Enerpac Tool Group Corp (EPAC) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Actuant Corporation quarter earnings conference call.

Today's participants are Bob Arzbaecher, President and Chief Executive Officer; Andy Lampereur, Executive Vice President and Chief Financial Officer; Karen Bauer, Communications and Investor Relations leader.

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 Actuant's filings with the SEC. We are conducting a live meeting to coincide with the audio conference. If you would like to view the presentation online, please refer to your meeting invitation for details. As a reminder, this conference is being recorded Wednesday, December 21, 2011.

It is now my pleasure to turn the conference over to Mr. Arzbaecher. Please go ahead, sir.

Hi, it's actually Karen Bauer. Good morning and welcome to our first-quarter fiscal 2012 conference call. On the call with me today are Bob Arzbaecher, our Chief Executive Officer; Mark Goldstein, Chief Operating Officer; and Andy Lampereur, Chief Financial Officer.

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

And before we start, let me offer the following cautionary notes. 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, and these factors are outlined in our SEC filings.

Consistent with prior quarters, we will utilize the one question/one follow-up rule in order to keep today's call to an hour. Thank you in advance for following the practice. And with that, I'll turn the call over to Bob.

Thank you, Karen. Good morning, everybody, and thank you for joining us on our first-quarter earnings call.

I'm very pleased with Actuant's great start to the year with both sales and earnings solidly above our guidance. EPS of $0.50 a share represents a 39% increase and is higher than our $0.40 to $0.45 guidance range. EBITDA margins are up in all four segments, reflecting our continued strong operational performance.

Including the just completed quarter, Actuant has now exceeded our 2008 peaks for sales, earnings, and cash flow on a trailing 12-month basis. While there is no question we face an uncertain macroeconomic environment, Actuant's diversity is again showing its benefits as demonstrated in this quarter's results and our increased earnings guidance for the year.

With that overview, I'll turn it over to Andy to go through the specifics of the quarter, and we will come back and uncover a number of topics later. Andy?

Thank you, Bob, and good morning, everyone.

We are really happy with this solid start to fiscal 2012. We recorded sales of $393 million, which were above our guidance range, due to better-than-expected results from Mastervolt and Weasler, which were both acquired last year, but neither are in our core sales figures yet.

While we had puts and takes in core sales and other businesses and segments, in total they were in line with our expectations.

Our operating profit grew 38% year over year, faster than the topline, meaning we had profit margin expansion. Our base operating profit margin expansion took place in most segments and was coupled -- and was a combination of good mix between the segments. That's what drove margins in excess of the forecast. The higher volume and margins resulted in a 39% year-over-year increase in EPS from continuing operations to the $0.50, as Bob mentioned.

Now let's walk through the income statement in more detail, starting first with sales. First-quarter sales were up 23% year over year with a 15% benefit from acquisitions, 1% from currency, and 7% core growth. Core sales growth was generally in line with our expectations. As mentioned earlier, the majority of the topline upside came from stronger-than-anticipated sales from last year's two acquisitions, Mastervolt and Weasler.

From a geographic standpoint, all three regions reported year-over-year core sales growth, with North America leading the way, followed by Asia-Pacific and Europe.

Within the quarter, September was the lowest core sales growth month, followed by a rebound in the next two months. I'll provide more color on sales by segment later in the call.

We reported our eighth consecutive quarter of year-over-year operating profit margin expansion in the quarter. Consolidated margins were 14.6%, up 150 basis points from a year ago. These margins benefited from the incremental sales volume, operational improvements, and favorable mix. The favorable mix reflected core sales growth being the highest in our most profitable segments, being industrial and the energy segment.

Another positive, as Bob covered in his remarks, was the fact that EBITDA margins were up in all four segments during the quarter.

Now I'll provide some color on results by segment, starting off first with the industrial segment, which had yet another outstanding quarter. Year-over-year core sales came in at a strong 13%.

Industrial results included a strong showing in the traditional Enerpac industrial tools channel, which includes some of the higher-growth vertical markets, such as mining, power gen, rail, and oil and gas that we've discussed in the past. Enerpac's book to bill in the quarter was greater than 1 to 1 and included a number of integrated solutions, or IS orders, in the range of $5 million, including the two largest North American IS orders on record.

Additionally, IS margins continued to improve and contributed to the segment's 400 basis point-plus operating profit margin expansion over last year. We're really pleased with how well the industrial segment is performing and feel confident we should have a record year for the segment in fiscal 2012.

Energy segment sales increased 14% over the prior year, including 12% core sales growth. Both the Hydratight and Cortland businesses generated solid core sales growth, in line with our expectations. Hydratight's service business in particular was up nicely, reflecting some new maintenance contracts for U.S. nuclear plants, continued strong global refinery maintenance, and new work in emerging markets.

One special callout in the quarter with the additional booking related to the Gorgon field off of Australia, which now looks to be worth about 50% more than the revenue at the time we booked the initial contract.

Energy segment profitability was also good in the quarter, albeit at a slightly lower operating profit margin than last quarter's unusually high margins. We remain very enthusiastic with this segment's outlook for the balance of the year, given its later-cycle nature, the solid quoting activity we're seeing, good oil prices, and the overall industry maintenance and investment levels.

The biggest first-quarter core sales upside was the 7% growth posted by the electrical segment. This reflected both the price increases that we put in last May and June in fiscal 2011, as well as improved demand from the retail, OEM, Internet, electrical distribution, and utility end markets. While we are not increasing our full-year core sales outlook for this segment, we are encouraged by what we've seen in the first quarter.

