Enerpac Tool Group Corp (EPAC) 2006 Q4 法說會逐字稿

Welcome to the Actuant Corporation fourth quarter fiscal 2006 earnings conference call. Today's speakers are Bob Arzbaecher, President and Chief Executive Officer, and Andy Lampereur, Executive Vice President and Chief Financial Officer.

As a reminder, this call contains forward-looking statements that are subject to the Safe Harbor language in Actuant's press release issued today, and in Actuant's filings with the SEC. We are conducting a live meeting to coincide with the [other] conference. If you would like to view the presentation online, please refer to your [media invitation] for details. As a reminder, this conference call is being recorded Wednesday, September 27, 2006. It is now my pleasure to turn the conference over to Mr. Arzbaecher. Please go ahead, sir.

Thank you, operator, and good morning. As you've undoubtedly seen in this morning's press release, Actuant closed out fiscal 2006 with a strong fourth quarter, exceeding both sales and earnings guidance. Highlights for the quarter included sales of 325 million; an increase of 21% from last year. This included 13% core growth, including 63% core growth in convertible tops. Even excluding convertible tops, core sales were a robust 9% growth. During the quarter we continued to see solid growth from businesses such as Enerpac, Hydratight and others.

From an EBITDA point of view, margins were up 20 basis points year-over-year. And at about 50 million, excluding the restructuring charge, this was our highest quarterly EBITDA since the spin-off. EPS was $0.79 per share excluding the European restructuring and tax gains. This results in a fourth-quarter growth rate of 25%, the highest EPS growth rate for the year. And last, cash flow of 27 million resulted in 2006 free cash flow of just over 100 million. Excluding special P&L items, the 2006 free cash flow to net income was 115%.

Looking at Actuant's track record over the last five years is even more satisfying. Using the first anniversary of the spin-off in 2001 as a baseline, Actuant has improved its financial metrics considerably, as the chart is showing you here.

We've seen sales compounded growth rate of 21%. This is a combination of organic growth and acquisitions. Since 2001 we've completed 13 acquisitions that now account for 570 million, or 45% of our total 2006 sales. As a result, the profile of the Company has evolved considerably.

EBITDA has grown at a compounded rate of 16%. While this is slightly behind the sales growth rate, remember that several acquisitions had lower EBITDA margins than Actuant's base business. As many of you know, our focus is on return on invested capital and not absolute EBITDA margins.

Compounded EPS growth rate was 25% during the same five years. In the early years this was driven by interest expense reduction from deleveraging, and in the more recent years is driven by EBITDA growth. We believe this track record puts us in an excellent position and in the upper quartile for industrial companies over the same timeframe. Consistent cash flow with our cash flow conversion of net income over 100% happened in each of the five years. This cash flow continues to fund investments for future growth, whether they are from acquisitions or organic initiatives.

But enough on the long-term summary; you're here on the call to hear about the quarter and the outlook for 2007. I will turn it over to Andy to go through the quarter, and then I will come back and give you an update on the earnings guidance for 2007. Andy?

Thanks, Bob. Good morning, everyone. My first slide here is a simple comparison of our fourth-quarter sales and profits this year versus last. It looks good -- 21% topline; 31% bottom-line, or EPS, growth. However, there are two P&L items that need to be considered by you to make a reasonable comparison. Both of these items are outlined in today's earnings release, but I'll provide a little bit more color on them now.

First, we booked a $4.5 million, or about $0.14 a share, net restructuring charge in the fourth quarter of this year for European Electrical restructuring. We explained this restructuring in a fair amount of detail last quarter and indicated that the first income statement charge for it would be coming in the fourth quarter. The charge was just shy of $5 million on a pre-tax basis, or $4.5 million net of tax, and is the first part of the 17 to 20 million estimated pre-tax cost of the restructuring program, meaning there's still about 12 to $15 million of additional pre-tax provisions that you'll be seeing over the next 12 to 18 months.

The second item was a $5.5 million, or $0.17 per share, net tax gain in the fourth quarter. This gain results from a positive trend you've been seeing at Actuant, namely increased earnings over the last five years. Specifically, we generated a large cumulative State of Wisconsin tax net operating loss at Actuant between 2001 and 2004 as a result of all the interest expense following the spin-off and the subsequent debt extinguishment charges when we bought back our old 13% bonds. Because of these -- the taxable losses for Wisconsin tax purposes in the early years, we were not allowed to benefit or reduce the pre-tax amount by a tax benefit on these NOLs until it became clear that we would be able to use all the NOLs to offset future Wisconsin taxable income.

This is real income and will definitely reduce our cash taxes over the next decade. The only reason we are removing it from fiscal 2006 fourth-quarter earnings is for comparability. It represents several years' benefit and was not in prior-year results, but it absolutely is real income.

