Enerpac Tool Group Corp (EPAC) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Actuant Corporation's fourth-quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. (Operator Instructions) And as a reminder, this conference is being recorded Thursday, October 2, 2014.

It is now my pleasure to turn the conference over to Karen Bauer, Communications and Investor Relations leader. Please go ahead.

Good morning, and welcome to Actuant's fourth quarter of fiscal 2014 earnings conference call. On the call with me today are Mark Goldstein, Actuant's Chief Executive Officer; and Andy Lampereur, Chief Financial Officer.

Our earnings release and the slide presentation for today's call are now finally available in the Investors section of our website. And I apologize -- we had some slides posted in error initially from an internal meeting. But the actual earnings slides are out there now.

Before we start, a word of caution. During the 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 prior quarters, we'll utilize the one question/one follow-up rule in order to keep today's call to an hour. Thanks in advance for following this practice.

And with that, I'll turn the call over to Mark.

Thank you, Karen. And thanks to you on the line for joining us on our fiscal 2014 year-end earnings call. As discussed in this morning's press release, we saw a continuation of uneven economic activity in the fourth quarter. In light of this tepid demand, we continue to focus on self-help actions we can take to proactively drive long-term shareholder value.

Our full-year fiscal 2014 sales grew 9%, with core growth at 3%, which I believe reflects the general economic malaise and uncertainty leading to varying results depending on the end market. For example, we saw continued good growth in energy, agriculture, and truck, yet there is still a definite lack of traction in others, like mining, defense, and auto.

Our full-year earnings per share from continuing operations was up modestly this year but below our plan. There are a lot of contributing factors; but in a nutshell, we believe we took a number of actions that detracted from fiscal 2014 margins but put us in an improved cost position to deliver higher earnings in the long run. We also took steps to simplify and streamline the portfolio by divesting a couple of nonstrategic businesses. The resulting proceeds, along with another year of strong free cash flow, provided the capital we deployed for the Hayes acquisition and stock buybacks.

During the quarter, we opportunistically repurchased about 3 million shares of Actuant stock. We bought back the remaining 1.8 million shares under our prior authorization since fiscal year-end. And, as such, the Board authorized another 7 million share repurchase authorization yesterday.

In summary, in this low-growth environment, we've been focusing on the aspects of the business we can control. I will highlight these in addition to providing an in-depth discussion of our guidance later on the call.

With that overview, I'll turn the call over to Andy to go over the quarterly details.

Thank you, Mark, and good morning, everyone. Fourth-quarter results for both fiscal 2014 and 2013 included some items that skew comparability, and I'll start off today by covering them.

We completed the sale of the RV business in June for $36 million, which resulted in a pretax gain of $13.5 million, and related income tax expense of $10.7 million. While these net to an approximate $3 million or $0.04 a share gain, it distorted both our continuing business margins and tax rates in the quarter. Excluding this transaction, our fourth-quarter operating profit margin was 13.6%. Our effective tax rate was about 20%, and our earnings per share was $0.47 a share.

Excluding both the $3 million or $0.04 a share restructuring charge and an offsetting RV gain not contemplated in our guidance, fourth-quarter EPS was $0.51 a share. When you compare fiscal 2014's adjusted numbers to fiscal 2013, remember that we also had a non-returning $10 million non-cash tax gain, which drove a 2% effective tax rate in the fourth quarter of last year, and added $0.14 a share to last year's EPS. Excluding this tax gain and this year's RV gain, EPS was modestly up year-over-year.

Turning now to slide 5, I'll provide a few comments on sales. Our consolidated fourth-quarter sales were up 8% year-over-year, with core sales down 1% in the quarter; currency adding 2%; and net M&A, a 7% benefit. Similar to last quarter, both through Engineered Solutions and Energy segments, generated core growth, but a 36% decline in the quarter at Integrated Solutions drove both Industrial and Consolidated core sales into negative territory. I'll provide more color on sales by segment shortly.