As previously mentioned, Mastervolt also had a better-than-expected quarter with good solar inverter sales, most notably in the UK. We made good progress with more aggressive sales campaigns in the quarter, which also helped reduce inverter inventory.

Electrical segment EBITDA margins were up modestly on a year-over-year basis, but operating profit margins were down on account of Mastervolt acquisition mix, as well as some plant consolidation costs we incurred in the quarter to shift transformer production from North Carolina to Mexico.

Rounding out the portfolio, the engineered solutions segment reported 23% topline growth and 150 basis points of operating profit margin expansion. All the topline growth was from the Weasler acquisition and the weaker U.S. dollar.

Core sales were flat with the prior year, reflecting weaker automotive sales. Our truck sales were still strong globally, but European OEMs have cut production schedules for our fiscal second quarter, which we will cover in our guidance discussion later on the call. Despite the flat core sales, our margins improved, and they have continued to grow in engineered solutions, reflecting operational improvements, cost controls, and favorable Weasler results.

In addition to strong sales, margins, and EPS growth, we also had a solid cash flow quarter with $25 million in free cash flow. We used $20 million of this to buy back approximately 1 million shares of our stock in the quarter, which will add about $0.03 a share to our full-year 2012 EPS.

Net debt and net debt to EBITDA leverage for the quarter were essentially unchanged from year-end due to the stock buybacks. Our leverage was unchanged at 1.8 times, which is comfortably within our 1.5 to 2.5 long-term leverage comfort zone. Our liquidity also remains in great shape with over $525 million of unused revolver capacity available to fund growth initiatives and stock repurchases.

That's it for my prepared remarks today. Bob, back to you.

Thanks, Andy. On a trailing 12-month basis, Actuant is now operating at a level above our 2008 peak in terms of sales, net earnings, and cash flow, as you can see here on this slide.

Our focus since the great recession has been on repositioning Actuant's portfolio through divestitures and strategic acquisitions to markets that are benefiting from global megatrends. We have also increased our focus on expanding our existing businesses in emerging markets. While we feel it's good to be back to record levels on these key financial metrics, we're expecting to continue to set records and new highs each quarter as we did from 2000 to 2008.

In times of uncertainty, it's definitely a benefit to have revenue diversity in terms of end markets, geographies, and customers. Couple this with the core growth and capital allocation strategies we have been executing to increase our exposure in faster-growing end markets, and that diversity is even more beneficial today.

As you see here, our sales for the secular markets, such as energy and agriculture, now account for about 40% of our total revenue. Less than 20% of our sales today are exposed to markets that are seeing a modest pullback, such as heavy-duty truck and auto in Europe.

To me, this means our strategy is working. Our diversified business model is what drove consistent top- and bottom-line growth and shareholder returns from the spinoff to the great recession, and it's the same model that has delivered consistent results that we've reported in each quarter since the end of 2009.

The single most common question we get from investors today is about our exposure in Europe. We talked about this on investor day in October, but it bears repeating today. Approximately 35% of our revenue is generated on product sales shipped within our European-based businesses.

We estimate that a third of this revenue ends up in other parts of the world, including emerging markets. For example, about 20% of our European truck production is exported to places like the Middle East and Africa. Nearly half of the convertible autos that are built in Europe are exported around the globe. And finally, Cortland's umbilical and seismic tow cables are manufactured and sold in Europe, but then are put on ships and ROVs all over the world.

Of the remaining 25% of European sales that are tied to the European economy, 7% are tied to the broader oil and gas and energy markets that have been riding a wave of strong global energy demand and are not following European truck and auto trends.

The only meaningful changes from -- versus our fiscal 2012 guidance is -- that we're seeing in Europe involve the heavy-duty truck and convertible top markets, which are slowing more than anticipated in our original guidance. I emphasize the word more because our original guidance in the European truck was to slow as the year progressed to flat for the fiscal year. So now, we're projecting it to be down 5% for the fiscal year.

Similarly, auto we assumed had a 10% core reduction. Now, we're expecting it to be closer to 20%.

Demand in other European industrial markets, like Enerpac, are moderating, but are in line with our original expectations.

So in summary, the changes we are seeing versus our original guidance only impact European heavy-duty truck and convertible tops, and those are largely being offset by strength in other geographies and other vertical markets.

In today's uncertain economic environment, we are cautious with new investments that will increase Actuant's fixed costs. Similar to 2011, we've continued to do quiet restructuring, primarily moving some assembly operations from higher-cost countries to lower-cost regions. We've clearly invested in new growth and innovation capabilities and resources for that initiative, and we've been careful not to cut this growth pipeline.

We continue to have used LEAD to drive operational excellence throughout the organization, as you can see on this slide. Actions such as these have allowed us to deliver eight consecutive quarters of year-over-year margin expansion.

We are quite encouraged by Actuant's organic and acquisition growth prospects, despite the doom and gloom you hear about in the news every day. I feel that the momentum is growing in our businesses with the efforts focused on new product introductions, lifecycle-pricing strategies, and deeper penetration into emerging markets.

We are starting to put some points on the board with our growth and innovation initiatives. The recent sizable IS wins that Andy discussed in North America and the Gorgon contract expansion provide confidence that we're on the right track.

Acquisitions have been an important part of ATU's growth strategy over the last decade and will continue to be so going forward. While we did not close any transactions this quarter, a number of them are moving towards completion. We expect to close some during the balance of this fiscal year. While M&A auction market has cooled a bit in the last 90 days, we actually view this as a positive in terms of valuation and the opportunities going forward.

