Enerpac Tool Group Corp. (NYSE:EPAC) is a premier industrial tools, services, technology, and solutions company serving a broad and diverse set of customers and end markets for mission-critical applications in more than 100 countries. The company has demonstrated solid operational execution, driving margin expansion and earnings growth in the latest quarter.

Financials

In the third quarter of fiscal 2024, Enerpac reported net sales of $150.4 million, a 3.8% decline compared to the prior-year period. This decline was primarily due to the divestiture of the Cortland Industrial business in the fourth quarter of fiscal 2023, which unfavorably impacted sales by $7 million. On an organic basis, which excludes the impact of foreign currency changes and the Cortland Industrial divestiture, the company's sales increased 1.2% year-over-year.

The company's Industrial Tools & Services (IT&S) segment, which accounts for the majority of its business, reported a 1% organic sales increase in the quarter. This growth was driven by the impact of pricing actions and favorable product mix, partially offset by a decline in the Cortland Medical business. Service revenue in the IT&S segment increased 7% organically, reflecting the company's focus on expanding its higher-margin service offerings.

Gross profit margin expanded 200 basis points year-over-year to 51.8%, driven by operational improvements related to the company's ASCEND transformation program, favorable sales mix, and the Cortland Industrial divestiture. Adjusted SG&A expenses, which exclude one-time charges, declined 6% year-over-year, resulting in a 50 basis point improvement in SG&A as a percentage of sales to 27.0%. These operational efficiencies, combined with the top-line growth, led to a 5.9% increase in adjusted EBITDA and a 240 basis point expansion in adjusted EBITDA margin to 26.4%.

On a GAAP basis, Enerpac reported diluted earnings per share from continuing operations of $0.41 in the third quarter. Adjusted EPS, which excludes certain one-time items, increased 21% to $0.47, benefiting from a lower effective tax rate and a lower share count.

For the first nine months of fiscal 2024, Enerpac reported net sales of $430.8 million, a 1.6% decline compared to the prior-year period. Organic sales growth was 2.8%, with the IT&S segment growing 3.4% organically. Adjusted EBITDA for the nine-month period increased 13% to $109.0 million, representing a margin of 25.3%.

Liquidity

The company's liquidity and balance sheet remain strong, with net debt of $63 million and a net debt leverage ratio of 0.5 times adjusted EBITDA as of the end of the third quarter. Enerpac generated $32 million in free cash flow in the first nine months of fiscal 2024, a 66% increase compared to the prior-year period.

Outlook

Looking ahead, Enerpac has updated its full-year fiscal 2024 guidance. The company now expects organic revenue growth of 2% to 3% and net sales of $585 million to $590 million. Adjusted EBITDA is expected to be in the range of $147 million to $150 million, representing a margin of 25.1% to 25.4%. The company has also lowered its capital expenditure guidance to $8 million to $13 million, down from the previous range of $12 million to $17 million.

Geographic Performance

Geographically, Enerpac's performance was mixed in the third quarter. Revenue in the Americas declined in the low-single-digits, while the company saw strong growth of low-double-digits in the EMEA region. The Asia-Pacific region experienced a low-double-digit revenue decline, primarily due to softness in the mining sector in Australia and weaker heavy lifting technology product sales.

Key Vertical Markets

The company continues to focus on its four key vertical markets: rail, infrastructure, wind, and industrial MRO. In the infrastructure segment, Enerpac's hydraulic solutions were selected for the Fehmarnbelt project, a critical aspect of the construction to precisely align the 78 concrete tunnel elements. In the wind market, the company's Tower Flange Alignment tool has been widely adopted by major wind turbine manufacturers.

Innovation and E-commerce

Enerpac's innovation efforts have also been well-received by the market, with the recent launch of its first battery-operated handheld torque wrench and other new products introduced earlier in the fiscal year. The company's e-commerce initiatives are also gaining traction, with a 35% year-over-year increase in e-commerce revenue in the Americas during the first three quarters of fiscal 2024.

Conclusion

Overall, Enerpac has demonstrated solid operational execution, driving margin expansion and earnings growth. The company's focus on operational efficiency, product innovation, and targeted vertical markets positions it well to continue delivering value for shareholders. With a strong balance sheet and liquidity position, Enerpac is well-equipped to navigate the current industrial environment and capitalize on growth opportunities.