Enerpac Tool Group (NYSE: EPAC) reported Q2 EPS of $0.09, $0.03 worse than the analyst estimate of $0.12. Revenue for the quarter came in at $133 million versus the consensus estimate of $136.58 million.

Second Quarter of Fiscal 2020 Highlights*

• Net sales from continuing operations were $133 million for the quarter. Core sales decreased 10% year-over-year, with product sales declining 4% and service sales declining 28%. The net impact on sales from acquisitions and divestitures/strategic exits was a reduction of 6% while foreign currency had a minimal impact on sales.
• GAAP operating margin from continuing operations was 6.4% for the quarter versus 7.8% in the second quarter of fiscal 2019. Adjusted operating margin from continuing operations was 7.4% for the quarter ended February 29, 2020 compared to 10.0% for the quarter ended February 28, 2019.
• Adjusted EBITDA margin from continuing operations was 12.0% in the second quarter of fiscal 2020, compared to 12.4% in the comparable prior year period.
• GAAP diluted earnings per share (“EPS”) from continuing operations was $0.06 in the second quarter of fiscal 2020 versus $0.01 in the comparable period in fiscal 2019. Adjusted EPS from continuing operations was $0.09 in the second quarter of fiscal 2020 compared to $0.12 in the second quarter of fiscal 2019.
• The second quarter impact of COVID-19 on sales and adjusted operating income was approximately $2 million and $1 million, respectively, with most of the impact coming from lower China product sales.
• Completed the purchase of HTL Group, the UK’s leading provider of controlled bolting products, with annual revenues and EBITDA of approximately $17 million and $4.5 million, respectively.
• Reduction in year-over-year leverage (Net Debt to Adjusted EBITDA), achieving 1.3x at the end of second quarter fiscal 2020, down from 2.1x at the end of second quarter fiscal 2019.
• Suspending fiscal 2020 guidance in light of COVID-19 and volatile oil pricing.

“Despite global economic uncertainty along with the early impact of the coronavirus that affected our China results for the second quarter, we continued to execute on our strategic initiatives. We are pleased to have completed the acquisition of HTL Group in the quarter, which is the UK’s leading provider of controlled bolting products. This transaction expands our portfolio of bolting products as well as our global rental offering. In addition, our efforts around new product development have continued to be effective as we achieved greater than 10% of sales from new products for a second consecutive quarter. As recently announced, Jeff Schmaling will be moving into his new role as Chief Operating Officer and will continue to drive these growth initiatives,” commented Randy Baker, Enerpac Tool Group’s President and CEO.

Mr. Baker continued, “Given the high degree of uncertainty and continued market softness that impacted our business in the second quarter, we have accelerated our restructuring efforts to reduce redundant segment and corporate costs while enhancing our commercial and marketing processes to become even closer to our customers. These changes to our structure continue to be a key component of our EBITDA margin progression and taking these actions now will allow us to realize the projected $10 million of savings sooner.”

Outlook

Due to ongoing market disruptions from the COVID-19 pandemic and volatile oil pricing, the duration and extent of which are unpredictable at this time, the Company is suspending its outlook for the remainder of fiscal 2020.

Mr. Baker said, “As we move forward to the second half of fiscal 2020, we believe we are taking the appropriate cost savings actions to create a cost structure that will support a 20% EBITDA margin run rate. We continue to execute our strategy to drive best in class returns for our shareholders, demonstrated by our acquisition of HTL. We are confident in the progress we are making on our strategy, and once the current macro situation stabilizes, we intend to provide an update on our outlook for the remainder of the year.”

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