Enerpac Tool Group Corp (EPAC) 2006 Q1 法說會逐字稿

Welcome to Actuant Corporation's first quarter fiscal 2001 earnings conference call. Today's speakers are Bob Arzbaecher, President and Chief Executive Officer, and Andrew Lampereur, Executive Vice President and Chief Financial Officer. We are conducting a live meeting to coincide with the audio conference. If you would like to view the presentation on-line, please reference your meeting invitation for details. As a reminder, this call contains forward-looking statements that are subject to the Safe Harbor language in Actuant's press release issued today in Actuant's filings with the SEC. All participants will be in a listen-only mode and afterwards we will conduct a question and answer session. [OPERATORS INSTRUCTIONS]. As a reminder, this conference is being recorded, Wednesday, December 21, 2005. It is now my pleasure to turn the conference over to Mr. Arzbaecher.

Thank you, Operator, and good morning this holiday week. We are really pleased to discuss our first quarter with you. Before turning it over to Andy to go through the numbers in detail, I wanted to share with you some of the highlights. First, we exceeded the high end of both our sales and earnings guidance, a great start for fiscal 2006. Sales were slightly higher than the top end of our guidance at $284 million, up 42% over the prior year due to acquisitions. We had good leverage of this growth through EBITDA margins and EPS, which resulted in $0.70 per share of EPS, higher than our guidance of 62 to 67 and up 13% from the prior year. An important metric that I know you follow is core sales growth. Excluding acquisitions in currency, our core sales were flat, a marked improvement over the prior quarter, where we were down 5%. We accomplished this, despite RV and Auto, both which had a weaker quarter as expected. As we will discuss later, we expect our core sales growth to turn positive in the next three quarters, accelerating as the year goes along. With that, I'll turn it over to Andy to go through the numbers in detail.

Thanks, Bob. Good morning, everyone. I think we had a pretty good quarter. It beat our external expectations on the strength of our Industrial Tools businesses well as our DIY business. It's nice to start out the year on the right foot. As you can see on this slide, our sales increased 42% over last year to about $284 million. This is the highest quarterly sales we've ever reported at Actuant, about $90 million of the sales growth was from businesses acquired over the last year, while currency worked against us by about $6 million on the topline. Our operating profit grew 45%, a touch higher than sales growth, meaning we again had margin expansion this quarter. As you can see on this slide, our operating margins improved 30 basis points from the year ago to 13.5% and 40 basis points sequentially. Due to borrowings from last year's acquisitions as well as a number of rate increases, our financing costs have also increased year-over-year. When you factor all this in, our first quarter diluted EPS was $0.70 per share in the first quarter of fiscal 2006, a 13% improvement over last year's $0.62 number.

It's worth noting that last year's results included a $0.05 a share gain in the first quarter relating to the resolution of a spinoff contingency. Without this $2 million gain, our EPS would have grown 22% from $0.58 last year to $0.70 this year. Sales for the quarter came in above our $270 to $280 million guidance range, despite a negative 2% headwind in the form of a stronger than anticipated U.S. dollar. The upside came from the Industrial and do-it-yourself Electrical businesses. This chart is a summary of year-over-year sales growth, excluding currency in all of our businesses, whether owned for a full 12 months or not. Similar to the last two years quarters, we had some markets that had greater than 10% increases and others that had big declines. Overall, excluding currency, our year-over-year sales at all of our businesses was up 1% from last year, which is a nice sequential improvement in the first quarter in the last four that we have had positive core growth. Without the benefit of growth at acquired businesses, sales were flat, excluding currency.

Similar to the last two years, automotive convertible top and RV sales had negative year-over-year sales changes, but this was anticipated and dead on our expectations. RV and convertible top sales declined 25% and 29% from a year ago respectively compared to roughly 35% declines each last quarter. So we saw modest sequential improvement in both. On the convertible top front, two of the four big new convertible top platforms we've discussed were launched during the quarter, albeit at very low run rates. Volumes on these will increase in the second quarter as the OEMs ramp up their build schedules at the same time that the other two platforms are expected to launch. So we're on track with a quarterly sales growth trend graph that I introduced on last quarter's call and have updated here for you today.

The third and fourth quarters will show a significant year-over-year automotive sales growth, driving it to approximately 15% growth for the full fiscal year. Beyond the units, we're also growing our auto sales via increased content per vehicle, attributable to retractable hardtop actuation as well as latching systems. Bob is going to provide a little bit more color later on RV on the call, but we feel we have moved off the bottom in the first quarter when we've seen improvements sequentially for the balance of the year. This will result from a better balance of retail sales in production, improved retail sales trend and new products. Calendar year 2006 RV industry forecasts are projecting 4 to 5% decline in motor home retail sales, but we think we'll grow nonetheless as last year's comps reflect OEM production levels that were well below retail sales.

In summary, for these two markets, Automotive and RV, again, which in total comprise 15% of our total sales, we are confident the sales trends will go from being a drag or detractor to our core growth to positive in the balance of the year. Now, I deliberately wanted to address RV and Auto first and then move on. We feel most investors have misunderstood the fact that the other 85% of Actuant has been doing very well on the core growth front. Excluding these two markets, our year-over-year sales growth in all of our businesses, including both added in the last year, increased 7% in the first quarter, excluding currency. This compares to a similar 6% growth in the fourth quarter for the same businesses, so things are strong overall outside of these two markets. Leading the pack were Industrial Tools and do-it-yourself Electrical, especially in North America.

