Enerpac Tool Group Corp (EPAC) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Actuant Corporation's fourth-quarter fiscal 2011 earnings conference call. We are conducting a live meeting to coincide with the audio conference. (Operator Instructions). During the presentation, all participants will be in the listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, September 28, 2011.

It is now my pleasure to turn the conference over to Ms. Karen Bauer, Actuant's Director Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Actuant's fourth-quarter fiscal 2011 earnings conference call. On the call is Bob Arzbaecher, Actuant's Chief Executive Officer, who is on the road in Europe, and with me here is Mark Goldstein, Chief Operating Officer, and Andy Lampereur, Chief Financial Officer.

I would like to point out that our earnings release and the slide presentation supplementing today's call are available in the Investors section of our website.

Before we start, let me offer the following cautionary note. During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Investors are cautioned that forward-looking statements are inherently uncertain and that there are a number of factors that could cause actual results to differ materially from these statements. These factors are outlined in our SEC filings.

Consistent with last quarter, we will utilize the one question, one follow-up rule in order to limit today's call to an hour. Thank you in advance for following this practice. And with that, I would like to turn the call over to Bob.

Thank you, Karen, and thanks for joining on today's call. By all measures, it was a great finish for 2011. We deliver double-digit core growth, 10%, for the sixth consecutive quarter despite some pretty tough comps. Both Energy and Industrial had strong double-digit core growth in the fourth quarter.

Our operating margins expanded again this quarter, which led to an increase in EPS from continuing operations to $0.50 a share, 61% higher than the prior year. And our cash flow for the year finished at strong $71 million, putting us at $158 million for the year, a new record. Free cash flow conversion to net income was 127%, extending our track record to 11 consecutive years of free cash flow conversion in excess of 100%.

Finally, we announced a stock repurchase program, which I will explain later in detail on the call.

We haven't shown you this slide in a while, so I thought it was a good time to remind investors that our results reflect the execution of the same cash-flow-focused business model that we've had since the spinoff. You can see very strong 2011 performance, driven by execution of our strategic initiatives, a rebound in industrial output, acquisition capital deployment and continuous improvement actions.

Highlights for the year include core sales growth of 13%, operating margin expansion of 150 basis points, $313 million of capital deployed on acquisitions, yet debt leverage essentially unchanged from the prior year due to the great cash flow. Lastly, 56% year-over-year EPS growth from continuing operations, excluding prior-year restructuring.

Actuant's cash flow is the one metric I am the most proud of. We have completed the fifth consecutive year, including 2009 in the depths of the recession, of free cash flow around $150 million or better range. That totals three quarters of $1 billion of free cash flow over the five-year timeframe. Consistent free cash flow generation is a hallmark of Actuant, and we believe this leads to long-term shareholder value creation.

With that summary, I will turn it over to Andy and go through the quarterly details. Andy?

Thank you, Bob, and good morning, everyone. Results from continuing operations for the quarter exceeded our internal forecast, and I will do the normal deep dive through them in a minute.

First, I wanted to cover the gain in discontinued operations in the quarter. This relates to an adjustment to record the tax benefit on a retained lease from the Kopp divestiture. It is nonrecurring in nature, but will benefit us from a cash flow standpoint in the future. Previously, we didn't expect to receive this tax benefit. We've now determined we will, so this was an unexpected upside in the quarter. And this was the $4 million or $0.05 a share gain in discontinued operations in this quarter's income statement.

But for the balance of the call, we are going to focus our discussions on results from continuing operations. And as Bob led off with, sales, earnings and cash flow were strong and all exceeded our internal forecasts.

Sales of $403 million were slightly above our guidance range on account of stronger sales by the Industrial and Energy segments. The other two segments were in line with our internal expectations. I'll dissect sales a few different ways shortly, explaining the 30% year-over-year top-line increase.

Our fourth-quarter operating profit margins increased year over year 120 basis points, excluding prior-year restructuring costs. The results include Weasler acquisition related charges, which adversely impacted margins sequentially from the third quarter.

The higher volumes and better margins resulted in earnings per share from continuing operations of $0.50 in the fourth quarter. Excluding prior-year restructuring charges, our fourth-quarter EPS grew 61% from a year ago.

Now let's get a little bit more granular on fourth-quarter results, starting first with the top line. Fourth-quarter sales were up 30% year over year, with a 14% benefit from acquisitions, 6% from currency and 10% of core growth. The core growth was slightly above the 8% to 9% growth we had provided in our guidance on last quarter's call. As mentioned earlier, the upside came from Industrial and Energy, which grew 19% and 28%, respectively.

All geographic regions contributed to the consolidated top-line growth on a relatively similar percentage basis. We saw good growth throughout the quarter, but August was the strongest month of the quarter. I will provide more color on sales by segment in a few minutes.

We reported our seventh consecutive quarter of year-over-year margin expansion in the fourth quarter, with 120 basis points of operating margin expansion. Consolidated operating profit margins were 14.1%, up from 12.9% a year ago. Our fourth-quarter margins benefited from incremental sales volume and favorable mix, reflecting higher sales growth from our most profitable segments. Partially offsetting this improvement were purchase accounting charges for the Weasler acquisition, the majority of which were in Engineered Solutions, but also some in corporate as well. Excluding these charges, fourth-quarter operating profit margins would have been in line with the third quarter.