Consolidated operating profit margins were down year-over-year after removing the fourth-quarter fiscal 2014 RV gain, as you see here on slide 6. This decline reflected the continued headwind from both sales and acquisition mix that we've discussed all year, as well as a $3 million additional restructuring provision in the quarter, and lower sales and production volumes.

Dissecting this 250 basis point year-over-year decline, 90 basis points was due to restructuring charges, 50 basis points was due to unfavorable M&A mix, and 40 basis points was due to segment mix, with the remaining 70 basis points being all other factors. With sales from our most profitable segment down on the core basis, and sales from the other two segments up, we had unfavorable segment sales mix.

The unfavorable acquisition mix comes in the form of currently lower than Actuant average margins for both the Viking and Hayes acquisition, as well as the historically above-average RV margins, which are now gone with the divestiture.

I'll turn now to segment level results, starting first with the Industrial segment on slide 7. The two words that you need to remember to understand Industrial segment results for the quarter are Integrated Solutions. We discussed last quarter the very tough comp we had in the first -- fourth-quarter with integrated solutions, which had a huge second-half last year and the polar opposite this year.

IS sales were down over 35% year-over-year in the fourth quarter, and masked flat sales for the other 85% of the segment. The IS comps get noticeably friendlier as we move forward into fiscal 2015.

Profit margins in the fourth quarter in the Industrial segment were up nicely this year on account of favorable sales mix and an excellent job by the Industrial segment team managing costs. Geographically, excluding IS, sales in the Americas were flat. They were down modestly in Asia, and up 10% in EMEA.

Moving on to the Energy segment on slide 8, overall segment sales results were very similar to last quarter's report. Sales increased 33% over last year as a result of 5% core growth; 5% benefit from foreign currency movements; and 23% from the addition of the Viking. Both Cortland and Hydratight are included in the core sales calculation in the fourth quarter while Viking is not. However, all three of these businesses reported year-over-year sales growth in the quarter.

Cortland wrapped up a solid growth year up double-digits both in the quarter and year-to-date, benefiting from robust offshore demand for umbilicals and synthetic rope. Hydratight has seen strong momentum in North America and Asia-PAC. And as for Viking, it reported its best sales and earnings quarter since being acquired, with strength in Asia offsetting weakness in Norway.

Profits in the Energy segment were down slightly from last year's very strong fourth-quarter. This was also evident in margins, which reflected unfavorable segment sales and acquisition mix, higher overhead incentive comp costs, and some unfavorable inventory adjustments.

Rounding out our segment discussions this morning, I'll finish up with Engineered Solutions on slide 9. Total segment sales were down 3% year-over-year on account of the sale of RV, but up 1% on a core basis. Weasler had its best quarter of the year, as it reduced backlog, while shipments to global truck OEMs were also in positive territory for Power-Packer.

Off-highway markets, including construction equipment outside North America, in defense remained weak. Engineered Solutions margins took a hit in the quarter due to the restructuring charges, the sale of the profitable RV business, and lower production levels pretty much everywhere except Weasler, in an attempt to reduce segment inventory.

Now, turning to cash flow and capitalization. We had a good cash flow quarter with $71 million of free cash flow and receipts of $36 million from the RV divestiture. We used these funds to repurchase 3 million shares of stock for about $100 million during the quarter. Our quarter-end net debt was $281 million, and our net debt to EBITDA leverage was 1.1 times.

Our capacity and availability remain in great shape, despite the fact that we deployed $284 million of cash during the fiscal year on 8.2 million shares of Actuant stock, and about $35 million on acquisitions. We'd have preferred to deploy all of these funds on acquisitions, but for a variety of reasons, the most important of which was valuation discipline, we instead returned the majority of it to shareholders in the form of buybacks.

Including the $71 million from the fourth quarter, we ended the year with $165 million of free cash flow, as you can see here on slide 11. While this was a reduction from last year, as a result of the electrical divestiture, we did generate free cash flow conversion to net income of over 120% for all of fiscal 2014, which is our 14th consecutive year above 100% conversion.