Our Industrial Tools businesses include Enerpac and Hydratight, which had strong quarters and generated double-digit growth similar to last year. The importance of this is that these industrial businesses generate better margins than average for Actuant and can make up for shortfalls in Automotive and convertible top. Enerpac's growth has been driven by a healthy economy, new products such as the Z-class pumps and market share gains. As mentioned last quarter, Enerpac started the first quarter at a much stronger pace than what we had anticipated and contemplated in our plan and that did not change throughout the quarter. Turning to Hydratight, which is a new name of our Bolting business that combines Hydratight Sweeney and Hedley Purvis businesses, sales growth remains strong on account of a healthy oil and gas demand. Sequentially, we are expecting noticeably lower sales and earnings from this business in our second quarter due to the normal seasonal trend in the bolting business. As will be addressed later, this is one major factor in our guidance for the second quarter.

In total, our bolting business is a 90 to $100 million platform that closely ties to trends in the oil and gas markets. While admittedly having cyclical tendencies long-term, oil and gas we believe over the next three to five years is going to be strong, and we plan to increase our market share in that market. One of the other markets that was particularly strong beyond the Industrial Tools was North American Do-it-yourself. GB had an excellent quarter from a sales and earnings standpoint. Part of it was driven by the success of the recent electric isle reset at the Lowe's chain. New products and promotions and a host of other accounts, including the Home Depot were also important contributors to growth. The circuit alert wire-stripper, pictured here on the left, is a good example. It is already GB's most successful new product introduced ever the-- over the last five years. Our European Electrical businesses were also a bit of a positive surprise on the sales line as they generated positive core growth for the first time in a year.

However, the earnings there were below our expectations and need some work, and Bob will address that later on this call. Similar to last quarter when you step back and look at our sales growth by segment, excluding currency, you see two very distinct pictures. Our Tools & Supplies segment grew well, 9% year-over-year on a core business driven by bolting, Enerpac, and do-it-yourself electrical. Meanwhile, our Engineers solutions segment sales declined 11%, driven by the declines we discussed in auto and automotive and RV. Excluding these two markets, sales were up for Engineered Solutions. This performance gap between the two segments will definitely narrow as our year progresses.

In summary, we saw improvement on a number of fronts during the quarter. Industrial Tools and do-it-yourself electrical were strong while RV and Automotive trends improved sequentially. Going into the quarter, we expected core sales to be down 1 to 4% and we ended up flat to slightly positive. As I'll cover in a minute, the sales upside took place in some of the more profitable businesses, which helped margins enjoy the earnings above our first quarter guidance range. Consistent with our guidance for the full year on last quarter's call, we expect positive second quarter organic growth on account of convertible top launches, and we expect our overall organic growth in the back half of fiscal '06 to accelerate.

Now, let's talk about our margins. Our operating profit margins expanded 30 basis points year-over-year to 13.5 % and 40 basis points sequentially from the fourth quarter. Not surprisingly, the expansion took place in Tools & Supplies, due to the favorable sales mix I discussed earlier. We have-- expect the trend of improving margins to continue throughout the year, despite the continued cost inflation in the areas of freight, copper, and plastic resins. The expansion will result from favorable sales mix, absorption and volume, acquisition synergies, increased low cross-country sourcing and lower product buy-back expense in the retail and electrical businesses. Our consolidated EBITDA margin declined 40 basis points on the surface year-over-year because of the $2 million gain last year. If we exclude this non-operating item, our fiscal '06 EBITDA margins in the first quarter were up 60 basis points over last year. This is right in the middle of our 40 to 80 basis point EBITDA margin point expansion goal we discussed last quarter.

Before I hand it over to Bob I want to quick provide an update on cash flow. The long and short is we're pretty happy with cash flow for the quarter. It certainly was not as robust as the last half of fiscal '05, but that, again, is attributable to seasonality. We saw some pretty healthy increases in working capital in our European DIY business as well as the Bolting businesses, and these will reverse around in the back half of the year. Our net debt declined $14 million to $418 million. We still are on track for the $100 million of free cash flow or roughly $3.15 per share that we forecasted for the full fiscal year. This cash will be used to reduce borrowings and to fund tuck-in acquisitions. Our debt leverage and borrowing availability are both in great shape and provide plenty of room to fund our growth initiatives going forward. Bob I'll turn it back to you.

Thanks, Andy. I'd like to add a little more color to three markets that Andy discussed, namely, Automotive, RV, and Europe Electrical. First in Automotive. We knew it was going to be a tough quarter against a very high comparable last year, and the quarter came together about as we expected. For us, the focus has been on the four major new models that were coming in 2006, namely, the Volkswagen, the Pontiac G6, Volvo 370 and the Mitsubishi Eclipse. Two of the four programs launched in November at low startup rates that will increase as the year moves along and the other two are scheduled to start in the third quarter. We are still comfortable with the 2006 sales guidance estimate of 15% growth, essentially all of which will come in the third and fourth quarter. Importantly, we are also comfortable with the Automotive margins and that they're on track to meet our earnings guidance in that important business.