This slide shows the reconciliation from the $0.82 a share fourth-quarter EPS in our income statement to the $0.79 adjusted EPS that we're going to use today to compare to our fourth quarter of last year. As you can see, even backing out the adjustments, we still had a 25% year-over-year growth in fourth-quarter EPS. As Bob mentioned, despite investor concerns, this was our highest EPS growth quarter of the year.

For the full year, Actuant generated record results. You can see a sales growth of 23%; that includes core growth of 9%; EPS growth of 24%, from $2.42 a share to $3.01 a share, in 2006. The $3.01 a share includes the restructuring and tax gains I just discussed, as well as a third-quarter tax gain, while the $2.42 from last year includes a third-quarter tax gain as well.

This next slide is essentially backing out all these special items. When you do that, you see 2005 full-year income of $2.40 per share; in 2006, $2.90 a share. This represents an increase of 21%.

One of the things we work very hard on at Actuant is consistency. Bob started out his comments today with a graph that showed consistent growth in sales, EBITDA, EPS, as well as cash flow, over the last five years. Here's another look at that consistency.

This graph is a simple summary of Actuant's fiscal year '06, showing quarterly year-over-year sales and earnings growth this year. What you see here is four quarters of consistent topline ad bottom-line growth.

Despite -- in each of these we had one or two markets that were down considerably. For example, RV sales were negative all year long, while automotive sales were down significantly in the first half. Yet, because of Actuant's diversity and its broad end markets, we generated strong top and bottom-line growth despite challenging conditions in a couple of our end markets.

Now I'm going to review how that diversity and business model worked for us in the fourth quarter. First we'll start out with sales.

This chart shows the buildup of the 21% year-over-year fourth-quarter sales growth. As you can see, both Tools & Supplies and Engineered Solutions had very nice core sales growth in the fourth quarter. Tools & Supplies growth once again was robust, lead the way by Enerpac and Hydratight. But Engineered Solutions sales grew faster as a result of the 63% increase in automotive convertible top sales this quarter, which is pretty much in line with the outlook that we had provided last quarter. It resulted from higher production levels and the four major convertible top platforms that were launched this year. In addition to core sales, you can see acquisitions added 8% to Tools & Supplies sales and 5% to consolidated Actuant fourth-quarter sales.

Now, if we dig down one more layer into sales by channel, you can see on this chart that we had solid growth in almost all areas. Sales excluding acquisitions and currency in industrial tools, professional electrical, heavy-duty truck and convertible top markets all grew in excess of 10% in the fourth quarter. The only place we didn't see fourth-quarter growth was RV, where we were down just 1% year-over-year.

Despite the less-than-ideal conditions in the RV market and the slowing U.S. economy, we had enough growth in the other markets and geographic regions to generate the strongest core growth of the year, 13%. Now, Bob is going to provide a lot more color on specific end markets later on the call, so I'm just going to just move on and talk about margins.

After last quarter's earnings call, I think it's fair to say that we surprised a number of you on our June earnings call with a more modest outlook for year-over-year margin growth. We had just completed two back-to-back quarters of year-over-year margin expansion in excess of 100 basis points. However, we had advised that we are seeing inflation in our supply chain, as well as lower-than-expected margins in automotive, and a sales mix shift toward less favorable margin businesses.

This prediction turned out to be pretty accurate on our fourth-quarter operating profit margin, which moderated to 20 basis points of expansion. This is after you factor out the European restructuring charge this quarter.

We have continued to see solid year-over-year margin expansion in our Tools & Supplies segment, as you can see on this graph. Excluding the restructuring charge, Tools & Supplies operating profit margins expanded 130 basis points to 17.7%.

While margins exceeded our expectations in Tools & Supplies, we were disappointed with them in our Engineered Solutions segment. Operating profit margins in that segment declined 190 basis points year-over-year, to 9.4% from 11.3% last year. Part of this was mix. We had a shift toward lower-margin auto sales. While auto margins were actually a little higher than the fourth quarter a year ago, they were disappointing to us, and were probably 2 to 300 basis points lower than what we had hoped for going into the quarter.

Similar to this quarter, manufacturing -- similar to last quarter, manufacturing inefficiencies were higher than acceptable levels in auto, although we saw noticeable improvement in efficiencies in our North American automotive plant. We expect to see improvements in auto margins into '07, but caution you it won't be a one-quarter correction, but a gradual improvement as the year [rolls out].

Now the fourth quarter ES, or Engineered Solutions, margin compression was more than just auto and mix; we had lower margins in other areas, including Gits, RV, and some of the smaller businesses as well. I wish I could say there was a single reason for the margin decline so I could explain it to you, but in reality there were a number of different factors in each of the specific businesses, ranging from higher medical claims in one business, or bad debt provisions, higher warranty claims in another, or increasing commodity costs or overtime. Despite a variety of reasons, the bottom line is that we weren't happy overall with Engineered Solutions margins this quarter and look to them as a source of opportunity in fiscal '07.