Including expectations for a strong free cash flow year again in fiscal 2015, to augment our strong balance sheet and borrowing availability, Actuant has tremendous flexibility in capital to create shareholder value. Good accretive acquisitions that strengthen our existing businesses and portfolio are clearly our top priority, but we won't hesitate to continue to opportunistically buy back shares.

That's it for my financial review this morning. I'll turn the call back to Mark.

Thanks Andy. Now turning to slide 12, I want to first cover what I think of the strategic highlights for the fiscal 2014 and their impact on our business going forward. There are really five key themes here.

The first is portfolio management. Between the divestiture of the Electrical segment, RV business and the Viking people business product line, we generated nearly $300 million of proceeds from portfolio streamlining. While these actions resulted in the loss of over $300 million in revenue, Actuant's remaining businesses are more tightly linked to our segment strategies, our four macro growth themes, and high-growth market opportunities.

The next major accomplishment is our continued progress on growth and innovation. We talked about this in greater detail on last quarter's call. And I'm pleased with the traction that we are getting on the significant cultural change to the organization. Major successes include agricultural seeder system, mining maintenance tools, joint integrity consultancy offers, among others.

Our high-growth market sales -- mainly China, Brazil, and India -- increased 19% in fiscal 2014. And we estimate about 1% of our fiscal 2014 core growth came from growth and innovation. And I expect that to increase in the years ahead.

The third highlight is leadership changes. In addition to the CEO transition in January, we have two new segment leaders. I purposely made the decision to flatten the organization and not backfill the COO role by asking the segment leaders to expand their roles from a pan Actuant perspective, as well as to take on high-growth market responsibilities. This helps to further align the organization around the operating company philosophy that you've heard me talk about accelerating at Actuant.

Speaking of operating company, we made solid progress on the various standardization and simplification aspects of that transition during the year. In total, 12 facility or product line moves were involved to reduce our cost structure, providing funds to reinvest in growth. While I unfortunately can't say that I'm pleased with the execution on each of these significant projects, I do believe that we are on the right track, and want to thank the hundreds of employees at Actuant that have been involved in their completion.

Finally, capital allocation. If you combined dividend and buybacks in fiscal 2014, we returned over 10% of our market cap back to shareholders. Given the high M&A valuations we encounter in the year, we believe those buybacks represented a better use of our capital. We did complete the Hayes acquisition in June, and its integration and financial performance to date have exceeded expectations.

Although Viking did not have the start that we had expected, the trends improved sequentially, and we are encouraged by recent results. While the year's financial results could be described as choppy at best, I can't help but be pleased about our positioning for the future.

Now let's turn to guidance on slide 14 and we'll start with sales. Our consolidated 3% to 5% core growth forecast for fiscal 2015 leads to sales guidance of $1.425 billion to $1.475 billion. This, along with many other factors we'll cover shortly, should drive earnings per share to $2.05 to $2.15 per share. On a macro level, we are not expecting big economic improvement, but continued choppy and painfully slow expansion. The addition of Hayes and divestiture of RV should offset one another on the top line, while the stronger US dollar will be a headwind.

Now a few core sales comments by segment. We expect Industrial core sales to improve due to the lack of an Integrated Solutions headwind from very tough prior-year comps. New product introductions, price, a slight improvement in industrial output and other growth innovation successes, will drive the balance of the growth. Energy is expected to have the highest fiscal 2015 core sales growth at 4% to 6%, with Viking now being factored into the calculation. This segment growth reflects the momentum we've been seeing for the past six months in Asia-Pacific and the Americas, with the North Sea and Europe lagging behind.

We expect a difficult start for Engineered Solutions in fiscal 2015, due to a huge comp from a year ago, primarily driven by the European truck pre-buy ahead of the 2014 emission standard changes. We expect truck to grow in fiscal 2015, but at a low-single digit rate, and are seeing slowing in growth in ag orders, which collectively reduced Engineered Solutions segment core sales from the 7% in fiscal 2014 to 2% to 4% in fiscal 2015.

