ENERPAC TOOL GROUP CORP SEC 10-K Report

Enerpac Tool Group Corp, a global leader in high-pressure hydraulic tools and controlled force products, has released its Form 10-K report for the fiscal year 2023. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces in a competitive market environment.

Financial Highlights

• Total Net Sales: $589.5 million, a decrease of 1% from the prior-year sales of $598.2 million.
• Gross Profit: $301.0 million, representing 51% of total net sales, an increase from 49% in the prior year.
• Operating Profit: $121.6 million, an increase of approximately $37.7 million from the prior fiscal year of $83.9 million.
• Net Earnings from Continuing Operations: $82.2 million, an increase from $53.6 million in the prior year.
• Net Earnings: $85.7 million, an increase from $46.6 million in the prior year.
• Basic Earnings Per Share from Continuing Operations: $1.51, an increase from $0.95 in the prior year.
• Diluted Earnings Per Share from Continuing Operations: $1.50, an increase from $0.94 in the prior year.
• Basic Earnings Per Share: $1.58, an increase from $0.82 in the prior year.
• Diluted Earnings Per Share: $1.56, an increase from $0.82 in the prior year.

Business Highlights

• Business Overview: Enerpac Tool Group Corp. is a global leader in providing high-pressure hydraulic tools, controlled force products, and solutions for precise positioning of heavy loads. The company serves a diverse set of customers and end markets in over 100 countries, including refinery/petrochemical, general industrial, industrial maintenance, repair and operations (MRO), machining & manufacturing, power generation, infrastructure, and mining.
• Headquarters Relocation: The company, founded in 1910 and headquartered in Menomonee Falls, Wisconsin, is scheduled to relocate its headquarters to Milwaukee, Wisconsin, during fiscal 2025.
• Segment Information: The company operates primarily through its Industrial Tools & Services (IT&S) segment, which designs, manufactures, and distributes branded hydraulic and mechanical tools and provides services and tool rental.
• ASCEND Transformation Program: Initiated in March 2022, the ASCEND program aims to accelerate organic growth, improve operational excellence, and enhance efficiency in selling, general, and administrative expenses. The program is expected to generate an incremental $40 to $50 million of annual operating profit once fully implemented.
• Product Development and Engineering: The company continues to invest significantly in research and development to innovate and enhance its product offerings. R&D costs were $12 million in fiscal 2024, $9 million in fiscal 2023, and $7 million in fiscal 2022.
• Geographical Performance: In fiscal 2024, 38% of net sales were derived from the United States, 29% from Europe, 15% from the Middle East, 10% from Asia, and 8% from other geographic areas.
• Human Capital Management: Enerpac Tool Group employs approximately 2,000 people as of August 31, 2024. The company focuses on talent development, competitive compensation, and benefits, including healthcare, retirement plans, and flexible work arrangements.
• Employee Safety: The company prioritizes the safety, health, and well-being of its employees, achieving a total case incident rate (TCIR) of 0.50 in fiscal 2024, down from 0.64 in fiscal 2023.
• Operational Efficiency: The company has implemented single-piece flow processes in most of its plants to reduce inventory levels, lower re-work costs, and shorten lead times to customers.
• Supply Chain Management: Enerpac Tool Group sources materials and components from a global network of suppliers, managing supply chain risks associated with geopolitical and inflationary environments.
• Order Backlogs: The company had order backlogs of $41 million at August 31, 2024, down from $54 million at August 31, 2023, primarily due to efforts to decrease inventory levels globally.
• Future Outlook: The company intends to grow through organic growth strategies, margin expansion, and disciplined capital deployment. It plans to invest in its businesses, maintain a strong balance sheet, pursue disciplined M&A, and return capital to shareholders opportunistically.