Shifting away now from the income statement and turning to cash flow, we completed our fiscal 2006 with a decent fourth quarter, as you can see on this slide. In addition to $2 million of cash from AR financing, we generated $27 million of free cash flow and essentially used the combined $29 million of cash flow to fund the $24 million acquisition of Actown in August, as well as reducing debt by $5 million.

We ended the year with $455 million of net debt, and our debt to EBITDA leverage ratio, giving a full-year benefit to the acquisitions in the past year, declined to 2.3 times.

Our balance sheet was strengthened during the year as leverage declined and our book equity increased by 50%. Couple this with current borrowing availability and a 2007 free cash flow outlook of about $110 million -- our liquidity outlook is good and should be fine for supporting our 2007 growth plans.

Before turning it back to Bob, I wanted to quickly provide an update on the progress on European Electrical restructuring. Our estimate for the total cost of the restructuring remains at the 17 to $20 million that we discussed on last quarter's call. This means we have about 12 to $15 million of additional pre-tax cost that will be recognized prior to the completion of the restructuring. This will be recognized, as I mentioned earlier, over the next 12 to 18 months as additional progress is made on the project.

Over the last quarter, we were successful in reaching an agreement with the German Workers Council on the first phase of employee reductions. Some employees are already gone, while others will leave over the course of the next year under this agreement. We have outsourced some of our store service work since we last provided an update, and we also made progress on low country sourcing efforts. In total, we remain confident of our plan as well as the timetable to reach the estimated 7 to $8 million of annual savings run rate sometime in the first half of fiscal '08. We'll provide another update on next [quarter's] earnings call.

With that I will turn it back to Bob.

Thank you, Andy. The fourth quarter concluded another successful year for Actuant, as this slide shows. Given the volatility in our stock over the last three months, we think many people lost sight of the fact that fiscal 2006 will go down as one of Actuant's best to date.

During fiscal 2006, we completed four tuck-in acquisitions, had core sales growth of 9% for the year, increased our sales 23% to 1.2 billion, expanded our EBITDA margins faster than sales, meaning we expanded profit margins, and grew EPS excluding the special items of 21%, with free cash flow of north of 100 million.

In summary, we did what we set out to do at the beginning of the year and we are very proud of these results and the Actuant employees that drove them.

So far we've spent a lot of time this morning reviewing what we've accomplished in the last quarter, the last 12 months, and the last five years. When we look forward to the future, we use this chart as a diagram of the Actuant business model. We think this is a pretty good roadmap for the journey we'll be on over the next three to five years -- core sales growth of a diversified mix of businesses that's supplemented by 100 to 200 million of acquisitions per year. That creates incremental earnings that are accelerated using our tools in our LEAD toolbox and our AIM process. We will continue to focus on return on invested capital, which places specific emphasis on cash flow; the resultant cash flow reinvested back into the business in either organic growth opportunities, accretive acquisitions, or to pay down debt. This has been the model that has driven 25% average compounded EPS growth over the last five years, and one we intend to continue to ride going forward. When you step back and look at 2006 results against this model, you'll see that we did not stray far from the stated objectives and accomplished what we set out to do.

Now I'd like to turn our discussion to the outlook and guidance for 2007. As you may have noticed in this morning's press release, we raised our 2007 sales and earnings guidance to reflect our current outlook, including the benefit of the Actown acquisition. Our revised guidance has the sales range of 1.325 billion to 1.345 billion, and EPS of 4.20 -- sorry -- 3.20 to 3.40 per share. In the final 2006 EPS of 2.90, which excludes the tax gain and restructuring provision, we are projecting EPS growth in 2007 of 10 to 16%. As a reminder, this is guidance does not include the remaining European Electrical restructuring costs and also excludes future acquisitions.

Assumptions for the 2007 sales guidance reflect sales growth of 10 to 12% above 2006 actual. Approximately 70 million, or 6% of this, is growth that's the carryover benefit from the 2006 acquisitions. We're projecting core growth of 4 to 5%, with the remaining being applicable to the foreign currency exchange rate.

We expect core growth in Tools & Supplies to be about 6%, and Engineered Solutions core growth to be about 2%. I will be providing more color about the markets we serve in a minute. But for a quick reason for the delta between these, it really is due to the expected North American truck slowdown, which will adversely affect Engineered Solutions by about 4 percentage points starting in the second quarter and progressing after that.

Why do we expect the core growth? We expect the core growth to be higher in the first half of the year than in the second half. Why? Well, we think the North American economy will continue to moderate as the fiscal year moves along. The North American truck slowdown will not significantly impact Gits in the first four months of the year but will after that. Our auto growth will be much higher in the first half of the year and is forecasted to be negative in the back half as we anniversary the 2006 platform launches.