We prepared the graph on page 15 to illustrate both the sales and earnings per share sensitivity of foreign exchange in our guidance. Until a month ago, we weren't expecting exchange rates to be a factor in the fiscal 2015 guidance, but the currency markets changed dramatically in September. The euro was at an average of just under $1.35 for our fourth quarter, and is now at $1.26. And as you can see on page 15, our fiscal 2015 guidance is based on $1.28 euro and $1.62 pound.

Each one point moved from here impacts annual sales by $3 million to $4 million. This assumption causes a $20 million sales and $0.05 earning per share headwind from fiscal 2014 actuals to fiscal 2015 guidance.

Now let's turn to page 16, and I'll start to bridge from fiscal 2014's reported EPS of $1.95 to the $2.10 midpoint of our fiscal 2015 earning per share guidance range. The first step is to pull the one-time items out of fiscal 2014's actuals, including the $0.04 per share RV gain that Andy covered earlier, and the $0.07 per share tax benefit that we had in the third quarter. We then remove a nickel for the foreign currency headwind, and arrive at an adjusted fiscal 2014 EPS baseline of $1.79 on a constant dollar continuing operation basis.

Now let's move to page 17, where we bridge from $1.79 to the midpoint of our fiscal 2015 earning per share guidance. The biggest nonoperational increase in fiscal 2015 EPS is the $0.18 per share carryover benefit of the buybacks completed during fiscal 2014 and during the first month of fiscal 2015. Next, we will have a $0.06 per share benefit from lower Viking retention expenses year-over-year. We've reminded investors all year that this was a headwind to Viking margins in fiscal 2014.

Going the other way is an $0.08 per share headwind for income taxes as a result of a higher effective tax rate. We are anticipating an approximate 21% effective tax rate in fiscal 2015 compared to an approximate 17% rate in fiscal 2014, due to some expiring benefits. At 21%, our effective tax rate is still below the majority of our peers.

Net M&A activity is another $0.03 per share headwind. This effectively represents the loss of RV profit in excess of the carryover profits from the Hayes acquisition. Simply put, RV was more profitable when we sold it than Hayes is today, largely due to most RV assets being fully depreciated or amortized, in contrast to Hayes assets, which were marked up.

The last headwind, and one so many have missed, involves incentive compensation. We have built in bonus expense at target in fiscal 2015 guidance, which is $13 million more than in fiscal 2014, given the low target results for the year.

That leaves us with the biggest driver of increased year-over-year earnings per share -- it's base business improvement. This includes incremental profit on an assumed 4% core sales growth, which is at the midpoint of our guidance, as well as the savings from and the lack of inefficiencies related to prior-year restructuring actions. This equates to a 45% combined incremental operating profit on about $60 million of core sales growth or about $0.33 per share. With all the pluses and minuses, this bridges to 17% earning per share growth at the midpoint of our guidance.

Other assumptions in guidance for fiscal 2015. We expect free cash flow to be $160 million to $170 million, and assume 66 million to 67 million shares outstanding for the earning-per-share calculation.

You can see a summary of the remaining assumptions here on page 18. The most important one is that, as always, our guidance does not assume any acquisitions or buybacks from today forward.

Finally, we have summarized our first-quarter guidance here on slide 19. We are anticipating sales to be between $335 million and $345 million, and earning per share between $0.40 and $0.45 compared to $0.44 a year ago. The first quarter will have the most difficult prior-year comp of the year. And it's important to consider three major items, including a 2% topline headwind from currency changes year-over-year; last year's European truck pre-buy, impacting Engineered Solutions; and an approximate $0.07 per share earning-per-share headwind from a low 8% effective tax rate last year, versus an expected 21% rate this year.