Now I'll provide a little color for fourth-quarter results by segment, starting out first with the Industrial segment, which had another outstanding quarter. Our year-over-year core sales came in at a very strong 19%, slightly lower than last quarter's 23% core sales growth, primarily due to tougher comps this quarter. Currency added another 8%, for a total of 27% fourth-quarter sales growth in the Industrial segment.

Similar to last quarter, we saw strength across most of Enerpac's geographic markets, with modest moderation in Asia.

IS, or Integrated Solutions, sales were the highest of the year during the quarter. However, this increased volume adversely impacted our mix, explaining the sequentially lower margin levels in the segment from the third quarter. Year over year, though, margins are up due to the benefit of volume and pricing.

Following a sharp ramp-up in sales last quarter, the Energy segment posted even stronger core sales growth in the fourth quarter. Core sales in this later-cycle segment increased 28% year over year, reflecting broad strength in almost all energy markets served by the underlying Hydratight and Cortland businesses. Benefiting Cortland, we saw slightly more robust growth in the capital spend related markets within Energy.

Most impressive in its quarterly results for the segment, however, was a significant margin expansion, both on a year-over-year and sequential basis. Fourth-quarter operating profit margins were 20.7%, over 700 basis points better than last year. This resulted from favorable sales mix within the segment, as well as sharply increased volume over its fixed cost structure.

Switching to the Electrical segment, core sales in the fourth quarter were relatively flat with the prior year. Growth in the utility and catalog markets was offset by weak retail, electrical distribution and marine demand. We continue to believe that the Electrical segment is bouncing along the bottom, but needs a shot in the arm in the force of increased consumer confidence and demand, as well as higher residential and commercial construction activity, which we aren't expecting in the short-term.

However, margins did improve sequentially due to price increases in North America and cost reductions in the Mastervolt business, but they were down year-over-year due to acquisition mix.

Rounding out our portfolio discussion with the Engineered Solutions segment, it had a great quarter, with 31% top-line growth and 230 basis points of operating profit margin expansion. All the top-line growth was from the Weasler acquisition and the weaker US dollar, as we saw the sequential sales weakening from the third quarter that we had predicted on last quarter's earnings call.

The modest core sales decline primarily reflects the European OEM summer shutdowns this year, which didn't happen at the same pace last year. Automotive sales declined year-over-year due to prior-year platform launches, as well as lower liftgate volumes this year. And we also saw some weaker demand from defense and RV customers in the quarter.

Despite the sequential moderation in core sales performance and the impact of Weasler purchase accounting charges, the segment's operating profit margins were up over 200 basis points from a year ago, reflecting the favorable mix in the segment, as well as price increases in a few of the businesses.

So that's it for my comments this morning on the P&L. I'll now provide a few on the cash flow and our cash flow position. Our free cash flow in the fourth quarter was $71 million, which is the best quarterly total on record. This drove full-year free cash flow to a record $158 million, again, the highest we've generated in a single year and well above our original $140 million to $150 million guidance for the year.

As Bob highlighted earlier, this was our 11th consecutive year of free cash flow conversion of at least 100%.

Our year-end net debt to EBITDA leverage, pro forma to include a full 12 months of trailing earnings from the acquired businesses, was 1.8 times, lower than the 1.9 times leverage that we started the year out with. This is really quite an accomplishment when you consider that we deployed over $300 million of capital in acquisitions during the course of the year.

At year end, we were in great shape from an availability standpoint. We had $540 million of unused capacity under our $600 million bank revolver.

So that is it for my prepared remarks today. Bob, do you want to take it over again?

Thanks, Andy. I'm going to cover a few topics before covering guidance. Let's start with the stock repurchase program we announced today. Our Board of Directors approved a stock buyback program of up to 7 million shares, representing about 10% of our outstanding shares. As you're probably aware, this is the first time Actuant has had a stock buyback program, but it does not represent a change in our business model or philosophy.

There are a number of reasons we decided to put the buyback in place at this time, but the most important one is simply flexibility. It absolutely does not change our appetite for acquisitions or our commitment to maintain the leverage fairway of 1.5 to 2.5 net debt to EBITDA. It is simply an opportunity to opportunistically look at when the market has dislocations in our valuation and to make Actuant investments accordingly at that time.

Speaking of acquisitions, the pipeline remains pretty robust. As is typical, we have potential targets that complement several of our existing businesses that are predominately tuck-in in nature in the M&A funnel. We continue to remain disciplined, and we've walked away from a sizable deal in the past quarter that ultimately went for about 10 times EBITDA. While I would love to say the pricing and valuations move like the stock market, in M&A it is not always the case. There are definitely some fair-priced acquisitions out there, but there are also a fair number with pretty high expectations. Again, we intend to maintain discipline with our capital decisions, focusing on ROIC returns, growth-oriented end markets and good management teams.

Now turning to the Weasler acquisition. While it seems like we've owned this asset for a long time, it has really been only four short months since the deal closed. The integration is progressing well, with the Weasler team leveraging Actuant's global competency. Their folks have visited more ATU locations in the past four months than I can keep track of, with visits focused in commercial opportunities, sourcing and lean initiatives, just to name a few.

We see a number of opportunities on both top and bottom line for improvement, and the cultural fit has been excellent. Weasler performed very well in its first quarter as part of the Actuant family.

Now let's move to 2012 guidance. As noted in the release, we are maintaining our guidance provided last quarter, with sales of $1.6 billion to $1.65 billion and EPS of $1.80 to $2.00 a share. Additionally, preliminary free cash flow guidance of $155 million to $165 million remains unchanged.

