It has been about a month since the last earnings report for Enerpac (EPAC). Shares have lost about 2.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Enerpac due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Enerpac Tool Q1 Earnings Miss Estimates, Increase Y/Y

Enerpac Tool delivered weaker-than-expected results for first-quarter fiscal 2022 (ended Nov 30, 2021). Earnings in the quarter lagged estimates by 23.8%. Revenues missed the same by 6.8%.

The company’s adjusted earnings per share in the reported quarter were 16 cents, lagging the Zacks Consensus Estimate of 21 cents. However, the bottom line increased 77.8% from earnings of 9 cents per share in the year-ago quarter on the back of revenue growth. The prevalent supply-chain, inflation and logistics woes were spoilsports.

Revenue Details

In the reported quarter, the company’s revenues were $130.9 million, reflecting 9.6% increase from the year-ago quarter’s figure. The top line gained from healthy performance at Industrial Tools & Services and Other segments.

The top line lagged the Zacks Consensus Estimate of $140.5 million.

Organic sales in the quarter under review were up 9% year over year, driven by 14% growth in product sales. Service revenues in the quarter played spoilsport, decreasing 3% year over year. Movements in foreign currency had minimal impacts on the quarter’s revenues.

The segmental information is briefly discussed below.

Industrial Tools & Services (92.7% of first-quarter fiscal 2022 net sales): Revenues in the reported quarter totaled $121.3 million, reflecting an 8.1% increase from the year-ago figure. The year-over-year growth in revenues was driven by market recovery worldwide and the impacts of pricing actions taken by the company.

Other (7.3% of net sales in first-quarter fiscal 2022): Revenues in the segment totaled $9.6 million, up 32.2% from the year-ago quarter.

Margin Profile

In the reported quarter, Enerpac Tool’s cost of sales grew 11.1% year over year to $71.3 million. It represented 54.5% of the reported quarter’s net sales compared with 53.7% in the year-ago quarter. The gross profit increased 7.9% year over year to $59.6 million. The gross margin decreased 70 basis points year over year to 45.6%. The gross profit results in the quarter suffered from impacts of inflationary, supply-chain and logistics woes.

Selling, administrative and engineering expenses increased 10.9% year over year to $48.5 million. Adjusted EBITDA were $17.6 million, up 20.5% year over year. The adjusted EBITDA margin was 13.4% compared with 12.2% in the year-ago quarter.

Adjusted operating income was $12.9 million in the reported quarter, reflecting an improvement from $9.4 million generated in the year-ago quarter. The adjusted operating margin in the quarter under review was 9.9% compared with 7.9% in the year-ago quarter. Net financing costs declined 44% year over year to $1 million.

Balance Sheet and Cash Flow

Exiting first-quarter fiscal 2022, Enerpac Tool’s cash and cash equivalents totaled $126.5 million, down 9.9% from $140.4 million at the end of the last-reported quarter. Long-term debt was stable sequentially at $175 million.

In the reported quarter, the company repaid $5 million of revolving credit facility, and its borrowing from the same source was $5 million. Its net debt to adjusted EBITDA was 0.7X at the end of the fiscal first quarter versus 0.6X at fourth-quarter end.

Enerpac Tool used net cash of $4.7 million for its operating activities in the first quarter of fiscal 2022. It generated net operating cash of $8.7 million in the year-ago quarter. Capital spending totaled $3.3 million, up 72.9% year over year. Free cash outflow in the reported quarter was $7.9 million compared with cash inflow of $6.8 million in the year-ago quarter.

In the quarter, the company paid out cash dividends of $2.4 million.

Outlook

Enerpac Tool anticipates healthy demand and focus on growth to be beneficial in fiscal 2022 (ending August 2022). However, headwinds related to cost inflation, supply-chain woes and logistics issues continue to be concerning.

For fiscal 2022, Enerpac Tool maintained its sales projection of $590-$610 million. It represents an increase from the year-ago tally of $528.7 million. Incremental adjusted EBITDA is expected to be 35-45% (maintained).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -39.02% due to these changes.

VGM Scores

At this time, Enerpac has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Enerpac has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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