There are a lot of moving pieces to account for with our fiscal 2015 guidance -- currency, restructuring savings, core sales, tax and divestiture gains, and others. We felt that a detailed walk-through of the bridge would help you better understand our expectations for the new year.

At the guidance midpoint, we are anticipating a strong year for Actuant -- a 4% core growth; 9% operating profit growth; and 17% earning per share growth. Not to be lost in the details, future capital deployment and acquisitions, and share repurchases, should be additive to this double-digit EPS growth.

That wraps up our prepared remarks, so let's open up the phone lines for Q&A.

Jeff Hammond, KeyBanc Capital Markets.

Okay. Just some clarification on the restructuring savings. Can you talk about what you thought those savings would be in the quarter versus what you had? Because I thought you were building some in.

And then if you could just talk about, within this kind of 40% incremental margin, how much your restructuring savings is? And I guess if you back that out, what the implied incremental is?

Yes. I think if you look at the -- I'll answer the second question first -- if you look at our guidance for next year, what you're seeing in that last column is roughly $60 million of revenue, roughly 45% incrementals on those. Typically, we'd do expect 30% -- 30-ish -- low 30's percent conversion on that. which would leave you probably $8 million or $9 million, $8 million, $9 million, $10 million of other stuff in there. And that would be a combination of the savings from this past year.

Mix would be in there. There would be a headwind in there from unfavorable currency on transactions on product that we are bringing out of Asia to Europe, with a weaker euro. You would see restructuring savings in there. You would see lower restructuring provisions on a year-over-year basis. So, about 30% incremental would be kind of a norm. And then the balance would be sum of all the rest.

Okay. And then can we just talk about any visibility for improvement in the North Sea with Viking? And then separately, just any signs of improvement in Integrated Solutions in the quoting or activity pipeline?

Sure, Jeff. Actually, I was up at Viking last week and got an overview from them. And I think that we are going to see some of the same trends that we've seen the past quarter or so there. I think we've -- we continue to see very strong growth in Australia, especially with Gorgon and with Wheatstone. Those continue to build.

From the North Sea -- and again, our primary customer there is Statoil; they've taken a couple of rigs out of -- they're hotstacking them, so they are taking them out of commission at the moment. And so we'll continue to try to drive some increased market share in that area. But I think from an overall market standpoint, you're still going to see a shift of capital, so it's not going to be growing as quickly as it had historically in the North Sea area.

On the Integrated Solutions piece of it, I think our -- if you look at our funnel, the funnel continues to be very, very strong, but the time it takes to convert these larger jobs is just taking longer and longer. There is more of a push-out on a decision-making here. As a result, what the team has done is really focus more on standard products. So it's the sink lifts and gantries and some of the other standard product. And that's why you see the margins increasing in Integrated Solutions, but the volume will continue to be a challenge for us as we move forward.

And just a comment. You know, the gantries and sink lifts, the revenues there were up 10% to 20% a year; yet consolidated for IS, they were down 25% for the year. So it's just pointing to that -- those project volume, how much that was off this past year. And it's similar to what we've been talking about all year long. It is not for lack of quoting. People just have a very wait-and-see attitude. They want to keep a quote fresh, but they just are not pulling the trigger. We are not losing share here.

Correct.

Okay, thanks, guys.

Rob Wertheimer, Vertical Research Partners.

Just two quick questions (multiple speakers) -- thank you -- on end markets. In ag, I mean, there's a bit of doom and gloom out there, especially in North America, and some slowing -- really volumes elsewhere. I think you used the word slower growth. I'm just curious if you are able to comment on what is in the guide, if you're seeing any steep production cutbacks now? And actually maybe with some tight implements, you're not going to feel the whole fall in the market. I'm just curious about what you've got baked in there.

Yes. When you break it apart by geographic region, we clearly are seeing a lot of softness in Europe right now. The market down in Brazil is not too hot yet. We are taking some -- getting some wins with some of our new seeder product line in there.