We are projecting first-quarter sales in the range of $365 million to $375 million, with corresponding EPS of $0.40 to $0.45 a share. This represents a year-over-year EPS growth rate of 18% at the midpoint of the guidance from the prior year. Our guidance does not include future acquisitions or the repurchase of any stock under the buyback program.

I would like to walk you through some of the assumptions we make for each of these segments that were incorporated in the guidance. In total, we expect core growth of about 5% to 8% in fiscal 2012. We expect growth to moderate as the year progresses due to the difficult comparisons as we move deeper into the year.

Taking a look by segment, the core growth segment leader is going to be Energy segment, which enjoyed growing momentum in the back half of 2011. This segment is later cycle and we won't anniversary the recovery until the February quarter. Our growth is expected to be broad-based, both maintenance- and capital-related. It is also diverse geographically, with emerging markets continuing to be strong.

When modeling next year, pay attention to the historical lumpy quarterly sales growth rate in this segment and its seasonably weaker second quarter. But overall, expect strong core sales growth for the year in Energy, in the 10% to 15% range.

Moving to Industrial, strong execution of our growth strategies, good emerging markets and integrated solution activities give us comfort in the 2012 guidance of 5% to 10% core growth for the year. Obviously, more modest than what we put on the board in 2011, but that is due to tougher comps. Still well ahead of GDP.

For Engineered Solutions, we expect to continue to see solid builds for both truck, agriculture and off-highway vehicles, but moderating a bit to more normalized levels. Additionally, in our niche auto business, we expect to see down year-over-year numbers due to the anniversary of prior-year model launches. In total, we expect 1% to 5% core growth for this segment.

Now moving to the Electrical segment. We expect 1% to 5% core growth, similar to what we predicted for 2011. While we should see some modest improvement in some of the markets, we think the consumer and construction-related markets will continue to be a challenge for the next 12 months.

That's it for the segment detail. Now let's move back to the Actuant level. While we have exceeded our guidance in the past two quarters, we are not increasing our guidance for fiscal 2012. We believe it's prudent to maintain a degree of cautiousness as we look at the year ahead. We're coming off seven consecutive quarters of EPS growth of at least 40%, yet the market appears to assume, and some are predicting, a chance of a double-dip recession. We have not seen signs of a slowdown in our recent results, and we are not assuming a double-dip recession in our 2012 guidance.

Our strategies remain consistent, and we continue to support both our growth and innovation and operational initiatives. But we remain nimble and prepared for whichever direction the economy goes. We are in significantly better position to weather any economic uncertainty than we were in 2009. Our cost structure is leaner, our debt leverage is more modest, and there are no near-term maturities of our debt positions. Inventory levels at our customer are in check, and our portfolio actions, including divesting Europe electrical and $350 million of acquisitions over the last two years provides us exposure to stronger end markets.

In summary, our team is tested and well-prepared for whenever the upcoming year brings. We look forward to the opportunities and challenges and are excited to build on the track record of strong financial results.

That's it for my prepared remarks. Operator, I would like to turn the line back to you for the question-and-answer session.

(Operator Instructions) Robert Barry, UBS.

Good morning. Congrats on the very solid quarter. I had a couple questions on margins, actually, starting with energy. Very strong there. Not back to the prior peak, but considering you have Cortland in the mix now, I think still very healthy. I was just wondering if you could elaborate on what is driving that and comment on where you think the Energy margins can go.

Andy, why don't you go ahead and take that one?

Sure. Yes, the volume really was the driver of this thing. We had significant increase in volume, as you saw, year-over-year. And a lot of that came within the Cortland business, which tends to have a little bit more fixed cost structure, particularly one of their plants that deals with umbilicals and that sort of thing. Good volume going through there, a little bit higher margins; that drove it.

Mix was pretty typical in the quarter, nothing unusual from that standpoint. So the EBITDA margins in the quarter came in at 26%. I believe they peaked out quarterly back in 2008 at 27%, 28%. I certainly think they can grow from where they are at right now with additional volume.

But it was a pretty good quarter. No real bad surprises to weigh on margins. So I think there is probably 100, 200 basis points of opportunity going forward with the volumes that we are predicting for next year.

I would second the comment that it really is volume-related. And you saw the same thing in Engineered Solutions; as the volume came back, some of the cost initiative exercises that we did during the recession really bore fruit. And I think you are seeing the same thing in Energy. It just came a little later cycle.

Yes. And then maybe shifting focus to Industrial, still on the margins, here tracking kind of the 26%, 27% at the operating level. Do you think we are kind of near the peak now for Industrial margins? I know you had more IS mix in the quarter. I don't know if you could share with us how much pressure that added. But yes, do you think we are kind of getting a little [toppy] here now on that?

Well, let me start with that, Andy, and maybe you can answer the IS question. Again, we never say never, but we are getting to the spot where we all knew Enerpac could be, the high 20s type EBITDA margins. The nice thing is the IS business is starting to contribute to that. It started out in the low teens, mid-teens neighborhood. Early on, we were investing in the business, and it was being constrained by that. But we did see finally really a good contribution by IS that helped the -- it is still dilutive to base Enerpac margins, but it wasn't nearly as dilutive. And I think that helped move that picture up also. Andy, anything you want to add?

