Actuant Management Discusses Q4 2012 Results - Earnings Call Transcript
September 27, 2012 2:00 PM ET
Q4 2012 Earnings Call
September 27, 2012 11:00 am ET
Karen Bauer - Communications & Investor Relations Leader
Robert C. Arzbaecher - Chairman, Chief Executive Officer and President
Andrew G. Lampereur - Chief Financial Officer and Executive Vice President
Mark E. Goldstein - Chief Operating Officer and Executive Vice President
Allison Poliniak-Cusic - Wells Fargo Securities, LLC, Research Division
Robert Barry - UBS Investment Bank, Research Division
Charles D. Brady - BMO Capital Markets U.S.
Deane M. Dray - Citigroup Inc, Research Division
Ajay Kejriwal - FBR Capital Markets & Co., Research Division
Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division
Jamie Sullivan - RBC Capital Markets, LLC, Research Division
R. Scott Graham - Jefferies & Company, Inc., Research Division
Michael J. Wherley - Janney Montgomery Scott LLC, Research Division
Damien Fortune - JP Morgan Chase & Co, Research Division
James Kawai - SunTrust Robinson Humphrey, Inc., Research Division
Daniel Holland - Morningstar Inc., Research Division
Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division
Ladies and gentlemen, thank you for standing by, and welcome to the Actuant Corporation Fourth Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Thursday, September 27, 2012. It is now my pleasure to turn the conference over to Karen Bauer, Actuant's Director, Investor Relations and Communications. Please go ahead.
Good morning, and welcome to Actuant's Fourth Quarter of Fiscal 2012 Earnings Conference Call. On the call with me today are Bob Arzbaecher, Actuant's Chief Executive Officer; Mark Goldstein, Chief Operating Officer; and Andy Lampereur, Chief Financial Officer.
I would like to point out that our earnings release and the slide presentation supplementing today's call are available in the Investor section of our website. Before we start, let me offer the following cautionary note. During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Investors are cautioned that forward-looking statements are inherently uncertain, and that there are a number of factors that could cause actual results to differ materially from these statements. These factors are outlined in our SEC filings.
For purposes of today's call, all references to financial results exclude the Mastervolt non-cash impairment charge. We have provided reconciliations from GAAP to non-GAAP measures in the supplemental schedules attached to this morning's press release that remove the impact of this non-cash item.
Finally, consistent with prior quarters, we'll utilize the one question, one follow-up rule in order to keep today's call to an hour. Thank you in advance for following this practice. And with that, I'll turn the call over to Bob.
Robert C. Arzbaecher
Thank you, Karen, and thanks for joining us on our year end earnings call. By all measures, it was a solid finish for 2012. We delivered fourth quarter sales and earnings in line with expectations and better-than-expected cash flow despite weakening economic environment. We achieved strong cash flow in 3 of the 4 segments, with Engineered Solutions down, but in line with our expectations.
EPS before special items was $0.55 a share, at the top end of our guidance range and 10% higher than the prior year. The fourth quarter comparisons were by far the toughest of 2012 from a foreign currency standpoint. If we had stable FX rates from last year, our fourth quarter EPS would've been in the midteens.
Last week, we announced the Mastervolt impairment charge of approximately $63 million. We've been clear over the past 2 years that this business's performance has not met our expectations. Solar inverter market demand and profitability has deteriorated, as has the overall economic environment for Europe and since we completed the Mastervolt acquisition in 2010. While our solar sales have improved over the last few quarters, long-term profit margins and growth expectations have been reduced since the acquisition, and this impacted the impairment calculation. The impairment charge was non-cash in nature and has no impact on sales, margins or liquidity.
While clearly disappointing, I believe our organization has learned from this acquisition and continue to believe our 2-pronged growth strategy of acquisitions and core growth has and will continue to add value and create value for shareholders.
I'll turn the call over to Andy now and go through some quarterly details, and then I'll come back and answer a few topics after and the including guidance. Andy?
Andrew G. Lampereur
Thank you, Bob, and good morning, everyone. Fourth quarter came in pretty much as expected, and I'll provide some additional detail on that from what you read in this morning's press release. Summarizing the results for the fourth quarter at a high level, we generated sales of $405 million, which is right in the middle of our guidance range. Due to strong currency headwinds in the middle of the quarter, sales were up less than 1% from last year's $403 million.
Our fourth quarter operating profit margins increased 20 basis points from a year ago to 14.3%, and our diluted earnings per share from continuing operations were up 10% year-over-year to $0.55 a share in the fourth quarter. Cash flow was better than expected and put an exclamation point on 2012's full year free cash flow of $196 million, which easily was a new record for Actuant.
Now I'll provide more color on our results, starting first with the sales line. Fourth quarter sales were up less than 1% in total on account of a 5% foreign currency headwind from the weaker euro. Our average dollar to euro exchange rate in the quarter was about $1.24 compared to $1.43 a year ago, creating a $15 million sales headwind. Acquisitions added 2% to the year-over-year sales comparison while core sales increased 3%, which was in line with expectations.
As expected, we saw moderating demand from the third quarter driven by weaker conditions in Europe and continued softness in emerging markets. North America held up the best in the quarter.
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