Where we probably saw a change in the quarter was order intake on -- in North America. Our revenues were the best quarter of the year from a revenue standpoint, yet the orders are -- our backlog did move down our order pace; incoming orders moderated a bit in North America. So we are expecting the growth next year to be less than this year.

We do expect to be positive. What we are watching here very much is the mix between aftermarket and OEM. Because OEM was growing very robustly, and we are optimistic that we are going to see aftermarket kick in as well. So, still growth in North America, which is our biggest market for ag, but less so than this past year.

I think the only thing I'd add there, Rob, is that we are anniversarying the first -- you know, as we get into the fourth quarter of 2014 and first quarter of 2015, we're anniversarying the ag seeder. And, as you know, we had a very strong revenue stream from that. And we are going to be -- obviously, that will be difficult to comp as we go into the year as well.

Okay, thank you. And then just one other one on European truck. There's been a little bit of noise from some of the OEMs, either cutting forecasts or emphasizing the low-end, or just talking about negativity. But it's not clear that the market is really getting a lot worse versus not improving. I know you've got the comp issue with the pre-build or whatever.

What is your -- I mean, I guess you said it for next year, but what is your sense? I mean, do you think that there is actual underlying production cuts degradation? Or is it more just things haven't ramped as some of the OEMs expected?

Yes, I think the way I'd comment on that is, certainly last year in the first quarter, we had that double-digit growth for Class VIII truck in Europe. And in talking to our folks over the last week, we had not seen any changes in our order file or any pushback at all right now, based on current information. So we had not seen that degradation that you are hearing from some other folks. (multiple speakers)

In the run rate.

Right, in our current run rate.

Perfect. Thank you.

Ann Duignan, JPMorgan.

Can you talk a little bit about pricing across your different businesses? Are you seeing any competitive pricing, just given how muted end market demand is? Is anybody getting desperate out there to buy volumes in this environment? If you could just comment on that across the businesses, that would be great.

Yes. I'll -- let me comment on it. And I'll start with Industrial. And Industrial we still have good pricing power. As you know, with the Enerpac brand, we continue to have annual price increases to offset any costs that we may have. And so, I think we've got good position there.

As I move into Energy, I think prices are holding well in many of our businesses. Probably the most competitive right now is North Sea with Viking. That's where I would say we've got the most pricing pressure just because of the -- some of the trends that we talked about a little bit earlier.

I think Cortland and Hydratight continue to -- obviously, there's competitive pressures everywhere, but not anything different than what we've seen in the past. Relative to Engineered Solutions, again, I think we've got -- we're not seeing a lot of change in that environment right now from a pricing standpoint.

Okay, thank you. And then on Enerpac, can you give us a little bit more color by region? And I think you noted that North America and China were weak; Europe was -- delivered growth that was kind of counterintuitive? If you could just give us some color on that, that would be great. And then I'll get back in line then.

Sure. So, if we look at Industrial, let's start at the top. And Andy touched a little on this. Integrated Solutions was down about 35%. That's primarily in the European market.

If you look at the industrial tool business -- and I'll go over it by region -- in North America, it was soft. We had talked about a gain the last quarter of about 2%, and it was more flat this past quarter. And so we are not seeing that lift much. And we're seeing the same in China.

Europe had its strongest quarter of the year, with Industrial Tool with Enerpac. And we grew double-digit about 10% there. So we -- again, it's still choppy, fairly inconsistent, but Europe was stronger, which was probably counterintuitive to what most of us are hearing.

Can you give us any color in terms of where you think the strength came from? Was it just pent-up demand? And in Europe, was it any specific end market or country? You know, just a little bit more so we can think about the readthrough for others?

When we look at Europe, it's EMEA for us. So I mean, it's picking up Europe, Middle East and Africa as well. Clearly, we have done pretty well on the energy side as we've taken share with the Enerpac brand there. PowerGen, as well, has been a focal area.

I would say that mining and bolting, which are -- mining in particular, which is not as -- certainly not as big a market in Europe for us as it is in some of the other markets -- that has been a headwind for it; not huge, but it's been a headwind. I think Europe's just been executing very well. They have been for quite some time. And I believe there's some share gain there.