Now let's move to guidance. As you saw in this morning's press release, we are increasing our EPS guidance and cash flow guidance for fiscal 2012. We will now provide you a little more color and assumptions on that outlook.

Due primarily to the weaker euro, we are not increasing our fiscal 2012 full-year sales guidance. It remains at $1.6 billion to $1.65 billion. The original core sales guidance assumptions by segment held steady with our updated internal forecast, with the exception of engineered solutions, which we now expect to be down 3% to 6% for the fiscal year on account of the European truck and auto outlooks that we've already discussed. We remain comfortable that the full-year consolidated core sales range will land in the 5% to 8% range, with the other segment offsetting the decline in engineered solutions.

Now let's turn to EPS. First, we had a great first quarter and an EPS of $0.05 above the top end of guidance. This provides us a strong start to the year. With that strong start, our trailing 12-month EPS from continuing operations is $1.81 a share. This excludes EPS accretion from the stock buyback, which largely happened later in the quarter, and the carryover impact of the Weasler acquisition, which was completed in June.

The trailing EPS also does not include earnings growth that we are expecting over the next nine months from further core sales growth and margin expansion. We continue to expect margin expansion for fiscal 2012.

Similar to the sales guidance, currency is a bit of a headwind on earnings as well, if the euro stays below the $1.40 euro exchange rate that we had in the plan. For updated purposes, we're now assuming an average euro exchange rate of $1.35 for the year. Taking this into account, we now expect diluted EPS from continuing operations for the year to be in the range of $1.85 to $2.05.

Given the higher projected earnings, we've also increased our free cash flow guidance for the year by $5 million to $1.60 to -- sorry, $160 million to $170 million.

For the second quarter, we expect normal seasonality to impact sequential comparisons, given the holidays and the short month in February. We are endorsing sales guidance of $360 million to $370 million for the second quarter. We expect corresponding EPS to be $0.35 to $0.40, representing about a 25% year-over-year improvement at the midpoint of that guidance.

Consistent with past practices, our guidance does not include further acquisitions or stock buybacks. It also assumes the euro will be $1.35 and the British pound $1.55. These are weaker FX assumptions than our original guidance, but above today's euro exchange rate. To the extent the euro averages below the $1.35 for the balance of the year, you can expect a translational impact of about $750,000 of sales per quarter for every one point drop in the euro to dollar exchange rate.

That's it for my prepared remarks. I do want to wish everybody a happy holiday season before I turn it over to the operator for the phone lines for the question-and-answer session. Operator?

(Operator Instructions). Jim Lucas, Janney Capital Markets.

Thanks. Good morning and happy holidays. Two questions. First, with regards to industrial, I was wondering if you could talk a little bit more about what specifically is contributing to the IS margin improvement that you cited, as well as some more color on the two North American contracts.

And the second question, with regards to energy where you cite mix, what specifically was the mix in the second -- in the first quarter, and how are you thinking about that the remainder of the year?

Okay, so I'll handle the first part of that, for the industrial, and Andy, why don't you handle the margins for energy?

Jim, the biggest thing that is affecting the IS margins, the improvement, is if you recollect when we did the two small IS acquisitions a year ago, we built a global group, an organization, a cost structure to support a global initiative, so that group was separated from Enerpac. We invested resources there, and now we're getting the revenue.

So we had to put the horses in front of the cart, so to speak, and that is what happened. It hurt our margins early, but as the volume starts coming through, it has been better. There's obviously lead improvement and efficiencies going on, and we've done a lot with the facility in the Netherlands, but basically that is the major piece there.

With regard to your second question on margin, my understanding of what it was was just asking within energy what was the mix issue within it and how do we look at margins in this relative to last year and going forward.

Cortland does not carry the same margins that Hydratight does and Cortland certainly had decent sales growth in the quarter, so that's really the mix issue there. The other piece that I would add in there, Jim, is we definitely have been investing for growth in this thing, adding salespeople geographically really around the globe to try to globalize the Cortland business, adding more people in Hydratight as well, and I think that is part of the story as well for margins in the first quarter.

Fourth-quarter margins in energy were pretty good and we didn't think they would be sustainable throughout the entire year, so those would be the comments.

As for the two North American contracts that you mentioned, both are subject to confidentiality agreements with customers. One we will probably announce within the next month, once they let us. The other one will never be announced. It's just a -- it's a confidential program.

Robert Barry, UBS.

Hi, guys. Good morning. Was wondering if you could just walk us from the old guidance to the new. It looks like you beat by about $0.07 and I estimate the impact on EPS from repurchasing the shares is about $0.03, so that is $0.10 higher. How do we get down to the [five]? I assume some of it is FX and the rest would be business performance.

Yes, I guess the way I would look at that, Rob, is our range for the first quarter was $0.40 to $0.45. It wasn't $0.43, first off. So we had about a $0.05 beat on top of our range. That would be a piece of it. The stock buyback. You're right. It's in that kind of range, $0.025, $0.03 there.

Currency is a headwind. When I look for the balance of the year, it's probably a $0.03 drag or so. And the last piece of this would be kind of the combination of the little bit more modest look, more conservative look, at auto and truck in light of some of the new information we've got, as well as just other wiggles around within the business, but those would be the pieces of it.

You know, if you weren't facing some of the European headwinds and some of the feelings that you have there, knowing where the euro is going to go, I don't -- I think we might have gone higher. But you've got to look at the conservative nature of our outlook. There are still areas that are spooky.