Now I'm going to take a few minutes and review the trends in most of the markets and our expectations for them in 2007. The next several slides are a recap of what we've shown you in the last four conference calls, and will serve as a baseline for how we view 2007.

Looking at the first market, it's industrial tools, which includes Enerpac and Hydratight. Hands down, this was the most solid and consistent growth market for Actuant in 2006, and we expect that to continue in 2007. Growth was very broad-based in terms of geography, customer and markets. We expect 2007 growth to be in the 7 to 10% range, which is a moderation from the 2006 pace. Oil and gas, power generation and infrastructure will provide the fastest growth within this market.

Moving to DIY electrical, which is pretty even between U.S. and Europe, we experienced strong growth in 2006 due to the resets we did in late 2005 and a healthy North American economy. This growth rate moderated in the fourth quarter on account of very tough comps from the 2005 recess. We expect 2 to 4% growth in this channel in 2007, based on moderating economic data and an SKU reduction program in Europe as part of the European Electrical restructuring program.

Moving to the pro electrical channel, we expect this -- sales -- sorry -- pro electrical channel sales increased as the year progressed in 2006. This product is use in commercial construction, industrial, and OEM applications. A sizable portion of the sequential growth that you see here was a result of the market -- was a result of price increases, which are instituted several times during the year on account of the raw material price increases from suppliers. We are projecting low to mid single-digit growth in this market in 2007, (technical difficulty) carryover of some of that price increases, partially offset by slowing unit demand.

Next move to specialty electrical, where we saw solid growth throughout 2006. But an increasing portion of this growth was driven by price increases on account of rising copper costs that we passed along to customers. The end markets for our harsh environment electrical products include marine, medical, theatrical lighting, RV, and a plethora of other industrial markets. We expect moderating growth in 2007, partially attributable to lower OEM, pleasure boat and RV travel trailer markets.

Moving on to truck, growth in truck had a very sporadic 2006, as this slide shows. Truck was a good example of something that had an upside surprise for us in the fourth quarter, as we experienced our strongest growth of the year in the fourth quarter of 2006. This took place in North America and Europe and is probably pre-buy related. However, we don't expect that to continue into 2007 as the pre-buy in 2006 will cause demand for the next-generation trucks to be weaker in 2007. Consistent with our guidance last quarter, we expect North American heavy-duty truck sales to decline 40%, or $20 million, in 2007, with the rest of the global truck market being somewhat flattish.

Now moving to automotive. Automotive sales strengthened sequentially as the production of the four major new models ramped up throughout 2006. We started with a low of 25% sales decline in the first quarter and ended the year in the fourth quarter with 63% year-over-year growth. Next year we will see the opposite trend, as we are now at full production levels for the next few quarters, and then we will hit the tough comps. While we forecast about 15% growth in auto for the year -- so it will be a very healthy year in '07 -- it will be front-end loaded, with the back part of the year down.

Next is RV. My last -- the last sales graph is the RV motorhome market, which has had a -- been a tough place for us during the last two years. As you can see here, we had sequential improvement throughout 2006 and were a stone's throw away from having a flat year in the fourth quarter. Looking forward, RVIA, the recreational vehicle industry, recently came out with wholesale shipment forecasts for 2007, and it's projecting a 2% decline in motorhome shipments for the calendar year. This came out just before the recent $0.70 a gallon decline in gasoline prices. For us, we're predicting low single-digit growth in RV for 2007, a combination of market share gains and the flattish industry outlook.

All of this now leads to the 2007 guidance. From a margins perspective, we continue to expect 10 to 50 basis points of margin expansion in 2007. The improvement we anticipate in overall margins will reflect increased low-cost country sourcing benefit, improved auto and European Electrical margins, and acquisition-related synergies. Realistically, we do not expect much expansion in the Tools & Supplies businesses, given the strong performance they exhibited in 2006.

Finally, regarding margins and calendarization, we expect profit margin to be better in the second half than the first half because of sales mix, improved efficiencies in auto, and higher second-half lower-cost country sourcing.

In addition to raising the 2007 -- the full-year 2007 guidance, our press release this morning also provided guidance for the first quarter. We anticipate sales of 325 to 335 million and EPS in the $0.78 to $0.81 range. On a year-over-year basis, this represents sales growth of 14 to 18% and EPS growth of 10 to 16%. This reflects a combination of strong organic growth and acquisitions.

That's it for today's prepared remarks. Operator, I'll turn it over to you for the investors' questions.

(OPERATOR INSTRUCTIONS). Charles Brady, BMO Capital Markets.

This is Kunihiko sitting in for Charlie. Congratulations on the great quarter. I just had a couple of quick questions. First, regarding the remaining restructuring charges for '07, can you provide us with any -- some color on, I guess, the timing and, I guess, the way that it will happen over the next 12 months? Is it going to be pretty comparable to the 5 million we saw this quarter?