More important to us than the numbers is what these launches will mean in terms of bringing retractable hardtop cars into the U.S. marketplace. While we have retractable hardtops in the U.S. market now, they're limited to the luxury and speciality cars. 2006 will represent the first time that these cars come into the mainstream U.S. car market. We think this is going add new excitement to convertible tops and bodes well for additional models in the future. The next business I'd like to update you on is the RV market. We're fresh off the national RV show in Louisville three weeks ago and have some recent sound bites on the RV market in general and our business specifically. The general feedback from the major OEMs was that it was a good show with dealer order-taking at a fairly reasonable pace.

Most of the OEMs stated publicly or privately to us that the motor home inventory both at the wholesale and retail level was at acceptable levels and that the production would be balanced with retail demand in 2006. This won't translate into a significant increased production levels for a couple more months, as December and January are typically seasonably weaker months in the RV market. For our own business, we are pleased with customers' responses to our new products that we recently introduced. Items of particular note are the full-wall flat-out system of Fleetwood, pictured here, which was displayed on three Fleetwood model - - motor homes at the RV show. Other new products include the air-over hydraulic leveling system, at both Monaco and Fleetwood. Our new light weight leveling system for class C motor homes and our new turbo shield retractable air product which improves gas mileage and handling of RVs. I know it's been a tough four quarters for investors on the RV business, but we truly believe the first quarter will be the Vortex in terms of improving performance and that you will see improved results throughout the rest of 2006.

The next business I'd like to highlight for you is our Gardner Bender business, which won a number of awards announced over the last few weeks. The most recently, the most significant of which is we were named vendor of the year at Lowes for the rough electrical aisle. This was a major achievement for Gardner Bender organization, and with the result of unique, a combination of unique merchandising, new product offerings, and a successful reset of the electrical aisle over the summer. As Andy discussed with you earlier, the same-store sales from this new set are doing well and we attribute a lot of the improved success due to the shopability of the aisle. With all these positive business developments, I would be remiss if I did not balance my comments with one of our challenges, European Electrical. Despite the costs we took out of this business over the last three years, the profit margins being generated by our Comp [Drescoe] business are below our expectation. There's a lot of reasons for this, the lack of consumer confidence in Germany, partly due to elections and social reforms that are going on, has lead to same-store sales at most of the home centers being in negative territory.

Overcapacity of home centers similar to what we experienced 10 years ago in the U.S. has also contributed. And lastly, we have too much fixed costs and capacity in our own facilities. Given these factors, we need to reduce our product costs and overhead. We're exploring a number of different alternatives to reduce costs, to simplify the business and become more profitable. Options include outsourcing some manufacturing to other third parties, shifting more of our labor to lower-cost facilities within the Actuant family in Tunisia and Eastern Europe, sourcing more products complete from low-cost countries like China, dropping low-profit products and SKUs and centralizing support functions between Germany and Holland. We have new leaders in both the Comp and [Drescoe] business over the last six months and they are exploring these alternatives to increase profitability. The actions we are discussing are not just at comp, but at the combined Comp and Drescoe businesses. As we narrow these down alternatives and have a better plan of attack, we will be in better position to communicate the timing and financial impact, namely, the cost of the downsizing and what our expected payback is.

Now, moving to acquisitions, our acquisition activity continues to percolate along, and as you saw last week, we announced a small electrical acquisition which will be part of the Actuant Recreation Group, used to be called the Speciality Electrical Group. This was an acquisition of BEP Marine, a New Zealand-based marketer of power panels, battery switches, and related products for the Marine industry. BEP is a natural extension of the Marine Co and anchor product line and now we have a more complete range of electrical products from dock through the boat. Working with a bigger group, we believe we'll be able to accelerate BEP's product acceptance in the U.S., both in the OEM and after market level. BEP has some interesting new technologies associated with Electrical Marine bus systems, and we hope this becomes an exciting alternative for a multiple wiring for the boat OEMs. At $10 million revenue, BEP is not a large deal, but it is clearly a logical tack-on acquisition that builds out our existing platform and will be accretive to Actuant's earnings.

In addition to BEP, there are a number of other acquisition ideas in our funnel. All of these are tuck-in acquisitions that fit one of our base platforms of Industrial Tools, Electrical Tools, or Actuation Systems. We remain optimistic that some of these will close in the not too distant future and we still have the chance of having meaningful impact to Actuant during 2006. Now it's time to update you on our outlook for the rest of the year in terms of guidance. We are maintaining our prior sales and earnings guidance for the year. This means that sales of 1.15 million to 1.175 billion, excuse me, and earnings of $2.75 to $3. A few comments about this guidance: The Euro/dollar exchange rate has been below or at the lower end of our 1.2 to 1.25FX function going into the year. Each point of this is worth about $3 million in annual sales. While strategic, the BEP deal is small about $10 million and will add $7 million to 2006 and at a low double-digit EBITDA margin is worth about $1 million of EBITDA, so it doesn't materially impact our outlook. LIBOR interest rates have increased 115 basis points since we provided our initial guidance and probably haven't seen the top yet. With over $150 million of our floating rate debt, this does impact our interest expense and earnings guidance.

