprise in the last reported quarter was 13.7%.

Over the past 60 days, Ferguson’s earnings estimates have risen 10.6% for fiscal 2022 (ending July 2022). FERG shares have lost 17.7% over the past three months.

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