It's really -- Kunihiko, it's going to be dependent on the agreements we're able to reach in the future with the Works Council and when we physically exit the two different buildings that are going to be closed as part of the restructuring. When we physically exit the building is when we take a charge for them. The first of these will be a building in Holland. It's going to be either right at the end of the first quarter or the second quarter. So, I'm -- I don't know the exact timing right now.

With regard to the additional severance costs that are coming through, those will most likely be in the summer of next year. So, it's pretty difficult. I would say the majority of the remaining costs will come this fiscal year, but it's possible you won't see another meaningful charge in our second quarter.

Switching gears to more on your Tools & Supplies segment, I know you mentioned you don't -- it's at an all-time high, and you don't expect too much more in terms of additional expansion. But do you think the current level is relatively sustainable, or were there any onetime factors benefiting them this time around?

I'll start with the fact that while we guided you to flat -- flattish Tools & Supplies margins, we absolutely have margin improvement forecasted in a number of the businesses within there; it's just you're starting at a very, very high level for a number of the industrial tools businesses, and that's what gives us the feeling. We do not see anything that tells us that it would backtrack. There was nothing in the fourth-quarter mix, in the 2006 mix that is not a repeatable event. So, there's nothing that tells us it's going down; we're just saying it had a tremendous year, up 190 basis points for the year. And we don't think that there's a lot of runway still in front of that.

Scott Graham, Bear Stearns.

Very nice quarter. I have -- you answered a lot of the questions I had going in because of your thoroughness in the guidance. I do have two remaining questions, though, if you could. First of all, when do you expect the auto production issue, inefficiencies -- when will that be fully behind us? Do we need to see the first quarter of sales decline to get there?

I don't think you can identify it to a specific quarter. It's an ongoing initiative. It's broad-based. We have some new models coming also in 2007 and 2008. So, you have a new group that's coming behind it. I think it will show margin improvement from fourth-quarter levels sequentially as we go through the year. I think it will be a little more back-end loaded, because some of the improvements, like low-cost country sourcing and some of the things we're doing, are longer-term projects to work on.

Just an attachment to that question. I know last cycle in auto, we did see a sales decline in that business in the sort of fifth and sixth core out after the ramp. And I'm wondering, what are you guys working on to sort of get the same store -- the same platform sales up in any way, or at least keep them flat? Is there a way to maybe do better than -10 to 15% in the second half of the year?

Well, a couple of things -- and maybe a little tutorial about this is appropriate for everyone. When you're launching a new program, you tend to be building for two years volume; you're building for one year in the lot, so it's going to sit in the dealer lot, and another year that actually gets sold. And we have seen that trend. So, there's a -- on the launch year, you have a bubble that is much bigger than the true actual sales of the car. And that's what creates the downward spike that you see.

The other thing that would create it would be the car doesn't sell well. So, you built this two years, and then you're still sitting on some of those two years. And we saw that on a number of models in 2004, 2005, and a little bit in 2006. So, that's what creates it.

Could it get filled in from behind? Sure. You could have stronger car sales. Some of the 2008 launches, which there are some that are not in the forecast, could get full pulled forward. The retractable hardtop phenomenon has led to that in the past. And we'll just have to see.

I think the guidance we've given is trying to avoid what happened in 2005, where we told you it was going to grow -- it was going to be flat for the year, but it was way up in the first quarters and then negative. We're just trying to set the expectation right now so people recognize it's going to be a 15% up year. It's going to be a great year for auto. But it's front-end loaded.

Very good. I want to explore, if we could, pricing a little bit, and the raw materials equation. If you were to look overall at pricing versus raw materials, the spread there going into the fiscal first quarter, where would you say that spread would be overall for the Company, whether you want to put that in millions, in cents per share, in basis points? And then also if you could tell us which of the business units where that spread is the largest, is most out of favor.

Scott, I'll handle that one. If I look at our first quarter, I would say it's going to be somewhere between 3 million, 3 million, maybe $4 million in the first quarter of net price increases that we have absorbed from vendors relative to what we passed on.

On a relative basis or just on a baseline, I would say the fourth quarter that we just completed was about $3 million. Where are we seeing that the most? I guess in response to your question, certainly I think the number-one spot were it's coming through in terms of erosion is do-it-yourself. And it has to do with copper because it's risen up so fast. In the difficulty in passing this along to some of the big [boxes] -- some will take it; (indiscernible) will not all take it.

We also see it in professional electrical with components and, therefore, copper, as well as commodity -- excuse me -- electrical steel. And there's a little bit in Engineered Solutions as well, as I commented. Of course, our easiest spot to pass this along is industrial tools, with Enerpac and Hydratight.