We continue to expect to have strong results out of Industrial Tools and U.S. Electrical. In aggregate, these businesses ran higher than 10% growth year-over-year in the first quarter, and while we expect this growth to moderate as the year progresses, we remain encouraged by the strength in these serve markets. And as I've already discussed, both Auto and RV should have strong growth in the back half of the year. Another item that we have in our guidance is that we're still projecting a full-year tax rate of between 32 and 33%, and lastly, no change in our guidance on cash flow. We are projecting a full-year free cash flow of around $100 million, as Andy talked about early or $3.15 per diluted share. As is usual with Actuant, this guidance does not have any additional acquisitions in it, and as we will announce them, we'll address that into our guidance as the deals close.

Additionally, it does not have the costs or benefits associated with the Europe restructuring that I discussed earlier. Moving to the second quarter specifically, our guidance in the second quarter is for sales of 270 to $275 million and EPS of 53 - - $0.58 to $0.63 per share, this is obviously lower than the $0.70 we reported today in the first quarter, but you have to remember the seasonality in Actuant. The second quarter is always our lowest quarter of the year due to the holidays and a short work month in February. In addition, the Bolting businesses have a healthy seasonality in the second quarter, as Andy mentioned earlier, due to the lower service and rental revenues in the winter months. This adds to Actuant's seasonal trend. The EPS guidance equates to 12 to 21% increase in year-over-year EPS. And as we've consistently advised, fiscal 2006 will be back-end loaded, more year-over-year growth in the back half of the year than the first half. Operator, I'd like to now turn it over to you for the participants' questions.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question comes from the line of Deane Dray, Goldman Sachs. Please proceed with the question.

Thank you. Good morning, Bob and Andy.

Good morning.

Andy, can you give us an update on where we stand in pricing versus raw material costs, what it looked like in the quarter and what the assumptions are for the balance of the year?

Sure, Deane. I'll start out with the latter first. Our assumptions for the year were pretty similar to what we saw last year, which was, we expect roughly a $1 million to a $1.5 million of margin loss as a result of price increases. That would be costs that we have accepted-- increases we've accepted from our vendors net of what we are able to pass along to our customers. So roughly a $ 1 million to a $1.5 million for the year, in our $5 million range. That's in line with last year. What we saw in the first quarter was definitely within that guidance, probably closer to a $1 million for the quarter. Where we saw it and what-- where we're increasingly seeing it is in freight, given what the fuel prices have done, any kind of petroleum products, resins and our cable ties and wire connectors as an example, and lastly, copper. Copper pricing has increased threefold over the last four years and doesn't seem to have reached a peak yet. So that's where we're feeling it right now. Going the other way, we're starting to see some signs of a steal backing off as well, so with the exception of electrical steel which has been a challenge, but that's pretty much what we're seeing.

How about your ability on the pricing side? Have you reached a point where your customers across your business lines might be resisting price increases or is there still room to go?

Well, it varies business to business and customer to customer. I think we take a fairly aggressive view that we're in the middle of the food chain, and if we're getting raw material from our supplier base, we need to be able to pass that along to the end users, and you know, certain businesses it's harder to do that; other businesses you have more appetite to do that. When you balance the whole thing, it comes into Andy's guidance of kind of you have a 1 million to a million and a quarter per quarter, $5 million for the year, and we've been successful offsetting that with other productivity increases.

And with European electrical, can you foresee a charge?

Yes, I probably could, Deane. The reality is, GAAP is very specific on when you report and account for restructuring, downsizing-type items, and we'll follow that. Likely, that's going mean, you know, some kind of restructuring charge. I don't think we're going call it that; I think we're just going call out the effect of it so you can decide what you want to do with it in terms of your modeling.

Sounds good. Thank you.

Our next question comes from the line of Wendy Caplan, Wachovia Securities. Please proceed with the question.

Thank you. Good morning.

Good morning, Wendy.

Your gross margin this quarter was 35%, if I'm calculating correctly. That's the best in more than three years. Can you address that, Andy, in terms of what drove it and whether it's sustainable throughout the year?

Sure, Wendy. Yes, you are absolutely correct. That was one of the good stories during the quarter. Mix, as I mentioned, definitely helped us out. Our Industrial Tools business have higher margins, and that drove a lot of it. Going right along with that, you might have noticed that our SAE expenses or percentage went up as well. So that was kind of the off-setting piece, and what that points to is mix of some of the acquisitions that came in as well. In general, the acquisitions that were added in the last year, that $90 million of sales that I referenced earlier on definitely came in at a higher gross profit margin, but it also came in with higher SAE costs as well. And in terms of what it means for the balance of the year, I don't expect certainly margins to be that high in the second quarter. They will come off, but if you listen to our guidance, we're saying that margins will probably expand as the year goes along, especially when you get into the third and the fourth quarter. We were up against some purchase accounting write-offs related to inventory write-ups for the acquisitions last year in the second half as well as the buybacks that we had at Lowes and the [Praxis] stores, so margin expansion the second half will probably improve from what we saw in the first quarter.

Thanks. And you talked about the working capital a bit. I notice that receivables were up, but so were payables. Can you address those specifically, please? And what the numbers would have been, excluding some of these acquisitions?