No, I think from a margin standpoint, we're upper 20s here the back half of this fiscal year from an EBITDA standpoint, 28, 29. Is there room? Yes, there is room for probably 100 or so within a given quarter on this thing. But we are definitely putting more dollars into this business from an investment standpoint to keep that pump going from a growth standpoint. So I think it's less of a margin play going forward and more volume.

Yes, I agree.

Thanks very much, guys.

Ann Duignan, JPMorgan.

Hey, guys. It's Mike Shlisky filling in for Ann this morning. How are you?

So I know you guys are pretty much still within your target leverage ratio of about 1.5 to 2.5 times. There has obviously been some volatility in the developed markets in Europe and North America. Has this affected sort of the regions in which we target your upcoming M&A? Have you looked outside of the two major markets, or are you going to be sort of staying with the European, North American region?

Well, we are looking globally. We've always looked globally. The problem with a lot of the emerging markets is they're just not a very good established M&A function. So, A, the deals don't accumulate very well, what is for sale. And B, the due diligence process can be quite a bit of the Wild West. So that is always a struggle in the emerging markets of China, India, Brazil, places like that.

Now after saying that, we've been more active in those markets, and a couple things in the funnel. (technical difficulty)

(technical difficulty) -- businesses that are kind of a little short of plan, now that we've started into the first quarter here, and just overall in general, how are things going so far in September?

Well, this is our first crack at first-quarter guidance for us. So it is kind of in line with what we expected. It is in the single-digit growth rates that we've endorsed for the year. It will be stronger in Energy and stronger probably in Industrial, a little weaker in the other ones.

It is 18% core -- EPS growth at the bottom line, right in the middle of the kind of 10% to 20% our guidance is endorsing. So I think we feel it's kind of right down the middle of the fairway for the first quarter. There is nothing -- we are so early in the first quarter there is nothing off-plan or anything that we look at and say that is a problem from the original guidance we gave. Andy, anything you want to add to that?

Yes, definitely. Currency definitely factors into our guidance here. The euro today is worth $1.35. Three weeks ago, it was $1.45. So that 10-point move. And it's the same situation with the pound, where the dollar has strengthened a bit here in the last month. Just as a reminder for everyone, that impact, if it would stay at this $1.35, $1.55 on the pound range, it is about $40 million top-line impact. And clearly, when we laid out our initial guidance, it wasn't at the levels it is at right now.

So we are not necessarily backing away from our original assumption, which is about $1.40. But sequentially, when you look from Q4 to Q1, you've got a $10 million, $12 million headwind just from currency.

Other factors in there -- there is some seasonality as you move from Q4 into Q1. As an example, an anecdote. Weasler is typically softer in the fourth quarter relative to the fourth (sic) by the tune of $4 million or $5 million, just one business. I can point to other businesses that way.

So I think it is more of that than a function of something is slow or weak or where it is below our expectations. That clearly is not the case. The core growth we are looking at in the first quarter here is probably in the zip code of 6%, 7%, 8% range, down from 10% we just reported.

So it's just -- as we've talked about last quarter and this quarter, it is just this sequential moderation that you will see as we've anniversaried tougher comps and as the economy slows a little bit.

Okay, great.

Both of Andy's comments -- both of those comments don't affect core sales. Maybe I was focused more on your core question, rather than -- currency doesn't affect core because it is excluded.

Got it. Thank you very much.

Deane Dray, Citigroup.

Good morning. James Bank filling in for Dean.

I'd like to just speak quickly about the buyback you have in place. I think the first ever you guys have as a Company. Is your stock really the best investment that you are seeing relative to the M&A market today? And what metrics are you looking at similarly to your M&A protocol via ROIC or ROE?

It's a great question, because it is -- like you say, it is a brand-new program. So let me go through a couple of things and then, Andy, sweep up if I've missed any of the highlights.

So this is our first thing, and we want to be clear with you guys. We are not going to try to predict how many shares we are going to buy in any quarter or year. We are not going to try to give you any guidance on what we are going to do. You're going to hear about it every quarter with what happened in the prior quarter. And that is the way we are going to go about this.

This is a multiyear program. It is one that I think we've thought about for a little bit, given that our stock seems to get dislocated at times from market realities. How do you define dislocation? Obviously, that is in the eye of the beholder. We have a good governance policy with the Board on how we are going to do it. Again, that is between us and our Board, and that is how we are going to run the program.

Andy, anything you want to add to that?

Yes, I think on the valuation side, I think you asked is it really the best investment we are looking at. I guess we look at Actuant trading at 6.5 times EBITDA. A lot of the acquisitions that we've looked at or we look at that are in the funnel, some are in that range, some are much higher. You buy back your own stock, there is no risk from a standpoint of do I know this company well, what is going on behind the door that I don't know. No one knows that.

No one knows Actuant better than we do, I think, so we feel pretty good about that. We feel good about our prospects going forward. Yet this is not an either-or situation. I think that is really the thing we want to emphasize. Because when you put something like this, the natural inclination is, there is a big change. There is something different going on. We're not buying businesses anymore. That clearly is not the case.

We will be opportunistic. If we think the price is attractive, we might pick up some shares. If we don't, we won't. And we will just continue on until there is an opportunity again to pick it up. But no change in acquisition appetite or philosophy going forward.

Okay. Great detail on that. Thank you.

Just switching to Enerpac and you distribution markets, have you seen any destocking with your customers by any chance?

No, we really haven't. We've talked to distributors. In fact, we had our annual sales meeting recently with them. And we haven't really seen and they haven't communicated that they have any change in what they are doing on a stocking.