I think just continuing a conversation that happened starting last quarter, where we said cost of copper was impacting margins -- we certainly saw that. I think you're seeing some of that in the Engineered Solutions businesses, where you have longer-term contracts and things affect you. That's not as much of a copper play, but it does affect some of the other things. I would say the performance in the fourth quarter was probably slightly better in terms of that, but nevertheless, it still did affect the margins on a negative basis. And we would expect that to happen as we roll into '07 also.

Steven Fisher, UBS.

Nice quarter. At Enerpac, you mentioned infrastructure as being one of the more strong areas in your outlook. Could you just give a little more color there? Are new projects actively coming into your backlog? Are you seeing any project delays? Just some comments there, please.

Let me put it in context. The Enerpac is a little over a $200 million business, and this is about 10%; the big projects [are] about 10% of that number. So, it's not a monster piece of Enerpac, but it's a very visible piece of Enerpac. And it is very important, I think, when we win other business in MRO that we see these.

The project backlog today is pretty equivalent to the prior. I would tell you a couple of major projects that are going on as we speak that are very exciting.

The first would be the Olympic stadium in Beijing. I was actually in China about three or four weeks ago and was able to stand on the infield and look at what they were doing. It's called the bird's nest, and we basically are taking the roof, which is welded in place, and then moving it into the final position. So, it's a construction-type project, and that is happening literally over the next couple of weeks in China.

Another one for you guys in New York that you're seeing come out of the ground is the [1 Bryant Place] building, where we've got a continuous concrete pouring mechanism that crawls up alongside the elevator shafts in that building. And, obviously, when you get 100 floors -- maybe not 100 floors -- but 60, 70 floors up, you're talking about quite a bit of weight.

Probably the most visible one that continues to be good I got to visit in the last month was the Millau viaduct in Southern France. And that thing could -- is now open for business. The [Ifatch] guys have had a great project there. The bridge is just spectacular. If anyone's in Southern France, you really have to go see this thing. And it has led to some other bridge launching opportunities that the Europeans are chasing. And there's some system technology that we're bringing to the market that's going to allow us to chase some of that bridge launching.

So, put all that together -- it's a strong year. These are projects that tend to get funded by governments and tend to have very long, strong backlog nature to them, and they don't get canceled based on economies bouncing around. And that's kind of what we like about it. We tend to be a small piece of a very big project, and they tend to have a very consistent backlog theme to them.

So, the growth is more from projects that are already in the backlog, it sounds like?

During the quarter, the Nantong stadium was completed. That was probably the booked piece of the revenue. There's the major aircraft carrier on the East Coast that was in our revenue, and then the 1 Bryant. So, those are the three that drove some of that higher growth.

(multiple speakers) more focused on the outlook.

It's up. But again, it's -- you're talking about something that if it's up 30%, you're only talking about 4 or $5 million. So, it has only 2% affect on Enerpac in total, and much less on actual.

Great. And then, you cited the current economic environment as part of your guidance increase. What specifically are you seeing that's better than you expected?

I think industrial tools and Hydratight both had stronger quarters than we expected going in. There were some offsetting factors that went the other way. Those would be the two that I think are strong. We are seeing slowdown in the U.S. I think people wondered whether when we gave guidance last quarter, whether we were sandbagging that. And we did see the North American economy moderate again. It affected Enerpac, it affected Gardner Bender, and that's all factored into our guidance. But it was stronger than we expected in Enerpac.

Okay. So, just growth off of a now higher base, I guess?

We delivered the higher-end of the earnings guidance, so we're kind of factoring that in as you're going along. It's not like we met the middle of the guidance; we beat the guidance.

Scott Macke, Robert W. Baird.

Wanted to follow up on the question related to auto. You made mention of the fact that it looks like you do have some new fiscal year '08 convertible top platform launches in the pipe. Is that correct?

There are two -- there are actually two convertibles and one liftgate application that are not in -- that do not start production during 2007 which will be 2008. One was [won] this quarter, one is longer-term in nature. We are working on a lot of stuff.

This retractable hardtop phenomenon, which is relatively new in North America, is quite real. And it is creating a lot of excitement in terms of design guys in all of the big companies. We're starting to see some of it even affect Asia. So, Asia's not even in convertibles today, but has an opportunity in the future. And we have told you guys that convertible tops as a percentage of auto was going to double during the decade. I don't think it's just going to go to an all stop in 2010; I think this thing keeps moving along, and the retractable hardtop gives people the option of a sedan when they want it and an open-air system when they don't. And I'm just very optimistic that the U.S. is behind on that, and you're going to see it take off.

