Actuant Class A Earnings Call Insights: Energy Analysis and European Pre-Buy

Actuant Corp Class A (NYSE:ATU) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Energy Analysis

Allison Poliniak – Wells Fargo: I just wanted to turn to Energy, you obviously noted some weakness in the U.S., but it sounds, Mark, from your comment as we go into next year, the U.S. service side, it sounds like its improving, but the nuclear is still weak, is that the way to look at it?

Bob Arzbaecher – Chairman, President and CEO: I think that’s correct.

Mark Goldstein – COO: Yeah, it is Allison. If you remember last year we had very strong nuclear sales and we’ve been anniversarying that this year and it’s been a challenge for us and we see that continuing into the first quarter.

Allison Poliniak – Wells Fargo: Then acquisitions, you did Viking. Is there any updates in terms of the acquisition environment that’s notable in terms of any sort of easing with multiples in certain areas or are we still sort of status quo with the challenging environment there?

Andy Lampereur – EVP and CFO: Yeah. I would say that we’ve got a very full funnel of activity going on right now. Really, really in two areas; the first are the sort of the larger deals that we’re looking at that typically garner a little bit more competition, maybe an auction type situation and the other is really how we’ve built through tuck-ins where we’ve got, individual businesses that we’re talking with, succession issues and so, for those, the multiples are not as high. They’re more reasonable in a fairway, and the larger acquisitions, there is some pressure to move up on multiples, but we’re using a very – we’re managing the process in a very disciplined manner as we always have…

Bob Arzbaecher – Chairman, President and CEO: We’ve seen a few deals actually, not get completed recently, which has been a phenomena we haven’t seen over the last two or three years. So, the auction processes get pulled and usually, that’s due to missing the numbers or not being able to show a credible way to bridge to the forecast and I think what that signals to me – it’s not anywhere near all the deals or anything like that. I’m not trying to say that, but I think what it’s signaling is you’re starting to get that equilibrium between buyer and seller momentum in acquisitions and I think it’s kind of moving in the favor of the buyer, just the economic outlook is difficult for people to try to demonstrate strong growth and therefore a higher multiple.

European Pre-Buy

Ann Duignan – JPMorgan: Can you talk about – you mentioned this quarter that, yeah, you are seeing some evidence of a pre-buy in Europe, relative to – ahead of the emission standard changes. Can you talk about – what’s your expectation? How much upside in the first half and how much to give back in the second half? Can you quantify or give us a range of what you think might be going on?

Bob Arzbaecher – Chairman, President and CEO: Yeah, I think we’re thinking 10,000 to 15,000 unit pre-buy in kind of the fall this year, all the way up to Christmas obviously. That’s our first half and then a similar amount going the other way in our second half.

Ann Duignan – JPMorgan: Which markets are you talking about – are you talking medium and heavy-duty or just…?

Bob Arzbaecher – Chairman, President and CEO: Just heavy-duty, that’s where most of our capital is…

Ann Duignan – JPMorgan: So that’s on a market of 100,000?

Bob Arzbaecher – Chairman, President and CEO: Yeah, correct.

Ann Duignan – JPMorgan: I just want to make sure we’re…

Karen Bauer – Communications and IR: I think the market (fill for heavy-duty is like 225) or something in Europe, right?

Bob Arzbaecher – Chairman, President and CEO: In Europe.

Ann Duignan – JPMorgan: That’s why I’m asking whether it’s pure heavy-duty or whether it’s…?

Karen Bauer – Communications and IR: But even heavy-duty…

Ann Duignan – JPMorgan: The bigger definition is that they count in Europe. So you’re tucking under 220?

Karen Bauer – Communications and IR: Yeah. I think it’s very small…

Bob Arzbaecher – Chairman, President and CEO: It’s small. It’s relatively small…

Karen Bauer – Communications and IR: It’s pretty consistent with what you’re hearing DAF and Volvo and WABCO and other folks saying. I think we’re all kind of in the same ballpark.

Ann Duignan – JPMorgan: I’ll note, some of them are saying that it’s not a pre-buy, so just curious around that. Then on the agriculture side, you noted that that business is strong on the back of new products. Could you talk a little bit about the fundamentals in that business just beyond the new products, what are you seeing out there globally?

Bob Arzbaecher – Chairman, President and CEO: Well, I think the most recent data on the U.S. harvest looks, okay. We had some warmer weather in August, but a lot of the drought conditions that existed in the year earlier seem to have dissipated. Farm economics look quite good. Again, our side is more the implement than the actual tractor. So, we don’t track necessarily just tractors, we’re following more the implement demand. So, I think we’re expecting reasonable results growth in 2014. Anything to add guys?

Andy Lampereur – EVP and CFO: I’d say in the back half of this fiscal year, our core sales in Ag in our existing product line is probably down mid-single-digits and it does bounce around a bit, but we’re seeing the growth that we’re seeing right now is really coming from the new introductions that we’ve got, particularly the ag seeder line on that. So, we expect that to continue to benefit us for the next. There are several different OEMs that we’d be bringing up on that line.

Mark Goldstein – COO: Remember in this particular business, certainly with the Weasler acquisition, about 40% of that business is after-market as well. So, it’s not just OEM.

A Closer Look: Actuant Earnings Cheat Sheet>>