Yes, it's really across the board, I think, in Europe. And the other point I'd make on that, Ann, is in the US, our national accounts, the larger national accounts that we have, seem to be growing very positive mid-single-digit growth. And some of the smaller distributors, that are more specialty distributors, have had some challenges in the marketplace. So we see that bifurcation occurring as well.

Okay. Thank you. That was great color. Appreciate it.

Ajay Kejriwal, FBR Capital Markets.

So, the share buyback authorization, obviously a good announcement there. And you've been very aggressive with buybacks. I imagine the average price that you bought shares at was higher than where the stock is today. So, with this new authorization, just maybe conceptually help us think, given where the stock is, how would you be -- how should we be thinking about the base here in the next six to nine months?

I think what we'll give you is we'll continue to be opportunistic based on what the market price is. We reset the -- our target quarterly, we get a review of it quarterly. We put in a buying plan each quarter on this stuff. Obviously, if the market is serving up lemons, we'll make lemonade out of it. Right? I mean, we will try to be a little bit more aggressive when we see dips in it. And if it's stronger, which it was at the beginning of the year, we were buying back fewer shares. So, that's about, I think, all you're going to get out of us.

Yes. I think the other comment I'd just give you on that, Ajay, is, we look at this longer-term. So if in the short-term, there may be some -- a delta between market and our average buy price, but we're looking at this longer-term, and we feel very good about what we've done thus far.

Good. And then organic growth and looking at your guide for next year at the midpoint about 4% organic, I'm struggling a little bit here as to how that 4% number, we saw negative 1% in the quarter. And then when we think about the end markets, your Industrial -- ex-Industrial Solutions has been flattish. Engineered Solutions, lots of puts and takes, but net-net, does not look like that end markets are improving. So maybe just help us think about that 4% number.

All right. Let me break it down by segment, just give you a little color around that. So let's start with Energy. We are saying about 4% to 6%. The assumption there is that we've got current trends with our Hydratight business and our Cortland business. That's pretty much the run rate of where we've been. And then we've got some Viking growth year-over-year that's overlaid on top of that. And that gets us to that 4% to 6%, which is right down the middle of the fairway.

On the Industrial side, we've got 3% to 5%. So, a couple of elements here. One is you have easier IS comps going into this year. We talked about the fact that we had some big major jobs that were ending the end of last -- the end of fiscal 2013, beginning of fiscal 2014. And then we've got sequential improvement in the Industrial Tools side. We've got new products coming out, some of the vertical markets programs. And so, we feel that there's going to be that, as well as a slight lift in the overall market as we move forward.

From a -- from an ES standpoint, we're about 2% to 4% there. So, we are saying that there is a moderating ag and truck market. We talked about that earlier. We know there's going to be -- probably the toughest comp of the year is the first quarter. And then we know we had some operational challenges in the facilities in the second and third quarter that we feel that we can -- that hurt us on the top line that we can overcome going into fiscal 2015. So, that frames out at a high level, Ajay, pretty much what our sense is on that guidance.

The other comment I would make is when you -- especially when you look in Engineered Solutions, and we talked about this uneven demand. We had businesses that were up 10%. We had markets that were down 20% to 30% this past year that are baked into the overall Engineering Solutions, such as like off-Highway defense, that sort of stuff.

Those businesses started off double-digit negative in the first quarter of fiscal 2014. And they got to low-single digit negative or flat by the back half of the year. So, it's largely very difficult comps from the prior-year go away. And we are essentially on the bottom moving up. So it's some of that as well as opposed to we think we've got a runaway market here.

That's helpful. Thank you. And maybe quickly, could you give us the share count end of the quarter, please?

It'd be in the P&L there, I guess.

The average for the quarter.

Yes, the average for the quarter. Let me -- I'll dig it out. I'll dig it out. We'll take the next question, and I'll give it to you here.