I had an investor already this morning say, why did you take it up at all with everything going on? So, you know, you're damned if you do, damned if you don't.

What I would tell you is we do our forecasting the same way we've always done it. We went into the year with conservative expectations. I'm glad we did because when I look at how the year is coming together with what's going on in Europe, you've got to worry about that.

The only real meaningful change we've had is in auto and truck. Everything else, there are puts and takes with it all kind of netting out to nothing, but I think we were comfortable with the $0.05. It was what we beat by, and then the other puts and takes, Andy went you through already. The buyback was a plus, the euro's a minus. You go back and forth, you end up with $0.05.

Yes. If I could also just ask one on industrial, I know you were looking for core growth of 5% to 10%. You did 13% in the quarter. You mentioned strong IS bookings. The comps look like they're flat and easier, so both of those things look like tailwinds.

So, I mean, how should we think about that 5% to 10%? Is there something you think is going to pose an incremental headwind, maybe a little currency, but how are you thinking about that? Thanks.

Yes, I think our 5% to 10%, again, was not an expectation for quarterly growth year over year. It was been a full year expectation. So we -- when we set that 5% to 10%, our expectation was we would be doing better than 10% out of the blocks and it would average down to 5% or 10% over time.

So, we are very happy with the start of Enerpac. We're encouraged by it. Could there be upside to it? Sure, there could be. There could be downside as well, but that's kind of, I guess, the -- we think 5% to 10% is a good average for the entire year.

Yes, very short cycle business. I mean, we get an order today, it ships on Friday, and that's just the nature of most of this.

Now the IS, as we talked about, is better. You get a little more visibility because these projects take a while to get done, so I get a lot of confidence that the two North American wins that we got are going to be there and those projects will go forward, but you deliberately have to kind of err on the conservative side with Enerpac because of the short cycle.

And the margins.

Thanks, guys.

Deane Dray, Citigroup.

Hi. [James Bank] filling in for Deane. Thanks for taking the question. Thank you. Within Mastervolt, it looks like some success is brewing there. It's beginning to hum along. I just wanted to get a better sense if that's more pricing, cleared some inventory in the channel, or are you seeing some incremental demand, and I guess specifically in the UK?

I think if you look at our discussion around Mastervolt since we bought it, it's been about the inventory in the channel, and those European-served markets are not in the U.S. and it's always been about those European markets. And I think we told you guys in the fourth quarter that we were beginning to see some movement of that inventory in the channel.

The UK was a unique situation around a feed-in tariff that was pulled forward from the first quarter of 2012 back to December, and that led to a flurry of activity, and we happened to be really well positioned to take that on. Again, small inverters, so these are not the big ones. You hear about this probably from some of the bigger players, but for our target market, it was perfect.

And we were able to drive quite a bit of inventory out of the system and we were very happy with that because both our distributors and ourself were pretty stuffed. So this was a great quarter for that.

It did not come with the world's greatest margins, and so you probably saw that in the electrical segment's margins, but it did move a lot of inventory. And being a cash flow ROIC guy, we had paid for that inventory a while ago. I was happy to get rid of it.

Understood, understood. And just, circling back on the pace of the buybacks, if you could just give us a little bit more color on that versus your M&A pipeline. I know you mentioned that in your prepared remarks, and you hope to close some in the next -- or this fiscal year, but maybe if you could elaborate on some of the metrics you might be looking at versus the two. One, you might be purchasing shares in the market versus going after some of this deal activity. And that's all I have. Thank you.

Sure, the buyback authorization that we received from the Board was for about 10% of our stock, or 7 million shares.

As we stated from the onset, this was going to be a multiyear buyback program, not a situation where we'd be buying back half of it in the first quarter. We certainly were patient, as we talked about in the last earnings call and -- with our investor conference call as well, or investor conference, I should say. I think you'll see us continue to be patient going forward, and we don't feel a need that we have to go racing out to buy a bunch of stock all at once.

I don't think this is a situation of either or or. This is a situation of we're going to buy stock back and we're going to buy acquisitions.

The only thing that would slow us down on the stock buyback is if we had too much on the acquisition front where a leverage would inch out, but I certainly don't see that in the near term here. So I think you'll see more of the same on this, and you heard Bob's comments on acquisitions. We feel pretty good that there will be some deals later this year.

Andrew Obin, Bank of America Merrill Lynch.

Yes, good morning. Just a question on the industrial and electric margin. Just thinking maybe not a quarter or two, but if volumes hold up, can industrial and energy margins go back to where they were in 2007 and 2008, or on energy is the mix shift permanent?

I'll take that one. If you look at the margins, you really have to dissect both industrial and energy to take into account the acquisitions that have taken place.

We are at and slightly above 2008 margins for industrial if you exclude the IS business, which has essentially been added since there. So the margins are in good shape. Can they go higher? Yes, incrementally they can go a little bit higher, but this isn't something you should bank on. We are definitely putting investments into this business to grow it going forward, and that will help the core sales as we move forward.

Similarly -- and the other thing on industrial, I would say, is we commented that the IS margins came in low, but we are making progress on them during the quarter. I believe they were up a couple hundred basis points year over year, so we're encouraged by that. We put in a lot of pricing discipline into the process there.

On the energy side, it's a similar situation. Hydratight margins are approaching where they were at before, from a standalone standpoint. It's just Cortland came in quite a bit less than -- quite a bit lower than energy, or the energy at that time, which was Hydratight, and we think we can get those up as well with more volume.