Sure. Our receivables was, I call it the culprit. I mean, it goes parcel with obviously the sales increase here, but our receivables were up to $20 million, if you pull currency out of the equation, you can pretty much pinpoint that to our European Electrical businesses, and any of the businesses that showed good sales growth in the first quarter. So Bolting had a pretty nice increase in receivables as did the Enerpac business. The European Electrical as I mentioned always has a build in the first quarter. That will come back more in the third and fourth quarter. I think you're going see some of the Bolting increase come back in the second quarter. But you would have seen-- if you would have pulled out the acquisitions we did, you would still have seen an increase in receivables and working capital.

As you know, Wendy, all of our bonuses are on this CMM, so the balance sheet is coming into that calculation. It gets a lot of attention monthly around here as part of our monthly operations meetings, and we normally see the first quarter to be one of the tougher quarters in terms of those terms. Some of that is due to just big year-end pushes that people have because their bonuses are tied to it, in the August quarter, and then it comes back and as we work through the year. Some of it's just due to the fact that you've got the November, Thanksgiving kind of period, and a lot of times we'll get a couple of things trapped in receivables as you get to the end of that quarter. We were actually pretty pleased with the $10 million. It fit about where we did I think last year in the first quarter we were almost flat with cash flow. So this is a typical trend for us.

Okay. And finally, the question I should have asked first, how's Enerpac doing?

Enerpac's great. I mean, it had another strong quarter. I attribute a lot of that to the fact that it's somewhat of a late cycle recovery business and has continued to do well. We look across the geographies, it seems to be doing well everywhere, not just in the U.S. but Europe is doing well, China is doing well. A little softer in Southeast Asia, but I think that's timing of things. We're starting to get some of the revenue associated with that [Nam-Tung] project in China, that retractable roof, that's the biggest contract Enerpac's ever won, so that will filter through as you go through 2006 and actually into a-- a little into 2007, so everything's good at Enerpac, as good as we could have expected.

Thanks.

Our next question comes from the line of Curt Woodworth, JP Morgan. Please proceed with the question.

Hi, good morning, Bob and Andy.

Good morning!

I guess I have kind of a follow-up to the Enerpac question. I mean, it seems to me that you have pretty good visibility in a majority of your end markets right now with RV getting back to normal and obviously the product launches on the convertible auto and some of the reset benefits at Lowes. I know Enerpac has been doing very well, but it seems like it also is probably one of the more cyclical parts of your business. Is there any comfort you can give to us regarding kind of sustaining that growth going out, looking out maybe the next one to two years?

Well, let me handle that a couple of different ways. The first is, while we do have good visibility in say Auto and RV, we have miserable visibility in Enerpac. It's a business that you get an order on a Wednesday and you ship on a Friday or a Monday, and--

Right.

-- it's not conducive to a long-term cycle.

Mm hmm.

Where we do get comfort and where you should get comfort is it's the most global business we have, so it's very diverse end-user markets. Granger being the largest customer here, but really only representing 2% or so of Enerpac's total sales. So you know, you just have a lot of diversity across end user markets, and that's what gives me comfort. I have always said that Enerpac's one of our slower growth businesses. It's more of a GDP, maybe even a GDP-minus type business, clearly doing better than that right now. Market share gains, new products, and kind of the late-cycle recovery that I talked about earlier. So can I give you a lot of guidance out there? No, but what I will tell you about Enerpac is the trends, because it's so diversified, you know, it doesn't seem to go from double-digit growth to zero overnight; it takes a little bit of time. I've equated it sometimes to kind of an aircraft carrier out in the ocean; when it turns, you get some kind of sight and understanding of what's happening. We really haven't seen that yet.

Right, okay. Thanks. And one final question on Electrical and the DIY. Do you have any ability to sort of segment the improvement in this business compared to underlying demand trends versus the reset benefits? And how much longer do you get the reset benefits and when do you sort of get back to more of the steady state real demand type trend?

All right, Andy, why don't I start and you can come in if I messed up anywhere? You know, we're probably going receive the core sales growth benefit through the second quarter. In the third quarter, we started doing resets last year, and in the fourth quarter where it happened in earnest. So I think you're going see above-average growth for the second quarter, probably some of the third and then it will windle down and you'll have year-over-year improvement. Now, the wall itself at Lowes is doing tremendous, much higher than the same-store sales that you're seeing reported at a Lowes or a Depot, and that's really a good sign. That's what helps you win vendor of the year is when you can demonstrate that you're helping them sell more product. It improves their sales, and that's really what people are after.

The last thing to mention would be some of the new product things that we talked about. That circuit alert tool that some of you guys have seen me carry around, the one that chirps at you if you're talking-- if you put it near a live wire, has really been running off the shelves at both, at really the whole retail channel and the professional channel, and we're really excited about that. We have a number of new tools that we're going add to that one that do the same thing, that an electrician would typically carry, and you know, a lot of that technology for us is patented, and in terms of the ability to integrate that stuff. So we're very excited about that, and DIY had kind of a miserable year in '05, and I think we've really got it cooking right now.

Mm hmm.

The other thing I would add to that, Curt, is when you look at-- I've got a list in front of me, the top 10 retail accounts for GB. This growth is way beyond just Lowes. I mean, it is--

That is correct.