If any of you guys have been to Europe recently, you really see that the retractable hardtop, which has been there with the Peugeot 306 and the 207 for a long period of time -- Renault Mégane is another one -- you see a much higher percentage of retractable hardtops on the road in Europe in production cars. The U.S. has got some catching up to do. So, I am quite optimistic that convertible tops will continue this growth that its had. We started in 2001 with a $40 million convertible top business, it did a little over 110 million this year, and we're endorsing 15% growth. I don't think it's just going to slow down; I think there's more stuff coming.

In that vein on the convertible hardtops, how are the G-6 hardtops selling in relation to your expectations, or the original expectations on the manufacturer?

I don't have any data that I can share with you. It's a pretty new program. And quite frankly, I don't think I really know what GM is selling. I know what I'm producing, but I'm not -- I don't know how much of that is ending up in a lot versus actually sold. So, there's no way for me to guide you on that. It's meeting our expectations.

Fair enough. I just wanted to step back and take a look or get some commentary on some of the more recent acquisitions. In particular, I think it was late April you announced the D.L. Ricci and the Precision Sure-Lock acquisitions. And I would assume that those are both well into integration. I was wondering if we could take it from two angles, and kind of specifically talk about in terms of revenue what sort of incremental revenue growth you've been able to generate from those two companies by bolting them on to the Enerpac and Hydratight platforms, and then also separately take a look at operating margins and what sort of margin savings or margin improvements you'll be able to generate from those companies, relative to where they were tracking before acquisition.

Great question. I'll start it. Andy, chip in where I leave some voids.

If you start with -- let's start with Ricci, which got incorporated into the Hydratight platform. I guess I'll start with a general question -- a general [answer to your] question. In the first five months of an acquisition you're not going to see any incremental revenue. Whatever revenue you win, it's because they had worked on it prior to the deal. So, I would tell you that the answer to that question is I've seen zero incremental sales due to being part of either Hydratight or Enerpac.

I think over time, starting with Ricci, we will see a fairly positive impact. Machining of a flange is a very important attribute to the maintenance and repair of a joint. And we were doing machining already. We had about 15 technicians in Europe who were capable of doing machining. We actually owned a few Ricci machine tools before we bought that acquisition. By owning Ricci now, we're really going to be able to accelerate Europe, which Ricci on its own did not have a huge presence; they had a distributor, and the distributor is still with us -- or a rep, I guess, is a better term for it. We're going to be able to accelerate that growth. We have a lot of technical abilities there. And adding that to our portfolio of products and focusing on that joint integrity that we've talked so much to you guys about is going to be a big opportunity.

I think in terms of our expectations on this, Scott, one of the things we talked about after we bought this business is it needed additional service team -- additional service people within the Ricci business. That was part of the strategy. And buying it was to get at that service group, because we really did not have service folks in the U.S. We had a very strong presence outside. During the last four or five months, we've lined up 15 to 20 new people to add to the organization in the service area. So, when you look at what does it mean going forward, we're pretty bullish on what this can mean from not just Ricci's volume, but Hydratight-type services flowing through there as well.

The business has done well. It's met our expectations in the first three or four months we've owned it. We like everything we see. I think the opportunities that we expected were there are there, and that's doing well.

Moving to Precision, Precision is the tensioning business. It's a tool that gets added to the Enerpac platform. It's called Precision Sure-Lock, or PSL is what we refer to it as. PSL is a great product. It's a tool that needs a hydraulic pump to run it, and so it fits very well into the Enerpac-type platform. We are still going to use the PSL brand name in North America. It is the strongest brand name in North America and we're going to continue to use it.

They have a leading market share in this area. It's focused on slab over concrete foundations. So, you're getting a lot of the commercial -- new housing construction. You can view that positively or negatively. Obviously, new housing construction people are worried about slowing down. But on the core (indiscernible) side, most of slab over concrete is in the South, and that's the growth area of the place, not in the North.

So, we have seen good results out of Precision. We have not had anything that would worry us in terms of a resi slowdown and somehow having a dire implication in that business. We haven't seen that. We have good opportunities to take that product internationally. We have good opportunities to do additional acquisitions in tensioning. Everything on that one is also on track that we described.

Actown would be the last one to discuss. We've only owned that one about one month or two months, so very short time visibility. Andy, why don't you just walk through that on Actown, what it is and basically how it fits.

Sure. Actown is about a $35 million business that's primarily in the transformer line of business. Obviously, this tucks in very well with our Acme transformer business, which is in the ballpark of 60 or $70 million bucks. So collectively, you have a $100 million transformer platform.

The thing that was attractive to us with Actown is it is primarily focused on specialty-type transformers that are specific or more OEM in nature. So, when you look at our combined $100 million transformer business, we had half of it that's OEM and half of it that's more true professional electrical distribution.

The markets that they're playing in are pretty attractive. It's communications, a wireless communication market, power gen, some low voltage, exterior lighting, [et al]. Their product is -- they have some interesting toroidal-type transformers, which is similar to what we have within one of the businesses underneath the Acme umbrella. It's very good for compact packaging, which is increasingly -- is needed out there. It's a growth area; we're excited about it.

