To The Moon

• Total Revenue Increase: 2.3% in the first quarter of fiscal 2025.
• IT&S Business Revenue: Increased 2.3% year over year with a 1% decline in organic sales.
• Service Revenue: Increased 5.6%.
• Product Sales: Decreased 3%.
• Cortland Biomedical Revenue: Increased 2.6% year over year.
• Gross Profit Margin: Declined 90 basis points to 51.4%.
• Adjusted SG&A: Held flat at 29% of revenue.
• Adjusted EBITDA Margin: Declined 100 basis points.
• Adjusted Earnings Per Share: $0.40, a 3% increase from the previous year.
• Effective Tax Rate: Nearly flat at 22%.
• Net Debt: $63 million with net debt leverage at 0.5 times adjusted EBITDA.
• Total Liquidity: $529 million.
• Free Cash Flow Improvement: $11 million from the prior-year period.

• Warning! GuruFocus has detected 8 Warning Signs with KMX.

Release Date: December 19, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Enerpac Tool Group Corp (NYSE:EPAC) reported a 2.3% increase in total revenue for the first quarter of fiscal 2025, with growth in the EMEA and Asia-Pacific regions.
• The company successfully integrated the DTA acquisition, contributing over $3 million in revenue and $5 million in order volume, with expectations of EUR20 million in full-year sales.
• Enerpac Tool Group Corp (NYSE:EPAC) maintained a strong balance sheet with net debt at $63 million and total liquidity of $529 million, allowing for capital deployment in M&A and share repurchases.
• The company is seeing positive market response to new products, including battery torque wrenches and hydraulic pullers, which are expected to drive future growth.
• Enerpac Tool Group Corp (NYSE:EPAC) continues to focus on operational efficiency and productivity through its Powering Enerpac Performance (PEP) program, aiming for further margin improvements.

Negative Points

• The industrial macroenvironment remains sluggish, with weak manufacturing PMI and industrial production trends impacting the Americas region.
• Gross profit margin declined by 90 basis points year over year to 51.4%, primarily due to lower sales in the Americas and a higher percentage of service revenue.
• Adjusted EBITDA margins decreased by 100 basis points in the first quarter of 2025, influenced by the inclusion of DTA and lower gross margins.
• The service business, while growing, is margin dilutive due to its labor-intensive nature, posing challenges to overall margin improvement.
• The Americas region experienced weaker sales of standard industrial tool products, with customers adopting a cautious 'wait-and-see' approach amid economic uncertainties.

Q & A Highlights

Q: How did the first quarter of fiscal 2025 play out compared to expectations, given the weak industrial environment? A: Paul Sternlieb, President and CEO, stated that the quarter played out as expected, considering the tough comparisons and challenging environment. They are optimistic about better top-line performance for the rest of the year, driven by potential new policies and positive feedback from customers and channel partners.

Q: What impact could potential tariffs with China and Mexico have on Enerpac? A: Paul Sternlieb explained that Enerpac is in a relatively favorable position regarding tariffs. Imports from Canada and Mexico are negligible, and imports from China represent less than $20 million in value. They have strategies in place to mitigate potential impacts, including cost management and dual sourcing.

Q: Can you provide insights into Enerpac's performance in the EMEA region, given the challenging business environment? A: Paul Sternlieb noted that Enerpac continues to gain market share in EMEA despite macroeconomic pressures, particularly in Germany and France. This success is attributed to effective commercial strategies, leadership changes, and successful new product rollouts.

Q: What are the drivers behind the strong growth in Enerpac's services business, and is there a path to improve margins? A: Paul Sternlieb highlighted that service revenue, which includes rental and manpower services, tends to be more stable and can offset product business weaknesses. While service margins are generally lower, Enerpac sees opportunities for improvement through operational efficiencies and focusing on higher-margin service lines.

Q: How is Enerpac addressing pricing strategies in the current inflationary environment? A: Paul Sternlieb mentioned that Enerpac evaluates its pricing regularly and typically implements price increases once or twice a year to recover inflationary costs. They recently announced low-single-digit price increases in the Americas and EMEA, effective January, and are prepared to adjust pricing if necessary.

Q: What are the expectations for infrastructure spending in the US, and how might it impact Enerpac? A: Paul Sternlieb indicated that while infrastructure spending hasn't significantly impacted Enerpac yet, they see favorable indications of increased activity. Enerpac is well-positioned to benefit from this trend, particularly as projects progress to stages where their tools are needed.

Q: What are Darren Kozik's initial impressions and priorities as the new CFO? A: Darren Kozik expressed a positive view of Enerpac's culture and brand strength. His priorities include leveraging the continuous improvement mindset and the strong team to drive success in the market.

Q: What drove the return to growth in the Asia-Pacific region, despite the softness in mining? A: Paul Sternlieb attributed the growth to broad-based performance across core products and the heavy lifting technology business. The second brand strategy also contributed, with increased commercial focus and additional distributors in the region.

Q: How is the integration of the DTA acquisition progressing, and what is the market reception? A: Darren Kozik reported that the integration is going well, with strong order volumes. The combined capabilities of vertical and horizontal lifting technologies are being well-received, and Enerpac is expanding DTA's reach beyond Europe.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.