We are seeing double-digit growth in half of the top 10 accounts, and I think there's one account that I'm looking at that is negative, and it's a very small negative, so this is widespread growth. It goes beyond just the Lowes.

But it is up against an easier comparable. The comparables get tougher later in the year, so. But great start for DIY Electrical in the U.S.

Great, thank you and congratulations on a good quarter.

Thanks, Curt! .

Our next question is from the line of Scott Graham, Bear Stearns. Please proceed with the question.

Hey, good morning, you guys. I just had one question, and I apologize if this was covered, since I had to jump on the line late. Can you give us an idea of what pricing was as perhaps compared to raw materials in the quarter?

We did kind of cover that with Deane. The reality is, we don't have, because we're so diversified, we don't have specific visibility of units versus core. We would probably guess that it's a half a percent.

And in terms--

In terms of pricing.

And in terms of dollars, what we had said, a $ 1million, about a $ 1million of impact, of cost increases that we took, we accepted from our vendors in excess of what we were able to pass along to our customers. And that was pretty much in line with what we expected for the quarter. That was built into our guidance, and that level or slightly more is built into the guidance for the full year, each quarter.

Excellent. Thank you.

Our next question comes from the line of Steven Fisher for UBS. Please proceed with the question.

Good morning.

Good morning.

Bob just a follow-up on Enerpac again. You talked about recent strength in the quarter from healthy economy, new products and market share gains. Can you just talk a little bit about the relative importance of each of those, since you talked about kind of the slowing economy being an impact maybe going forward? And then who do you think that the share gains were coming from?

Okay. Hey, I'm glad to have another Enerpac question! I usually get Automotive and RV at this point, so happy to talk about that. I would say, the answer to your question is, again, very diverse results. I think we are seeing good results in the Integrated Solutions piece of Enerpac. That's the big project-type things, [Nan-Tung] an example of that, the One Brian Park building is an example of that, the [Neil Viaduct], which we did a couple years back is an example of that. Those products, which is a computerized controlled lifting system up to like 60 separate points, is a nice chunk of business. It's a small part of the Enerpac equation, but it's been doing pretty well.

The second thing is, is what Andy referred to as the [Z-four- Z-U-class] pump line. This is a new pump line that we started introducing last year, and there's a number of versions. There's an air version, there's an electric version, there's a gas version, and we've been introducing those pumps into the market kind of family by family. They had a great year kind of starting in the middle year last year and have continued going forward. I would attribute those. As for where the share increase is coming, hard for us to tell. We don't get a huge amount of visibility in that, internationally. As you know, the group of people that we compete with, the largest competitor is a subsidiary of SBX called Power Team. They've pretty much North American based. Outside of there, we have gotten more market share and good sales growth in China. That's probably coming from local competition. We can't even see. In Europe, again, doing well and there's a host of European components suppliers. There's nobody who really provides the whole system.

I think one other comment. If you look over the last couple years, Enerpac's done a great job of increasing its still rates and its a great job of increasing its still rates and its available to ship type inventory. When you've got a project that's going on someplace, you need something quickly, the cost of a slider or the-- cylinder or cost of putting something else is small relative to the cost. Our rates have gone up, and I think that ties in as well with the market share. People will definitely pay the premium to have Enerpac product out there if it's available.

The other area that's probably worth mentioning when you talk about Enerpac is quite a bit of our acquisition funnels fits into Industrial Tools. Some of that is Enerpac, some of that is Bolting, but that-- and I think I've told you guys kind of on a consistent basis, that leveraging that Enerpac brand name into additional markets, maybe some non-hydraulic, but having additional products under the Enerpac brand name is a core strategy we have with the business, and I think you should expect to see us continue to push that theme and try to find acquisitions that fit that definition.

Just to expand on that. During the quarter, our revenues in torque wrenches in China-- these are revenues included in Enerpac, not in the Bolting business, but are in Enerpac-- their revenues are up way double digits, healthy double digits, 20, 30% over a year ago because they've got more access to product out there. So it ties in with what Bob just talked about with the acquisition strategy, and I would expect going forward we're going to have more cross wins, where we're picking up business on the Enerpac side because of our strength in oil and gas as well, so that's something to watch unfold.

Great.

And lastly, and then I'll get onto the last piece of that, would be that Enerpac, we did some analysis of some of the sales that were coming from the southern area states where we're hit by Katrina and Rita and Wilma, and we have seen substantial growth in those geographies in terms of product being used by Enerpac, and that was a big contributor that probably was a one-time pop, but nevertheless, is still going on right now.

Got it. You talked about a number of the large projects that are underway, the stadium in China, the Bryant Park-- are you hearing about-- seems to be a theme of growing non-residential construction spending into 2006. Are you hearing about other new projects that are coming across your desk that might be in the works?

Yes, lots of them, lots of them. And some of them are very unique. I mean, that's the thing about Enerpac. One is actually trying to enclose [Trunoble], the nuclear place. These are just crazy projects where you're moving very high loads and trying to do that, so yes, we have a fistful of those. We have a management team that tracks those on a global basis. We have a center of excellence in Spain that provides a lot of technology there. We have sales guys on the ground in China, Southeast Asia, U.S., and Europe that solely work on these big, large projects. So they're not calling on distributors; they're calling on big construction companies.

Great. Thank you.