I think -- and it is true for most of our end markets -- there has not been enough time since the last recession for anybody to build up any quantity. Particularly in the vehicles that hurt us a lot in the '09 recession, we feel pretty strongly about that. But we don't see it in Enerpac either.

Okay, great. And then the higher growth verticals that you are targeting, I was wondering if you could just give a bit more color on which ones and what new product launches you guys have lined up.

All right, you are exceeding the one follow-up rule here. So will answer this one, but then we're going to move on.

Oh, thank you and I'm sorry.

No problem. So your question is about the growth and innovation and where some of our new product development is coming from?

Yes, the higher growth verticals in Enerpac or Industrial segment, as well as (multiple speakers) launches you are looking at.

Okay, so it's in Industrial. Probably the largest opportunity -- and we will be highlighting this next week, so I would encourage you to come to our investor conference, where they will be covering this. But one of the largest verticals that we have is in mining. Doing a lot of work mining globally. We've put a mining leader in place who used to be our Australian business unit leader, so he is a very accomplished senior guy in the Enerpac family. And he is leading the mining initiatives.

That is off to a great start. We will be showing some of the pictures of some of the products we've designed specifically around safety and MRO in a mining environment. Mark, anything you want to add to that one?

I think the other vertical that the team has been focused on is on rail, and bringing a bundle of products to that channel of distribution, that vertical market. And then the third piece related to Enerpac is integrated solutions, and really all the work that has gone on to not only globalize that business, but to put in place regional leaders that are really looking at solutions across the infrastructure model. So I think those are the key areas we are focused on.

Great. Thank you so much.

Charlie Brady, BMO Capital Markets.

Can we just talk about what you are seeing -- a little more granularity geographically, with particular attention on Europe? And I know your assumptions don't include a double-dip recession. But are you seeing from a customer base any kind of more hesitancy or pullback? And kind of what is the kind of contingency plan if in fact things do kind of go south a little bit more than what your guidance has embedded? And given that we came through the last downturn and pulled a lot of costs out of it since the last downturn, my guess is the firepower left to cut out more is probably diminished from what it was last downturn.

It is a great question, Charlie. It is probably the one on everyone's mind, and all I can tell you is we haven't seen the slowdown. We haven't seen a pushback. We haven't seen anything in our numbers or anything that we look at that really can point to Europe being somehow worse than anything else or different than anything else.

So we all worry that this is a self-fulfilling prophecy. If we all worry about it enough, it's going to happen. But it just has not showed up in any of our ordering patterns. So that is the overall comment.

If it does happen, as I said in the call, I think -- we did take out $40 million of costs in the last recession. We are leaner this time. I think there will still be some cost reductions we can do, but they won't be of that magnitude. And we will be focused on our end, how are we going to use our growth and innovation initiative? How are we going to use acquisitions to build during whatever that slowdown looks like?

So it's going to be a different recession than the last one. Obviously, there is a lot of variable costs -- bonuses and stock options and other things that you can regulate. But really, the primary -- we did most of the heavy-duty restructure we wanted to do. There will be some more, but it won't be to that magnitude.

Right. So as a follow-up, on the corporate expense line -- and I apologize if I missed it -- can you break out what the costs were for Weasler and what some of the expenses were and kind of what you'd see as a normalized run rate going into '12?

Andy, you want to grab that one?

I thought you would handle it, Bob, but I'll take it.

I would say $10 million a quarter, but that would probably be off.

A little bit high there, a little bit high. But we'll pull you down. How about $8 million to $9 million a quarter going forward?

The fourth quarter was heavy from a corporate expense standpoint. There was roughly $1 million in there for transaction costs, acquisition costs. We also took some provisions in the quarter for idle facility holding costs, write-downs of idle assets, that sort of thing, that is booked up at corporate.

A little bit -- some cleanup -- some year-end cleanup. We had some heavier legal fees in there, some heavier tax consulting fees, that sort of thing. But normal run rate, $8 million to $9 million going forward.

Great. Thanks very much.

Ajay Kejriwal, FBR Capital Markets.

First just on IS, so nice improvement in margins. Maybe any color on how should we be thinking about that? Obviously, it is a project business. And I know you have done work around cost improvement and being more selective. But is this like a structural improvement there? Any comments, thoughts there would be helpful.

On the IS business?

Correct.

I think it is structural in that we added costs when we did those two acquisitions, Hydra Tech and Hydraspex, and we put together a global team that did it. So I think there was global structure put in place that probably was a little bit ahead of revenue.

I think this is the first quarter where that kind of balanced out, where what we had put in a year earlier was leveraged through the volume line.

I don't know any specific -- any other structural things we're talking about changing. I think it is now we've got the organization in place, and as the additional volume comes through, we're going to be leveraging that fixed cost structure. Andy, anything you want to add, or Mark?

Yes, I'd say we've probably been a little bit more selective in the last 6, 9 months. There is a formal committee that reviews all quotes that go out of there, and the bigger ones are bounced upstream. I take a look at some of the bigger ones myself on that. So I think we are being more disciplined that way. We definitely have a methodology and a process down.

The one caution I would give is this is -- because it is a project business, this is always going to be lumpy. And it can move margins up and down quarter to quarter. But certainly we feel much better about where we're at with IS in general today than maybe a year ago in terms of the predictability of the business, the profile of the business. And I think there is upside as we go forward. It is not something you're going to measure quarter to quarter, but we're pretty excited about this. And there is a very healthy pipeline of ideas out there right now.