This is essentially -- this acquisition is essentially the source of the increase in our guidance from last quarter. It's about 35 million in revenue, help us out next year about that kind of volume, and it is the primary reason we raised the guidance.

Appreciate the color. And just -- I've probably taken up more than my allotment of time, but just wanted to follow up on the pipeline. Talked previously about the potential for 150 to 200 million of acquisitions for the year, most of those in a 25 to 50 million sort of bolt-on range. Do those continue to be the expectations?

You couldn't have written the speech better than I did. We're still -- we're right in the middle of that size fairway and we're still targeting to do 100 -- sorry -- 150 to 200 million. There are a few deals that I think you'll see get announced as the year goes along that are smaller than that, and I think you'll see some deals that are -- there are certainly some things in the hopper that are a little bit bigger than that. But no major change. I would say 80% of the funnel is what you just described.

Kevin McVeigh, Goldman Sachs.

This is Kevin McVeigh for Deane Dray. I just wanted to circle back on the commodity costs if we could. Andy gave real good color saying it would be an incremental 3 to $4 million in the first quarter. And I know back when we gave the '07 guidance, we had said there would be a $0.10 impact for the full year. Do we still believe that's what the impact is going to be? And if so, how does that progress as we work our way through 2007?

I'm just pausing on the $0.10 (multiple speakers)

I don't think we said that.

I don't think we said that; I think that was coming out of some of the sell-side on that.

Or maybe $5 million, maybe overall, kind of the net impact.

I think what we said historically is last year we had -- we thought going into the year we might have 5 million of net income -- excuse me -- of net impact on that. And as the year (multiple speakers)

At the EBITDA level; not (multiple speakers)

Yes, EBITDA level. And as the year progressed we got a little bit higher like I talked about, 3 million in the third quarter. We said it could be as much as 10 million in fiscal '07. So, it's kind of the outline. What I described earlier, as far as maybe a 3 to $4 million impact in the first quarter, is in line with that guidance. It really hasn't changed up or down.

Copper has retreated a little bit from 90 days ago. That's been positive. I think oil has retreated a little bit. That's a positive. So, I would say on the margin, feel a little bit better than we did 90 days ago there.

Bob, to circle back on Enerpac, I know we'd said 7 to 10% organic growth in 2007. Is that a little bit higher? [I thought] we had been looking for 7 to 9. And then just in regards to that, if you could give us an update on the bolting acquisitions and what type of organic growth you're expecting out of those in 2007.

It's the exact same number as for Enerpac. I think we were 7 to 10. We might have said 7 to 9; I'm not going to quibble on the 1%. It's no change. I wouldn't say we're raising our expectations. It had a good fourth quarter. I don't think we view that as something that's just going to change that outlook.

I think some of the confusion here really is we're looking at Enerpac being about 7 to 9 and Hydratight being 8 to 10, and collectively we kind of said industrial tools, 7 to 10. So, that's really where it came from. Bob, you want to comment on what we're seeing in bolting demand?

Bolting, we had a very strong fourth quarter. It was higher than the industrial tool chart checkbox. If you're looking at Andy's chart before, it was at the higher end of it. Enerpac was a little bit lower end of it. It tends to be a little lumpier. It's got more seasonality. It's got big projects. You'll work on a project that might get you incrementally 2 or 3 or $4 million. Then that project ends; you've got to have another one behind it.

I think we are -- our enthusiasm has not waned, and it's probably gone up for what's going on in the marketplace. You've got a major visibility that happened with the pipeline that needs maintenance in Alaska. Congress is now involved, talking about how do you keep maintenance and repair going on oil rigs, oil platforms. How do you deal with this? That all bodes well for our business. We are, clearly, not at the finish line on how big that platform is going to be.

We think we are the leading provider of joint integrity products on a global basis. There are thousands of small mom-and-pop-type acquisitions and all kinds of different areas. I think Ricci was a great example of one where we got into a little bit of a different business than just bolting, into the machining side. And I think you'll see a lot more of that.

So, a lot of enthusiasm there at Actuant. We're going to grow that platform. I will caution you we're never going to have it be half the business. We're going to keep our diversified business profile going. But I certainly look at oil and gas and power generation as markets I want to play a bigger presence in over the next three to five years. I certainly feel like there's not a whole lot that's going to slow that down.

There are no further questions at the moment. Mr. Arzbaecher, I will turn the call over to you.

Thank you, operator. In summary, I think 2007 will be pretty consistent with what we discussed with you 90 days ago. It's going to be a good environment but a little slower topline growth. We appreciate your participation on the call today and your interest in Actuant. Should you want any follow-up to our questions or comments today, Andy and I are here all day and for the rest of the week. Thank you and good-bye.

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