[OPERATOR INSTRUCTIONS]. Next question comes from the line of Wendy Caplan, Wachovia Securities. Please proceed with the question.

Go ahead, Wendy.

A few more. On one of your slides where you have the Tools & Supplies segment and the quarterly declines and increases, you have all units in Tools & Supplies up 9% in terms of year-over-year sales growth, and units owned more than 12 months, 11%. Does that mean that-- I guess that means that the acquisitions have lower growth rates. Is that something you expect to continue or would we expect that the growth rates would match the existing companies?

Well, it's only a 2% Delta, so I don't think it's meaning-- it's that meaningful of something to comment on. I guess I look at it in terms of the businesses we bought. Sperry, quite a bit of that's starting to get integrated into our DIY channel, things like Lowes, et cetera. You got Bolting, which will probably be ahead of Enerpac for some quarters. I mean, I think on an annual basis, if you kind of annualized it, I think Bolting will be a higher growth market that falls in there. BEP probably will do pretty good going forward. So I don't read that much into that, Wendy. It's a good question, but I don't, I don't think I'm attributing a whole lot of difference to that.

It's just the average. Enerpac and GB were with the lion's share of our Tools & Supplies preacquisitions and they were both up over 10%, so that's what drove it.

As you remember, we created this difference to really talk about KCI. As you lap KCI, those two numbers are really going to merge into one, because there's just not-- you're not going see a deal that size unless we do one, but you're not going see a deal have that much impact. So the differences there are going get razor-thin as you start lapping KCI next quarter.

Okay, and finally, I hate to ask a comp question, but I will. Some of the alternatives that you talked about are alternatives that you've been talking about for a while. Can you give us some sense of what's changed there, other than the market itself, what you see happening and when we should expect some profits out of that business?

Well, we're getting profits today, it's just not to a level that we're that satisfied with. The reality is, any restructuring or downsizing you do in Germany, you have to work with workers counselors, et cetera, it's a longer tail. So the fact that we're talking about it and still talking about it and yet there hasn't been a financial impact yet, should not be that unusual to you. It has been a continuous process. I mean, we've been reducing SKUs, we've alone looking at some of those things longer than others. If you respect, we closed-- if you recollect, we closed some warehouses to lower the German fixed costs we talked about. We've continued to move products to Tunisia, which is a little lower-cost place to do the assembly that we were doing previously in Germany. We have a more aggressive plan to move some of the product to be sourced in China complete, rather than manufactured in Germany. So some of these things have been going on, but the rubber hits the road really when you start talking to workers counselors and developing-- councils and developing a plan. It's a formalized process that we're not complete on, so that's why we talk about it the way we have.

Is that going be a fiscal year '06 event for us in terms of hearing what the plans are? A more complete kind of picture?

Likely, Wendy, likely it will be.

Okay, thanks very much.

Our next question comes from the line of Dana Walker,[Calamar Investments] Please proceed with your question.

Good morning, Dana! Hey, a real shareholder.

There are a few of us out here. (laughter). You brought several operating entities together to create your Bolting business. Can you talk about how well they've knitted and to the degree to which you're leveraging the base of all to be better than the sum of three or some of-- sum of several?

Yes. You know, I would start with a summary comment that I have been the integration of the Bolting has exceeded our expectations going in. We expected it to be harder than it is. Let me hit a couple of the examples that we have done that we can go through. We've made progress in putting the two businesses together under a single management team being led by [Brian Cobalinski]. We've standardized on the Hydratight brand name. So we've knocked off the Sweeney and the Hedley Purvis and standardized on Hydratight. We've done a bunch of training both ways, both in training Hydratight people on Enerpac, but also training Enerpac people on Hydratight. Andy gave the example of torque wrench sales in China. That was a direct example of that training. We have combined facilities in Texas and the Houston area. They both Hydratight and Hedley had facilities we combined those two. We're doing the same up in Aberdeen, that services the North Sea. We have moved the heavylift product, which was a subsidiary product within Hydratight Sweeney organization over to Enerpac. That's the same, basically doing the same large construction projects like the one, Bryant Park, that I talked about.

All that has happened in the first six months, and I'm very pleased with the performance that we're going. The next phase of the cost reductions starts, you know, takes a little longer to do, but is meaty. That's integrating the business systems, the purchasing-- so you're starting to purchase from single thing-- standardizing the product line, which takes a little longer. We've definitely started that process, but it takes a little bit longer, and increasing the sales force in some of the remote parts of the world. Both organizations were challenged to do that to be able to add service in Kazakhstan and places like that, and starting to do some of those things, investing in the future, so, off to a great start.

The oil and gas tool business has a history of-- I can hear too much echo here-- of very cyclical pricing, where when times are good, prices tend to rise a fair amount and the converse tends to happen. To what degree does that define your business?

We spent-- I could only comment, since we've only owned the business for eight or nine months, I can only comment on what I saw in due diligence by looking back at the prior year, the prior cycles, and we did not see our specific business, the pricing change, based on the nature of the business. I think what happens is if the price of oil returned to $20 a barrel, you get a lot of people who would not do maintenance on certain pipelines, things that assets that have less efficiency or are pumping less oil would probably be just moth balls or a bandit. What's happening is with $60 oil, you know, everything that is a well anywhere is trying to be restarted, reused, and that plays into our Bolting. to be restarted, reused, and that plays into our Bolting. The other reality is a big chunk of our sales of the Hydratight sales, is very technical product. So it would be sub-sea, maybe 1,000 feet where you're doing a remote Bolting with an unmanned bolting application. Those things are required to be done if you're going have an offshore rig, and those kind of sales I think are pretty insulated from pricing competition. There's just not a lot of people who can do that stuff.