Right, so I should not be thinking that -- I mean, I guess that was one of the negative surprises relative to our model. So I'm just thinking how long does it take to get the energy mix back to, quote-unquote, normal.

Well, I'm sure we were over your model in the fourth quarter when we did 26% (multiple speakers)

Well, right (multiple speakers). That's exactly right.

It's a business that has got lumpy margins, and it has mix issues. We had a lot of service revenue that is a little less in terms of profitability. There's some geographic profitability. Nothing that is outside of the normal lumpiness that we got with this business.

Get ready for the second quarter. That's the one where we normally have our lowest margins because you can't work on a rig in the North Sea in the middle of January. So, you know, this is just part of the business. There is absolutely nothing going on within Hydratight or Cortland that is negative in a margin picture. It's quite the opposite as volume comes back. But it was a quarter where that lumpiness came through.

And just a follow-up question. You know, historically you said the industrial business has been the most economically sensitive. What is the latest you guys are seeing out of that business on U.S. and Europe, just directionally? Thank you.

Yes, I think the leading, kind of the early cycle, or canary in the coal mine for us has always been kind of the truck business.

I think we saw that and commented on that already today. It is a short-cycle industrial business. We just had a great quarter. There was no issues. There was no inventory. We didn't see any discernible change in inventory patterns of our distributors.

You know, there was plenty of activity. Obviously we ask that question about 1,000 times a week around here, and the information is it's pretty steady. I've read a number of articles that say we all ought to turn off our browsers because the activity in industrial landscape isn't that bad. And I think Enerpac feels that in spades. It's just -- it's doing fine.

Ann Duignan, JPMorgan.

Hi. Good morning, guys. I'm sitting here laughing because I cannot fathom the UK and solar in the same sentence. It seems like an oxymoron. I just think it's unusual.

But could -- on that note, could you just talk a little bit about Mastervolt's organic growth? What kind of growth did it deliver in the quarter? And then, you mentioned that it was pulled forward out of next quarter into this quarter. What kind of organic growth are you looking for for that business going forward?

Okay, well, I'm going to start with that comment, but Andy has got to fill it in. And Ann, we're going to have to apologize because we didn't own Mastervolt last year, so there is no core to compare it to.

If you go back in pro forma, that was the highest quarter in the history of the solar industry, was the fall of 2010. So I don't have a comparison there to give you.

What I can tell you is that sequentially against the second, third, and fourth quarter that we owned it, this was up somewhere between 15% and 25% sequentially between any of those quarters. And fourth quarter was a little stronger than the third, but then this was materially stronger than that.

The UK order was a big chunk of that. I don't think we're sitting here saying you're going to see that every quarter. We're certainly not. I think we're, as Andy said earlier, not taking up the core guidance for electrical even though we had really a pretty good result. So that would be the guidance I'd give you. Anything, Andy, you want to add to that?

No, I think that is consistent. It answers our core number in the third quarter. I mean, we were projecting 10%, 15% up for the back half of the year.

Yes, but a very -- as you guys lived through it, (multiple speakers)

Very low numbers.

Yes, as you lived through it. It will be up, but it's far from where we expected it to be. So we're still looking at it very aggressively, how do we keep driving that higher.

Okay, that's good. And then, on the European truck and automotive, can you give us a little bit more color? I mean, Scania took down their build schedule by 15% for 2012 yesterday. Are you seeing that broadly across all of the OEMs? And then, the same kind of deal across all of the automotive OEMs, please.

Yes, I think it is reasonably broad-based. I don't think we're going to try to define each of our customers' delivery schedules, but it's fair to say the forecasts that we've gone to, which is this minus 3 to minus 6 for engineered solutions, which includes about a minus 10 in truck in our fiscal year, so you had a reasonable fourth quarter -- Andy's going to correct me on the number, but it's a -- it basically is based on a bottom's-up drive from those truck accounts.

So we get kind of 90-day out delivery schedules. Clearly, a lot of holiday shutdowns in December. We were hearing that in November and late October, so that was all part of the data.

I think what you're saying, in the range of zero to 10 down in truck in Europe, that sounds like kind of a consensus number that we're hearing from most of our customers, with a little bit of variability business to business.

The other thing that I think, you know, we studied and feel pretty comfortable with is the inventory levels that are in the field. Do you have a double whammy like we had in the last recession where not only was production down, but they were taking inventory out of the field? I don't see that this time. I don't think they rebuilt the inventory in the field, and so I think it's going to be more in line.

Two comments I would add to that, Ann. You had also asked about automotive.

We are seeing automotive demand slow from the OEMs. They just recently took down their schedules on some of our vehicles for the second quarter. In one case, they are not going to make any in the second quarter. It's a very small platform.

But I wouldn't say it's necessarily hand in glove or lockstep with the truck. Automotive for us, I think part of the decline is the fact that we had two items. We had some new platform introductions a year ago and we also had some power liftgate business that went away over time, so those are the two drivers.

The other comment here, I'd just have to -- let me elaborate a little bit, is on what the calendar-year companies are saying and what we are saying. We are looking down at five-ish or so for truck for the fiscal year in Europe. We were up 15 this past quarter. So we've got a plus 15 with the next nine months of production. That's how we end up with down five for this, as opposed to our number looking light, relative to light, on the downward side relative to what the OEMs are saying.

That's very helpful from a modeling perspective. Thank you. I appreciate it.

Charlie Brady, BMO Capital Markets.

Good morning, guys, and Karen. Just on Mastervolt, can you quantify for us, was it profitable in the quarter? Just given the language in the press release about aggressive sales promotions.

