Actuant Class A Earnings Call Nuggets: Incentive Compensation and Innovation Incentives

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

Incentive Compensation

Allison Poliniak – Wells Fargo: On the Industrial segment, obviously, margins impressive as always. When I look at ’14, I know one other thing you said that was, I guess, causing to be a little bit higher was lower incentive compensation. Should I assume that that comes back a bit more in ’14?

Andy Lampereur – EVP and CFO: Yeah, definitely Allison. I think we’ve got just a couple of million dollars built in there for ’13 and a normal year if we hit our target than what now would be closer to $40 million. This is for all of Actuant; yeah, not just Industrial. So…

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Allison Poliniak – Wells Fargo: Not Industrial, okay.

Andy Lampereur – EVP and CFO: Yeah, that’s clearly impacting each of the four segments, yeah.

Allison Poliniak – Wells Fargo: And then, if I think about restructuring – I’m sorry, the (quiet) restructuring you talked about, is that mainly Engineered Solutions that the margins might not materialize as significantly as we would expect just with that (quiet) restructuring?

Andy Lampereur – EVP and CFO: Yeah, in the quarter in particularly we probably had 150 basis points to 200 basis points impact from restructuring in ES in the quarter. Some of that will continue on into next year as well as. That’s where the majority of this is as we move some manufacturing out of high-cost areas into low-cost areas. So, that’s what’s going on. I think if you peel that out, we’re encouraged by the trend we’re starting to see in Engineered Solutions.

Innovation Incentives

Matthew McConnell – Citigroup: Just a little more insight into that 3% to 5% organic revenue growth target. Is there a measurable contribution from the growth in innovation initiatives, and maybe how much of that is coming from market growth versus your outperformance?

Bob Arzbaecher – Chairman, President and CEO: Yeah, it is measurable. Always when you’re doing growth and innovation, it’s difficult how much you want to attribute that you might have gotten before we started that initiative a couple of years ago. We’re guessing we’re about 100 basis points of growth from G&I initiatives in that ‘14 guidance. It’s probably a little more skewed towards Industrial and Engineered Solutions, but really all three of the segments are participating. If you recollect, we were saying 200 basis points to 300 basis points in total. So we’d say we’re seeing about half of the benefit that we targeted there, and I think that’s probably on schedule, maybe a little ahead of schedule of where we thought it would be.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Matthew McConnell – Citigroup: I guess just following up on that idea, you mentioned that all the segments would be positive. Would any be above that 5% organic range? I know we’ll have more insights next quarter probably and at the Analyst Meeting, but would any be above that 5% range for next year?

Mark Goldstein – COO: Stay away from the segment pieces, but I think the one (indiscernible) to look at if you were going to do it would be Engineered Solutions, where you’re coming off little – just getting back to 12 would get you above 5% — the fiscal ’12 will get you back to 5%.

Andy Lampereur – EVP and CFO: The destocking –

Matthew McConnell – Citigroup: Yeah, and destocking – I’m sorry go ahead.

Andy Lampereur – EVP and CFO: Yeah, destocking, right.

A Closer Look: Actuant Earnings Cheat Sheet>>