I was more thinking that the people that tend to rent tools, maybe not necessarily your tools, but certainly platforms, drilling supplies, they tend to take advantage of price when demand rises and supply of course doesn't rise in sync with demand. Doesn't sound like your business is quite defined that way.

Yes, my guess is what you're describing in the rental, the actual rental tool might play into that, I just don't have enough visibility in terms of how long I've owned it to know that, and we did not see that in due diligence. We've seen a fairly consistent pricing margin issue. The sales volume goes up or down, but doesn't affect the pricing that much, the profitability.

A final question, which would hope to capture KCI and a couple of the other small deals. With you comment on the profit performance of acquisitions completed over the last 15 months versus your original expectations?

I'm going let Andy start that one and then I'll chip in behind him.

KCI certainly was the biggest one. That's where I think the attention is very much dead on what we had hoped for, even slightly positive. I would tell you the smaller deals, the others, the two smaller deals that were not Bolting related, slightly positive, especially the Latching business. Bolting has exceeded our expectations. Going in, we didn't forecast our $60 oil, and clearly I think that's what helps us out so well. our expectations. Going in, we didn't forecast our $60 oil, and clearly I think that's what helps us out so well. I think we're making (indiscernible) the sun is shining on.

If I look at take KCI and say there's six subsidiaries there, plus we did another four or five deals, I can only think of two that have lower margins than the day we started. Okay? And both of those are due to the raw material price increases that we talked about. So you know, the other group have all outdistanced the performance, and when you look at the bigger pieces, the speciality electrical, the Hydratight, they've performed quite well.

Thank you and good luck and merry Christmas!

All right, thanks.

Our next question comes from the line of Scott Mackey for Robert W. Baird. Please proceed with the question.

Good morning, gentlemen.

Good morning!

I don't think you're going like me very much. I'm not a real shareholder and I'm not going to ask about Enerpac.

You're an analyst, we love you anyway.

Hey, I want to circle back on the comments regarding acquisitions, and I guess in typical analyst fashion, I want to ask one question, but I'm going try to do it in about three parts. The comment that they may contribute meaningfully, and don't let me put words in your mouth with "meaningfully" in fiscal year '06. Was wondering if you could put brackets and maybe the size of the pipeline in terms of the number of potential acquisitions, also in terms of annual revenue, how large they might be? Start there.

Okay. You know, I think we've been pretty consistent that the range we've been looking at is 10 to 50 million. So you saw the 10 we did this quarter, and that would transcend that. Maybe you'll see the other end of the range over the next six months. The sales volume really is a direct relation to the profitability of the business. As you know, we look at almost everything on a return on invested capital or cash flow basis. We look at times EBITDA. Most of the things we've told you is that 6 to 8 times EBITDA is our range. That's again up from kind of 5 to 7, and that was in the future. So you can kind of back in, if you say it's a $50 million and you understand the profitability, you can back into what it means in terms of sales.

Okay. So-- I'm sorry?

I'll take the next part of that question in terms of pipeline, what is it looking like, and we have probably 6 to 10 different things that we're looking at right now. A lot of those will not happen, just from a probability standpoint on that. There's a couple that were further along than others. They are in the range that Bob talked about, the $10 to $50 million range, and if things go right, I'd hope we can announce something in the next 90 days here, but again, we hate to get to this kind of granularity because one thing can go wrong and the deal can be pushed out six months, but we're very busy. We're busy on deals right now.

Okay, and I just wanted to follow up in terms of the RV outlook for fiscal year '06, and I want to make sure I understand correctly. You'd flashed some industry data about maybe a 4% to 5% retail sales decline for motor homes, and you're saying that you still expect positive RV growth for Actuant despite that decline in environment where production equates to retail sales.

Yes, just to help you box that, I think what we've said is a zero to 5% decline. We think we would still muster growth. If it went 5 to 10 positive, we'd be more flattish.

5 to 10--

Sorry, 5 to 10 negative, we would be more flattish. So we think we're in kind of the lower end of that fairway.

Lower end of that down 5 to 10% fairway?

No, I think we're a little more optimistic at zero to 5 and we're going show growth.

Said another way, to simplify it, if RV was absolutely dead flat with last year, from an industry standpoint, we would expect to grow 5 to 7%, 5 to 8% on account of the fact that production last year trailed retail by 5 to 8 points.

That's very helpful. Thank you.

Mr. Arzbaecher, there are no further questions at this time. I will now turn the call back to you.

Well thank you, Operator! We really appreciate your participation in this call, both analysts and investors. I didn't mean to insult anybody there. We love you all, as Andy said, and we appreciate your interest in Actuant. If you have any follow-up questions on today's call, Andy and I are around today and tomorrow, or actually the balance of the week. If I don't get to talk to you then, we wish you and your families a happy holiday. Thank you and good-bye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and that you please disconnect your line.