Yes, EBITDA margins, definitely we were up (multiple speakers) positive territory.

And then, switching over to electrical retail, the DIY electrical, it sounds from your comments that that's starting to see a little bit of improvement. I wonder if you could just give us a little more color on specifically into that market what you're seeing there.

Yes, it was a little improvement, and I put the word little with a big L, but it was a little improvement.

We also won some share in some channels outside of the big box. There -- picked up a little business with Wal-Mart. We have been a Wal-Mart supplier for a while, but picked up a new cable tie program there, and picked up some stuff in professional distribution. So, you know, those were also a couple of reasonable results.

But you did see some improvement in the DIY on a unit basis, and then, obviously, we've talked at length about the price increases over the last three or four quarters, and obviously that was a driver in that 7% core.

Have you guys repurchased shares subsequent to the quarter-end, and can you give us what the share count was specifically at the quarter-end?

Not going to comment on that.

The share counts, the actual share count, we can dig that up and we'll provide it later on the call. But in terms of what our buyback activity is, we are not going to provide any kind of comment on that. So we will give that later on the call here, Charlie.

Okay. Thanks, Andy.

Ajay Kejriwal, FBR & Co.

Yes, thank you. Good morning. So, wanted to follow up on engineered solutions. You had flat organic, but nice margin improvement. So could you maybe comment on what was the business mix impact? I know Weasler helped, but what was the business mix?

Yes. It was a -- it really was a good quarter. If you've seen the engineering solutions for the last four quarters, Andy's been giving it the gold star as those margins have come up with volume. This quarter, we didn't have the volume. It was flat, but we still saw the margin expansion.

Weasler was a pretty big help there. Weasler is cooking, both on the topline and the bottom. The topline is not in the core yet, as Andy talked about, but the margins are in the numbers and had a great quarter, north of 20.

So how should we think about the (multiple speakers)

That's EBITDA, guys. (Multiple speakers). That's EBITDA margin.

So as we think about the rest of the year, and you talked about truck and auto, so how do those businesses lever down? I would imagine above segment average, but any color on how should we think about the margins for the group?

Those businesses have a lot of temporary employees, so we do lever down and up some of our direct labor. That is something we can do. Again, we are an assembly operation. We don't do a lot of machining, so that's a big plus as how it levers down.

So, it's going to be incrementally 25%, 30% would be our normal average in truck, and auto would be in the middle of that, and --

Outside of Q2.

Outside of Q2, and so that would be how I'd guide you on that.

Good. Maybe just on the Australia Gorgon field, any color on what that opportunity is in terms of size and the duration? How long does that play out? Any other opportunities on the horizon, similar opportunities, that you are looking at?

Why don't I start with kind of the strategic, and Andy, you noodle about the number questions that he's asking.

The field of Gorgon is an LP field in the northern corner of Australia, and there's four or five other fields in Australia alone that are being investigated, trying to be permitted, things like that. So this is just what's going on with natural gas. You see it in frack gas here. You see a lot of offshore gas around the world.

Hydratight's in a great position for this. I think we commented on the last call that the Gorgon field was unique in that we are certifying other people's work. So there's an extra level of regulation that they're going -- that the customer is doing from a safety and an environmental point of view.

What added the extra field is just more work. There's -- the Gorgon field is massive. There's a lot of construction of the underlying infrastructure that happens globally, so we're literally doing work in Korea that will end up getting shipped down there, and we will have Hydratight people certifying things before it leaves Korea. So it's a massive program, classic big oil and gas, new asset kind of a field.

And what's positive for us is there are some other ones that are behind it. What behind it means is could be this year, could be three years from now, but it is an exciting part of the world for us on that. Andy, do you want to quantify some numbers?

Yes, sure. If you dial back to our investor call -- excuse me, our investor conference back in early October, we talked about Gorgon being a four- or five-year contract on this thing, $15 million to $20 million over the course of those years. We're looking up $10 million on that right now, so it is a pretty meaningful increase.

The other question I will just cover, Ajay, just give me a second, was Charlie's question on the share count. On the face of our income statement, our fully-diluted shares outstanding, which includes our stock options and that sort of stuff, was 75,142,000. As of the end of November, that was an even 75 million. So that's kind of the run rate going forward, assuming there are no buybacks subsequent to November 30. So just slightly below what you see on the face of the income statement.

Ajay, I don't know if you had another question there. Are you done?

No, I'm good. Thank you.

Jeff Hammond, KeyBanc Capital Markets.

Hey, good morning. You guys were talking more about growth and innovation. Sounds like you're having some early success in integrated solutions. I'm just wondering if you are able to or you have any process for kind of tracking progress, whether it be, hey, we think a point of our core growth is from growth and innovation. Just any way to kind of give us a report card in terms -- as that matures, how that is progressing?

Yes, I am going to start this, and then I'll ask Mark to chime in because it really, this initiative, I want to be very candid, Mark drives it a lot more than I do.

This program started about 18 months ago, and you know, Michael Tracy and some of the involvement we've had said expect that the first year is you're sowing the ground, and then year two you can start seeing some of the benefit.

And that's almost precisely what happened from our point of view. We are not -- we do have four or five metrics internally that we use. They're based on -- kind of time-based, how long things happen to have, and Mark, you can walk through some of those.

I don't think we're going to come out with a Wall Street, this is how much sales are related to growth and innovation. I think we will be talking to you after the fact of what we think it meant, like we did this quarter talking about those two big wins and we thought those were related to growth and innovation.