(multiple speakers) the bigger -- let me add one thing on that, and that I'll let you have your follow-up. The bigger thing, I think, on IS again is volume. There are some excellent projects that are going through the funnel as we speak right now. They are not awarded yet, but you've done enough work that you're starting to get to a fairly high degree of confidence level.

And I think the concept of these large infrastructure projects that really aren't managed by day-to-day budgets or state budgets, they are very big programs, things like the Venice MOSE project that we won a quarter ago. That thing has been planned for five or 10 years. Those things don't get impeded based on what's going on with government. I guess the concern you'd have is can the contractors get financed. But these are not things that are normal GDP type cycles. They really are projects that have long tails on them, and I think are going to get funded.

[Now let's go to your --]

Good. Thanks for the color. On Energy, you talked about Cortland and the wins there. But maybe any color on what you're seeing there with subsea projects, any wins, any end market activity pickup that you are seeing, and then any color on the nuclear activity. I know you had a sizable exposure, but could we talk about that a little bit? Thank you.

Mark, why don't you handle the nuclear? I'll start with just giving maybe more of a broad stroke.

But the recovery that we have seen in Energy over the last couple of quarters has really been very broad-based. Clearly, we've seen some pickup in the refinery business. That was a piece of business that last year was really down year-over-year. We've really seen that bottom out and start coming up the other side. I think some of that just gets to a point where it has to be maintained. You've just got to get at the deferred maintenance. You can't let it go any longer. So that has been beneficial.

I think the emerging markets have been quite strong. There is a very large gas program and opportunities going on down in Australia and Southeast Asia that are parts of the world that we are really very focused on. So there is a lot of good, broad-based activity happening, not just in the Cortland side, where we saw pickup in the seismic, but really across both Hydratight and Cortland.

Mark, anything you want to add to that?

On the nuclear side, what I would add is despite what you are hearing relative to nuclear in Japan and in Germany, in North America there is a continued commitment to nuclear. And we've really seen some great wins over the past quarter relative to maintenance around nuclear facilities domestically within the US. So that is where the growth is coming.

Good. Thank you.

Wendy Caplan, SunTrust.

You referred on the call to adding some new leaders in mining and rail, and you have talked about or announced some new executives in India in electrical and global customers. I guess I want to begin by focusing on Bill Axline's new position. Sort of speaks to your strategy to better serve your customers on a worldwide basis. Can you give us some sense of how large this program is today and what it could mean to Actuant in the future?

Sure. Mark, why don't you lead off with that, and I will chip in behind you on anything I want to stress?

Sure. Thanks, Wendy. One of the things that we've done over the past year is have a couple of global growth and innovation conferences. And mainly it was to roll out the new growth and innovation process. And through that, we identify opportunities for growth. And a number of the areas that were identified were around looking at larger global customers and bringing more solutions to them across the Actuant portfolio, and making sure that we were linking all those activities together.

And the second issue was around -- or opportunity was around vertical markets, and really identifying those key growth year vertical markets, understanding what the customer base looked like and understanding what the opportunities and seeing what kind of technology, products, services we could bring to help grow that business.

The way we are structured right now, we don't have anybody who is actually heading up that initiative and able at a high level to bring that together. And Bill, as you know, has a great background in customer relationships. And at an executive level, he is able to communicate with the customers at a higher level and really talk about what the opportunities are from a strategic standpoint.

And we've just begun with that, Wendy. That is part of the growth and innovation, which we are going to be measuring in years, not months or quarters. And we are really excited about the opportunity, and we'll be laying out that strategy as Bill gets his hands around it. But we see some exciting opportunities there.

That's great. So I would add a couple things. One is this is the result of some pressure testing that we did about global customers and attacking global customers. So this is a direct result of the growth and innovation.

We had two major things we were kind of pressure testing. One was a wind opportunity that we did, both with the combination of Enerpac and Hydratight. And the second was to start looking at accounts like Grainger and all the different businesses that sell product into that. So these are the two that we kind of looked at and got information that allowed us to go.

As for the other positions, you are absolutely right. Part of the SAE bill that you saw this year, as we are investing in growth and innovation, and really focused on emerging markets. So adding an India leader, we are basically trying to model what we do in sales in China with what we want to do in India. We want a piece of business with Tata. Enerpac has been there for a while. And Hydratight has been there for a while.

So we now have enough critical mass to put in an Actuant leader that is really going to drive that, letting the businesses matrix into their normal people, but really have somebody who can look at very high level relationships. What are we going to do for a facility that assembles some of the (inaudible) things? How about M&A and growing our joint venture relationships in a place like India?

I think Brazil is going to be right behind this. We are going to be doing the same thing there. So that is really part of the growth and innovation. And really a focus on emerging markets; getting a lot more attention than it did years back.

Thank you. And Andy, before I pass it along, can you size that for us at this point, in terms of the emerging markets as a percentage of sales for 2011?

Yes, I would say if you look at BRIC, Middle East as well, probably 15%. That is how we define emerging markets.

And it grew, Wendy, at about 25%. So it was a (multiple speakers) -- it was a great -- it grew twice as big as the rest of Actuant.

Okay. Thank you very much.

Mark Barbalato, Vertical Research Partners.