Strategic Initiatives

• ASCEND Transformation Program: The company has implemented the ASCEND transformation program, which aims to accelerate organic growth strategies, improve operational excellence, and enhance production efficiency through a Lean approach. The program also focuses on driving greater efficiency and productivity in selling, general, and administrative expenses. The company has invested approximately $75 million in the ASCEND program, with key initiatives including restructuring plans to optimize global resources. Additionally, the company has divested non-core businesses, such as the sale of the Cortland Industrial business, to streamline operations and focus on core competencies.
• Capital Management: The company has actively managed its capital through various initiatives. It refinanced its credit facility, resulting in a new $600 million Senior Credit Facility, which includes a $400 million revolving line of credit and a $200 million term loan maturing in September 2027. The company has also repurchased $38.4 million of its own shares and paid $2.2 million in dividends during fiscal 2024. Furthermore, the company has maintained a strong balance sheet with $167 million in cash and cash equivalents as of August 31, 2024. Capital expenditures for fiscal 2024 were $11 million, primarily for the build-out of a new headquarters and the purchase of business assets.
• Future Outlook: The company plans to continue its focus on driving shareholder value through sustainable business strategies, including organic growth in key vertical markets, margin expansion through operational efficiencies, and disciplined capital deployment. The ASCEND program is expected to conclude by the end of fiscal 2024, with anticipated total investments of $75 million. The company aims to leverage its strong balance sheet and cash flow generation to invest in business growth, maintain financial stability, pursue disciplined M&A opportunities, and return capital to shareholders. Additionally, the company is preparing to relocate its corporate headquarters to a new downtown Milwaukee location in fiscal 2025.

Challenges and Risks

• Economic Conditions: Supply chain issues, including shortages of components and raw materials, could increase costs or cause delays in fulfilling orders. The company has experienced supply shortages and inflationary pressures in the past and expects these challenges to continue. Deterioration in the global economy and challenging end-market conditions could impact the company's ability to grow and adversely affect its financial condition.
• Geopolitical Risks: Disruptions in global oil markets, such as those caused by the Ukraine/Russia conflict and armed conflicts in the Middle East, could negatively affect the company's business. Uncertainty over global tariffs and changes in U.S. domestic and global tariff frameworks could also negatively impact the company's results.
• Operational Risks: Logistics challenges, including global freight capacity shortages, could increase freight costs or cause delays in fulfilling orders. The company faces collection risks for receivables in foreign jurisdictions and relies on independent agents and distributors for marketing its products. Cybersecurity threats and vulnerabilities pose significant risks to the company's systems, operations, and data. The company may not be able to maintain operational improvements from its ASCEND transformation program and restructuring actions.
• Regulatory Risks: The company is subject to various laws and regulations that may change in ways detrimental to its competitiveness or results. Compliance risks could result in significant costs or cause the company to restrict current activities or curtail growth plans. Health, safety, and environmental laws and regulations may result in additional costs.
• Market Risks: The company operates in highly competitive markets and may be forced to cut prices or incur additional costs. International operations pose political, currency, and other risks. The imposition of climate-related laws and regulations that disadvantage the oil & gas industry could adversely impact the company's results.
• Strategic Risks: Failure to develop new products or gain market acceptance for new products could adversely affect the company's business. The company's growth strategy includes strategic acquisitions, which may not be successfully executed. The company may not realize planned benefits from acquired companies, and indemnification provisions of acquisition agreements may result in unexpected liabilities. Divestitures and discontinued operations could negatively impact the business.
• Financial Risks: The company's indebtedness could harm its operating flexibility and competitive position. The financial and other covenants in its debt agreements may adversely affect the company. Increased interest expense from variable rate debt could negatively impact financial results.
• Ownership Risks: The market price of the company's common stock may be volatile, and quarterly revenues and operating results may vary significantly. Various provisions and laws could delay or prevent a change of control.
• General Risks: Geopolitical unrest and terrorist activities may cause economic conditions to deteriorate, harming the company's business. The inability to attract, develop, and retain qualified employees could have a material adverse impact on operations. The company's intellectual property portfolio may not prevent competitors from developing similar products, and competitors could assert that the company has infringed their intellectual property rights.

SEC Filing: ENERPAC TOOL GROUP CORP [ EPAC ] - 10-K - Oct. 21, 2024