But I hope you see it and I hope the metric is in core sales, that our core sales are growing at or above the best of the best in industrial landscape. That is the whole purpose of this plan, and you're not going to get there in a year, but this is an initiative that is very similar to LEAD where it's a multiyear focus.

So with that, Mark, maybe you can give a little color on some of the programs that we can talk about.

So the first thing that we've done is really put together a growth and innovation process that we use across all businesses across the enterprise. And it really starts with visioning, strategy, and works through to the new product development phase gate process.

The second thing was hiring the right resources. We hired about 90 people in sales, marketing, and engineering over the past year to really focus on this. And we're beginning to see some good results there. The metrics that we've put together are around product vitality, so it's products introduced over the last three years as a percentage of total; a growth and innovation index, which is really looking at the funnel of opportunity that we have before it gets to phase gate.

We're focused on emerging markets, so we're looking at that and we're looking at vertical markets like mining and rail and some of the other verticals that we've talked about in prior calls.

We've focused on taking big ideas into smallest replicable units and doing pressure tests. And the best example I have is around the ag seeder, which is in the engineered solutions business, where a lot of work was done over about a three-, four-month period around pressure testing, the idea about the ag seeder. And we've recently received two prototype orders, and those will be launching into production over the next year or so.

You know, I think in my prepared remarks I made the real comment that was the zinger for you guys, and I think you should really take it to heart.

We are protecting these. We are protecting the pipeline of the growth and innovation initiatives. I can't control what is going to happen in the worldwide economy. I think we've got a good forecast out there, but one thing I can control is some of our growth and innovation. And we are going to fund these initiatives.

Obviously, you pull back on incremental additional initiatives, but we are really focused on this, and using this to be something fundamentally different than the last recession, we're really going to drive that growth and innovation.

So, obviously you can see I have a lot of passion on this area, and it is an area that has a great deal of focus here at Actuant.

Jamie Sullivan, RBC Capital Markets.

Hi, good morning. A question on China. You have that listed as one of the areas where things are a little bit softer. Just wondering if you could touch on that a little bit more, what you are seeing across the various segments, and what your outlook is there.

Yes. So yes, China has been softer. That's kind of not new news. We have had it for two or three quarters already, and so you're starting to, getting close by another quarter, going to be anniversarying that.

The slowness, probably the largest place we've felt it is in their truck, their Class A truck. We are starting to find some additional customers that we didn't have any volume last year with, so that hopefully starts offsetting some of this because you can't go lower than zero, so anything we get will be incremental. But truck was the largest piece.

You know, Enerpac was up low single digits for the most recent quarter, after being flat to down in prior. So, that one seems like it's already moved through that phase. And the last piece that we have a reasonable piece in is in our energy, and that was flat for the quarter.

Thanks, and then, I guess, just on energy overall, it sounds like you have some larger projects that give you visibility. Just wondering if you could touch on what you're hearing from customers on budgets for next year for maintenance, as well as capital projects, and just your outlook on that segment?

I think we're hearing pretty favorable comments. I think people like the price of oil right now and are investing. I think there is some deferred maintenance that got deferred during the recession and is getting scheduled, and it seems that it's a little steadier, not getting pushed around as much.

And then, the last callout I would say would be in refinery, which really took a very steep decline over the last two or three years and is climbing its way back. It's probably not back to the prior peak, but it is climbing its way back. And I think that is helping us.

The last nugget would be power generation. We have really seen a pretty good nuclear increase coming through our power generation product. These are turnarounds at nuclear facilities. I don't know if it has anything to do with Japan, but there is a kind of resurgence of some nuclear activity.

We bought the Biach asset, which got us a lot of brand cachet and also relationships with some of these power generation companies, and then Hydratight has been slipping in the back there with our DL Ricci product to do some of that machining. So, good example of how a Biach relationship is expanding into Hydratight.

Robert McCarthy, Robert W. Baird.

Good morning, everybody. Just want to make sure you are still awake there.

As I run the numbers, it looks to me like your revised core sales growth outlook for engineered solutions is down by, order of magnitude, 7 to 8 points. If you had an internal point estimate for organic growth expectations for the year, and for it to be unchanged you would have had to have raised your expectations for the other three segments by something approaching 2% in each case, but I don't -- I suspect that's not really the case.

You had sales brought forward at Mastervolt to explain some of the upside of electrical and any upside that you had in industrial you probably -- I mean, because of the short-cycle nature of the business and the fact that you haven't seen any impact in Europe, that probably means you want to be really careful there.

So my read is that the unchanged guidance is largely a factor of better expectations for the acquisitions, especially Weasler, and a little bit of help from mix and the share repurchase authorization. Is that a fair way to present it? Because that means that a point estimate organic growth expectation that you have internally has probably come in just a little bit because of the engineered solutions segment.

Yes, I think that's fair. The one thing I would add to it, Rob, is we laid out ranges in core growth by segments, and where we were at in the ranges was I think we feel better now where we are at the range is relative to originally. So, you know, you say --

In industrial and energy and intellectual --

Right, how we (multiple speakers) feeling about where we were at before and where we are at today with regard to energy and industrial, I feel better.

Electrical, we're up certainly higher than I expected to be. Whether we can hold onto that for the full year remains to be seen. But I'd say it's a combination of, yes, Mastervolt and Weasler. Weasler more so, doing a little bit better than what we had baked in. The other three segments being higher up in the range than maybe we had them pegged originally from a conservativism standpoint, offset by, as you pointed out, engineered solutions.

But in other words, you do feel a little better about each of the other three?