Good morning. We've actually covered quite a bit of ground. But I was wondering -- there has been a lot of growth in China on the truck side. I was wondering if you can talk about what you are seeing in China on the truck side and kind of what your expectations are going forward for volumes there.

Okay. So why don't I kind of start, Mark, and Andy, you guys can fill in behind? Our major truck customer there is CNHTC. We have done some business with a few of the other truck guys. There are a couple of major guys that we are very close to getting in production, but not quite there. So CNHTC is our big customer.

We saw kind of a slowdown in the earlier part of this year, in the kind of February/March/April/May timeframe. It seems to have stopped, and it's moderating. So we don't know whether the next move is up, flat or down. But that is kind of what we've seen.

We share that market with a local supplier, and they change our volumes based on quality and some of the issues they have with the other supplier and also by model. So sometimes we get a little bit of spikiness in there; it's a little more lumpy than you would think on a traditional truck account.

With that, I will turn it over to the other guys.

Not a lot to add. We don't expect to grow as much in truck this coming year as this past year. I would say we picked up share, but by normal growth patterns, certainly much better than developed markets.

Thank you. And just kind of touching on the share repurchase, it sounded like it's going to be more opportunistic. And I think you mentioned that it's going to span a couple years. What is the duration of the share repurchase? Is there an end date? And kind of can you just talk about what you are seeing in terms of seller expectations in the M&A market?

Okay. The program does have a defined ending. I don't think we communicated that, but what I did communicate was it is multi-year. So you should assume it is two or three. So that is the length of the program.

And obviously, those things are things Boards look at all the time to whether they want to renew them, up them, down them or whatever in between.

As for the valuations in M&A, we have seen -- obviously, with the multiples coming down, we have seen a little more stress, it seems like, in the discussion with people. A lot of people are trying to hold on to higher valuations. And most buyers are saying, hey, listen, we're not going to pay that given where the markets are right now.

So I think you've got a bigger gap in the valuations than you had before.

One of the benefits of what is going on right now in the world is private equity has a tougher time financing these deals. So that is a big, competitive group that gets involved in most acquisitions, and they've been hampered a bit with what is going on in the debt markets and their ability to kind of leverage them up and get the banks to put -- and bondholders to put money in.

Thank you very much.

(inaudible) or Mark, anything you guys want to add to that?

No.

Thank you.

Jamie Sullivan, RBC Capital Markets.

Thanks for taking the question. A follow-up on the guidance you touched on for the first quarter, and thinking about the full year. Just with the core growth in the 5% to 8% range for the whole Company, and I think you said something in the 6% to 8% range in the first quarter, just trying to think about the progression as you talked about the moderating comps. Is it just a modest moderation throughout the year? I wonder if you could clarify that for us.

We do think it is a moderating as the year progresses. Again, the way our numbers work is we do a bottoms-up rollup. So these numbers come up from business units, move to segment leaders, then are reviewed at the corporate level. It is our normal process. So we do that. I think Andy and I and Mark have been running the Company long enough, I think we know the guys who are optimistic and the guys who tend to be sandbaggers. And all of that is balanced in terms of our forecast. This is what the numbers rolled up to.

So we still think the comps in certain businesses are going to be harder in the back half of the year. In a company like Mastervolt or in a company like electrical, they are probably easier in the back half of the year. So it kind of goes both ways.

Okay. That's helpful. And just one follow-up. You talked about some of the trends in the China truck business, and some of your earlier comments about the moderating in Asia. Is that what you were speaking to? Or maybe you could talk about what you're seeing in the Enerpac business as well in Asia.

Bob, I'll jump in. I'll take that one. That's the primary -- I mean, that's the primary -- the big market we saw probably the most significant impact. But there is residual impact elsewhere, I mean, even within Enerpac. Some of the companies over there are government-owned companies. Clearly they've tightened up a bit, given a tightening monetary policy over the last 90 days. So some projects that we had quoted are deferred, if you will, on that. But it is not just truck. But it's not -- certainly things are not stopping by any stretch. It is just a little bit tighter.

Okay. Thanks very much.

Jeffrey Hammond, KeyBanc Capital Markets.

Just to understand maybe the moving pieces a little bit better. So you gave segment core growth rates and the total is unchanged. If we were to look three months ago -- and I know you didn't offer that -- but what feels better or worse versus three months ago? Where are those forecasts higher, or is it basically status quo?

Well, we deliberately don't pin down our preliminary guidance to a segment, just because we don't want to have the discussion you are trying to get me to have. I would say analytically, obviously Energy had a big fourth quarter, bigger than we expected, as did Industrial. I guess I look at Energy and say that will transcend a little more into '12.

Industrial, with everything everybody is talking about in the economy, I don't think we've deliberately said, okay, based on the fourth quarter, let's go pound up the Industrial forecast some more.

Electrical, I think is in the same zip code, and I would put it Engineered Solutions in that same zip code. So when you boil it down, we beat by $3 million or $4 million. As Andy went through, some of the currency that was a big benefit in the fourth quarter has reversed itself to today. So all of those things are factored in.

Okay, and then just to clarify on the OE summer shutdowns. So last year, was that auto/truck? And just to clarify, last year they didn't take shutdowns, and this year it was just normal shutdowns?

Yeah, it's not -- go ahead, Andy.

I just talked to the guys. We -- there were a few shutdowns last year, but it's much more broadspread this year, particularly on the truck side. Automotive, little bit of a change year-over-year. Part of that also contemplates the whole China discussion we had as well. There were bigger shutdowns. There is typically summer shutdowns there because it is so darn warm in the truck plants, they just don't want to work in there. So it's a combination of those two, both truck and auto, where just the production levels were lower this year relative to a year ago because of their schedules and holiday calendars and that sort of thing.