Excellent, thanks.

Yes.

And our last question at this time is from Scott Graham with Jefferies and Company. Please proceed.

Two questions for you guys. The first is on the Industrial organic guidance of 3% to 5%. Is it fair to say that you're thinking of both businesses in that same range? Or are you thinking that the Tools business is higher or lower?

I don't know. (multiple speakers)

I think they are going to both be within that range. I think we'll have the IT on the low-end and the IS on the higher end due to the lower comps.

Right, right. Okay, great. The second question is, in the past, the Company has always been really good at contingency planning. So, you know, there is some vague reason your end markets has been alluded to in the last previous couple of questions. So, if things don't exactly work out to what you were thinking, and instead of 3% to 5% organic, you end up doing 2%, are there contingencies cost-wise to allow you to still get into the guidance range?

Yes, there's a couple, Scott. That's a great question there. Certainly, it's part of our planning process. Each one of the businesses look at contingency plans to deliver operating profit if revenue falls off 5% or 10%. And so they've got those plans that I would say are in various levels of completion, but we have sort of a top to our planning piece.

The other element is lagging spending, and making sure that we really manage that piece of it, which I think we've got a good team in place to continue that.

And then the third piece is our incentive comp, which gives people the incentive to make sure that they achieve the plan and manage it effectively, despite the fact that we may have some topline deltas.

Very good. Thank you.

Thanks, Scott.

Just a follow-up comment or follow-up answer here to Ajay's question regarding share counts. At the end of August, we had roughly -- orders there, our average for the month of August itself was about 66.9 million shares. We bought back since then 1.8 million shares. So we are sitting just a hair north of 65 million shares actually outstanding.

And then on top of that, you'd have about 1.5 million [issued] common stock equivalents on top of that. So you'd be talking mid-66 million -- 66 million, 67 million, right smack in the middle of that range at the end of the year.

For the diluted.

For the diluted, yes. That would be for the diluted.

Okay. And we have a question from Charley Brady with BMO Capital Markets. Please proceed.

(multiple speakers) Snuck in at the end. Thanks, guys. Just a quick one on the -- you mentioned there was an inventory adjustment in Energy. Can you just talk about that, what that was exactly?

Yes, I would say it had to do with some jobs that we were quoting on and working on within Cortland, where they had over -- they overran, essentially, their estimates on the job. Because there was -- a piece of it was that, a piece of it was -- I think they had to shrink at year-end of, I don't know, $0.5 million or something in their plans. So it was kind of the combination of those two.

Okay. And just the final one here. On the restructuring, I don't know if I missed it, did you guys quantify kind of what the payback in terms of dollars relative to the spend was? And what timeframe you expected to get that back?

We did not. I can give you a little bit of guidance just on the incremental piece we took here in the fourth quarter, I mean, right -- essentially, we booked a provision for severance that amounted to $3.1 million, $3.2 million in the fourth quarter. That clearly -- there is no payback in fiscal 2014 on that. That was a year-end adjustment coming through after we notified the Works Council on it.

About $0.5 million of that was in Enerpac. The other portion of that, the bigger portion, related to Engineering Solutions. You will see payback on that of roughly $1 million in savings; in fiscal 2015, it will be backend-loaded after the employees are moved out of that facility. And then you'd see about $2 million incremental come in the following year. So that's about it. (multiple speakers)

That's great. Thanks, Andy.

Yes.

Appreciate that. Thanks, guys.

Which all of our restructures are at about 24 month payback.

Okay. That was the last question we have. So now I'd like to turn it back to Ms. Karen Bauer.

Great. Well, thanks, everyone, for joining our call today. We'll be around all day to answer any follow-up questions you have.

Just a reminder, we are holding our annual Investor Day this upcoming Tuesday in New York. If you have not registered and would still like to attend, please give me a call or email me today, please. And our first-quarter call for your planning purposes is going to be held on December 18. Have a great day.

Thanks.

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