Yes, I think (multiple speakers) it is the classic put and take with Actuant, and we do feel better. And so, I think that is exactly right.

Okay. Then I wanted to just probe a little bit at one of the things that was said as part of opening remarks, and I think you brought it up, Andy, that September was the weakest month in the quarter for core growth.

And having just said that, my read is that if November had been the strongest, you probably would have identified that as well. Yet November probably saw, I'm going to guess, the lion's share of the Mastervolt impact. So, if you kind of adjust for any unusual impact in November, was there really any trend in the quarter in terms of organic growth? Or would you still say it seemed to get a bit stronger as the quarter went on?

Rob, did you get your degree in forensic accounting, or where did you get your degree at?

Well, I'm just -- you brought it up for a reason, and I'm trying to understand exactly why.

November and December were reasonably close to each other -- sorry, October and November. So yes, October was better. Your forensic analysis of our words is correct. But it wasn't as big -- it was not a big change, and a lot of the solar actually happened in October, as well as November. So it's not (multiple speakers). Oh, it's not even in the core.

Neither Mastervolt nor Weasler had (multiple speakers) core numbers.

Had anything to do with that. Okay, so the implication of that, then, is that you exited the quarter maybe with a little more momentum than the core sales growth number that you reported for the full quarter. And that has something to do with why you're more optimistic.

You're saying the pro forma for the two deals?

No. He's saying that September was the weakest, and October and November were a little better. Is that part of the reason that momentum -- are feeling better on the --

I don't know if it's as much that, Rob, as it is just where our November forecast. We roll forecast four times a year, so it's looking forward at some of the new contracts we have won as well.

I would definitely point out that it did not accelerate month on month on month in the quarter. October was the best month. November, a little bit lighter than that. But I think it's more so, just stepping back on the whole business, not so much looking at one quarter over the next, it's how we are stacking up for the year, some of the newer stuff we want as well.

Could I just follow up real quickly on the repurchase question?

It's going to cost you.

When you guys announced the authorization in the first place, you were quite clear that it wasn't intended to be an ongoing program, but rather to give you the firepower to do something opportunistically. And then, you acted immediately in the quarter, and I'm just -- I'm curious how that decision was reached. Is it frustration with the valuation level of the stock or did it have simply more to do with the timing of, you know, we don't have anything we need to use the cash for right now in terms of acquisition, we don't really need to be building a kitty, so why not. Could you just talk a little bit about how you reached the decision?

Yes, we kind of said we're not going to get into this every quarter, but we had to get Board approval, so we have to put an analysis to the Board for them to understand what we're talking about. And almost immediately after announcing that, our stock price was $19. So we jumped and jumped hard, and that is how we averaged 20 for the quarter. I don't know how else to describe it than that.

I guess I don't view 1 million shares out of 7 million shares as being incredibly aggressive for this program. Bob is right. The majority of these shares were under $20. But we think that is a pretty attractive price, and I think it looks good based on where we are at today.

I guess the last comment on the buyback is, you know, recognize that there's a lot of companies who put a buyback in who don't really have an intention of using it.

We put it in for a reason. We put it in because there are times where our stock appears to be dislocated from the economics that we're endorsing and that we're talking about, and when that happens, we want to have the luxury to buy our stock just like we buy acquisitions, and that is why we put the program in place.

You should expect us to use it, not for it just to sit on the shelf, but for us to use it. And I would expect when you see why we are using it, it is because we are confident of the future and we've got great liquidity in our balance sheet and that's when you're going to see us using it. And all that existed in those early -- in the first quarter.

Okay, thanks for humoring another question on the whole subject. I think that was helpful.

Scott Graham, Jefferies & Company.

What is now good afternoon here on the East and happy holidays to you.

By a minute only, Scott. It's not that bad.

Yes. I got to admit, I got a little bit lost there on the forensics stuff, so. But it was a very interesting listen, and I will go back in my notes and try to figure out what he said. That was (multiple speakers)

Yes, don't put a lot of credibility into it.

No, I do put a lot of credibility in it. That was good.

Here is -- my only question is about -- well, two questions, is about, A, when do you see the auto cycle, based on the platform wins you got out there, starting to turn for you? And B, Bob, Andy, if you could, give us an idea of maybe a little bit more granularity on the M&A. You're saying some things are moving to fruition. That's certainly good. Can you give us an idea of sizes of what you're looking at? Is anything bigger than a bread box out there?

All right, so I'll handle the M&A and Andy, you can noodle on the auto question.

The M&A, you know, some of the stuff we talked about last quarter is the stuff that's moving to the funnel. So we talked about some emerging market deals. We talked a little bit about international-type things, focused mostly on industrial and energy. Those are the segments that I think most of the activity will happen in.

And small, tuck-in in nature. There are some bigger things in the funnel, but the ones that we talked about last quarter that are moving towards fruition tend to be more of the tuck-in type. Anything you want to add to that, Andy?

No, no.

Then go to the auto.

Yes. On the auto front, which is where we think you were talking with the platforms, we expect kind of the next flurry of start-up productions on the platforms to be fiscal 2013, kind of the late, late fall of this calendar year, more so into next calendar, calendar 2013, is when you see a lot of the stuff that we've won starting in production.

Right. That's all I had. Thanks a lot.

Excellent, thanks.

Speakers, we have no further questions at this time. Back to you.

Great. Thanks for joining our call today, everyone. Just a note that our second-quarter call will be held on March 21. We'll be around all day to take follow-up questions you may have and have a happy holiday. Thank you.

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