But the (multiple speakers). Go ahead.

What I was going to add was, I think this year was the normal year; last year was the aberration. Last year, they were trying to build inventory, and this year was more of a normalized year.

That's true.

Thanks, guys.

Jim Lucas, Janney Capital Markets.

This is Mike Wherley sitting in for Jim. I was just wondering, when you talked about August being the strongest month, that was a little bit of a surprise considering the auto shutdowns. And I was just wondering if you could say which end markets or which geographies kind of offset the auto shutdowns.

Everything.

I was going to say Energy and Industrial, but --.

Energy and Industrial had blowouts in terms of the month of August, but we had nice months from the other segments as well. That is one thing that we are seeing throughout this year. You have a strong quarter, you get a strong month, you get a weak month, you get a strong month. It is not a straight line out there. I would say June was number two, July was weaker. So it is just difficult to get to flow sometimes.

Okay. And then as a follow-up, I just wanted to ask about the M&A environment. You said you walked away from a deal in the US paying 10 times EBIT -- that it eventually went for 10 times EBITDA. And I'm wondering what is the mix between private and auction deals that you are seeing in your pipeline, and do you lean more towards the private deal in an environment where these multiples are being inflated somewhat?

Every deal had some private equity in there. There is just no way to avoid it, unless it is an inside deal where somebody is just selling to you. But if there is any auction process at all, there definitely are strategics -- sorry, there are definitely private equity groups.

The question is how are the strategics and are they in the process also. The one that got away from us, it turns out went to a strategic, but we actually -- we thought the competition was more focused on private equity.

Are there any end markets that you are targeting or that are more represented in your pipeline right now?

Industrial and Energy.

Okay. Thanks very much.

Robert McCarthy, Robert W. Baird.

Sneaking in under the wire. Thanks for taking my questions.

I must have missed it. What did you say about your expectations for acquisition spending in the upcoming fiscal year?

I think it is going to be similar (technical difficulty). I definitely don't have those details with me, Andy.

Yes, I would say it wasn't materially different than the base IT, the base Enerpac volume trends in the quarter. I would say it didn't have -- we talked about it last quarter. The third quarter wasn't a particularly high sales month for IS.

That's why I was hitting the whole-year number, Andy.

Yes. For the year, I would say that the growth was similar. I think over the long term, we believe IS will grow faster than IT. Because we are investing a lot there. We are taking share. We are less established than we are the industrial tools business.

(multiple speakers) I think it is fair to say we think it will be higher than the 5% to 10% next year.

Okay, that's where we're going. All right. Thank you.

Daniel Holland, Morningstar.

Thanks for sliding me in the back door here. Just a quick question on Electrical, actually. You guys mentioned that you had some pretty -- you had some cost reductions associated with Mastervolt. I was wondering if Mastervolt is still kind of a drag on the Electrical mix on the margin side right now, and when you kind of expect that to normalize out with the rest of the segment margins.

Andy, you want to start and I'll chip in behind you?

Clearly, when you look at segment margins overall in Electrical, Mastervolt is weighing it down. It's lower than that. They are essentially at a breakeven level right now. So that has quite an impact on margins.

It is really -- the answer is really when is solar going to turn around, and that is what is impacting their margins right now. The marine is doing okay, as expected, within the Mastervolt piece. But the solar, I think it is pretty well-documented what is happening in the industry right now. There is significant excess inventory in the pipeline, which is resulting in slow OEM -- or demand to OEM manufacturers.

Our view -- and Bob kind of commented on it -- I think it is going to take a little bit of time for that to work out. I think there is more potential back half of fiscal '12. Our expectations would be a better environment then than it is right now.

But again, for us, solar, with the pace that this thing is running at right now, is probably 2% to 3% of our overall revenue. But it is clearly having an impact on the margins and the mix, as you alluded to.

The only thing I would probably add to that is -- and I think most people are aware -- when we bought it, it was just the opposite. It was higher than the base electrical business.

So this is a volume play. I think it is very attuned to what we saw in the OEM businesses within Engineered Solutions and what we saw in Energy. Margins are very volume focused. And as that solar comes up the other side, it won't be an issue. But it's a drag today to the margins.

Got you. And one last quick question, just on a project mix on that you are seeing out in the Industrial and the Energy space. If you have any visibility just to kind of the size of projects that are out there in the pipeline, would you say they are on the smaller size or if you are actually starting to see some bigger project activity out there right now.

It's a pretty good mix out there. A big project -- like a huge project for us on the IS side would be $10 million. This is typically a $10 million. Typically, this is a $0.5 million to $5 million type contract, is what we are talking about. And half of that volume is less than $1 million. So there is a lot more of the small ones than the bigger ones out there. So these aren't $30 million, $40 million multiyear type deals. That is not what we are dealing with.

Got you. Thanks.

Ms. Bauer, there are no further questions at this time. Please continue with your presentation or closing remarks.

All right. Well, thanks for joining us for the call today. Just a note that we will be holding our annual investor day on October 4, next Tuesday, in New York. If you plan on attending and have not RSVP'd or need details on that, please let me know. Our first-quarter earnings call will be held on December 21.

We will be around all day to take any follow-up questions you have. Thanks again.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everybody.