Actuant FY 4Q16 Earnings Call Notes

Actuant’s (ATU) CEO Randy Baker on Q4 2016 Results

Markets remain difficult but end demand is more stable

“Most markets remain difficult in the quarter, but end demand is becoming more stable.”

May be two planting seasons until improved end market activity in ag

“Off-highway mobile equipment continues to be very weak, particularly in agriculture. While major manufacturers are reducing their inventory due to low crop prices and weak model year 2017 order writing. I expect we will now have at least two full planting seasons before we see improved end market activity”

General industrial market stabilized but little signs of growth

“The general industrial market appears to have stabilized, but shows little signs of growth. Industrial distributors continue to report sluggish retail order demand. The impact of weak oil, construction, general manufacturing markets have constrained with level of sales improvements throughout the world. ”

US is the most challenged region

“Regionally, the U.S. remains the most challenged, while Europe does not seem meaningfully impacted by the Brexit panic. On a positive side, the truck – on-road truck market in Europe and China remains supported by good registrations on an aged fleet.”

Destocking has occurred

” I think largely the destocking has occurred. And I think what will happen is the dealers and the larger distributors wind up having more line of sight to more demand. They are going to bring more inventory in. They have been very, very cautious with bringing any stock in and which is probably a good thing for us in the market that they are not filling their distributors and their shelves with inventory that’s going to take multiple quarters to use. So, I really think as we move through ‘17, we are going to see some improvement in that general industrial market.”

Ag equipment makers are sitting on a lot of inventory

” I think you follow the ag market pretty close like we do. And what we have seen is that the major distributors around the world are sitting on a lot of inventory. And so as the major OEMs have completed their order writing campaigns for combines, spring equipments, planting and seeding equipment it is a weak order demand. And I think you would have heard that from our major customers”

No green shoots of any major OEM in construction

“on the construction machinery side, literally, we see no green shoots yet of any major OEM getting movement in either excavators or ladder equipment that we sell into it.”

Andy Lampereur

Stabilizing at these lower levels

” I will provide color on my segment reviews, but can summarize overall market demand as weak due to sluggish economic conditions, which is being exacerbated by related OEM destocking impacting our engineered solutions in particular. With the exception of the anticipated step down in energy core sales trends from the third to the fourth quarter, things did not get worse sequentially, but instead appear to be stabilizing at these lower levels. We expect these trends will continue in the first quarter, with the exception of the energy segment, which will decline further on a core basis due to very tough first half comps from a year ago.”

Weakness in ag but bright spot in on highway vehicles

“The second half of fiscal 2016 has been defined by weakening Ag sales, which is the combination of both lower farm income and end market demand as well as excess inventory at our OEM customers and their dealers. This de-stocking and overall weakness was also evident in other off-highway markets and was slightly worse than the pace that we have predicted on our last quarterly earnings call. The bright spot has been on-highway vehicles, such as trucks and autos, which were up and flat for the year, respectively.”