Enerpac Tool Group Corp. (EPAC) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Actuant Corporation Quarter Earnings Conference Call. Today's participants are Bob Arzbaecher, President and Chief Executive Officer; Andy Lampereur, Executive Vice President and Chief Financial Officer; Karen Bauer, Communications and Investor Relations leader. As a reminder, this call contains forward-looking statements that are subject to the Safe Harbor language in Actuant's press release issued today in Actuant's filings with the SEC. We are conducting a live meeting to coincide with the audio conference. If you would like to view the presentation online, please refer to your meeting invitation for details. As a reminder, this conference is being recorded Wednesday, December 21, 2011. It is now my pleasure to turn the conference over to Mr. Arzbaecher. Please go ahead, sir.

Hi. It's actually Karen Bauer. Good morning, and welcome to our First Quarter Fiscal 2012 Conference Call. On the call with me today are Bob Arzbaecher, our Chief Executive Officer; Mark Goldstein, Chief Operating Officer; and Andy Lampereur, Chief Financial Officer. I'd like to point out that our earnings release and the slide presentation supplementing today's call are available in the Investors section of our website. And before we start, let me offer the following cautionary notes. During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Investors are cautioned that forward-looking statements are inherently uncertain, and that there are a number of factors that could cause actual results to differ materially from these statements, and these factors are outlined in our SEC filings. [Operator Instructions] And with that, I'll turn the call over to Bob.

Thank you, Karen. Good morning, everybody, and thank you for joining us on our first quarter earnings call. I'm very pleased with Actuant's great start for the year, with both sales and earnings solidly above our guidance. EPS of $0.50 a share represents a 39% increase and is higher than our $0.40 to $0.45 guidance range. EBITDA margins are up in all 4 segments, reflecting our continued strong operational performance. Including the just completed quarter, Actuant has now exceeded our 2008 peaks for sales, earnings and cash flow on a trailing 12-month basis. While there is no question we face an uncertain macroeconomic environment, Actuant's diversity is again showing its benefits as demonstrated in this quarter's results and our increased earnings guidance for the year. With that overview, I'll turn it over to Andy to go through the specifics of the quarter and we'll come back and cover a number of topics later. Andy?

Thank you, Bob, and good morning, everyone. We are really happy with the solid start to fiscal 2012. We recorded sales of $393 million, which were above our guidance range due to better-than-expected results for Mastervolt and Weasler, which were both acquired last year, but neither are in our core sales figures yet. While we have puts and takes in core sales and other businesses and segments, in total, they were in line with our expectations. Our operating profit grew 38% year-over-year, faster than the top line, meaning we had profit margin expansion. Our base operating profit margin expansion took place in most segments and was coupled -- and was a combination of good mix between the segments. That's what drove margins in excess of the forecast. The higher volume and margins resulted in a 39% year-over-year increase in EPS from continuing operations to the $0.50 that Bob mentioned. Now let's walk through the income statement in more detail, starting first with sales. First quarter sales were up 23% year-over-year, with the 15% benefit from acquisitions, 1% from currency and 7% core growth. Core sales growth was generally in line with our expectations. As mentioned earlier, the majority of the top line upside came from stronger-than-anticipated sales from last year's 2 acquisitions: Mastervolt and Weasler. From a geographic standpoint, all 3 regions reported year-over-year core sales growth, with North America leading the way followed by Asia-Pacific and Europe. Within the quarter, September was the lowest core sales growth month, followed by a rebound in the next 2 months. I'll provide more color on sales by segment later in the call. We reported our eighth consecutive quarter of year-over-year operating profit margin expansion in the quarter. Consolidated margins were 14.6%, up 150 basis points from 1 year ago. These margins benefited from the incremental sales volume, operational improvements and favorable mix. The favorable mix reflected core sales growth being the highest in our most profitable segments, being Industrial and the Energy segment. Another positive, as Bob covered in his remarks, was the fact that EBITDA margins were up in all 4 segments during the quarter. Now I'll provide some color and results by segment, starting out first with the Industrial segment, which had yet another outstanding quarter. Year-over-year, core sales came in at a strong 13%. Industrial's results included a strong showing in the traditional Enerpac industrial tools channel, which include some of the higher growth vertical markets such as mining, power gen, rail and oil and gas that we've discussed in the past. Enerpac's book-to-bill in the quarter was greater than 1:1 and included a number of Integrated Solutions or IS orders, in the range of $5 million, including the 2 largest North American IS orders on record. Additionally, IS margins continue to improve and contributed to the segment's 400 basis point-plus operating profit margin expansion over last year. We're really pleased with how well the Industrial segment is performing and feel confident we should have a record year for the segment in fiscal '12. Energy segment sales increased 14% over the prior year, including 12% core sales growth. Both the Hydratight and Cortland businesses generated solid core sales growth, in line with our expectations. Hydratight service business in particular was up nicely, reflecting some new maintenance contracts for U.S. nuclear plants, continued strong global refinery maintenance and new work in emerging markets. One special call out in the quarter was the additional booking related to the Gorgon field off of Australia, which now looks to be worth about 50% more than the revenue at the time we booked the initial contract. Energy segment profitability was also good in the quarter, albeit at a slightly lower operating profit margin than last quarter's unusually high margins. We remain very enthusiastic with this segment's outlook for the balance of the year, given its later-cycle nature, the solid quoting activity we're seeing, good oil prices and the overall industry maintenance and investment levels. The biggest first quarter core sales upside was the 7% growth posted by the Electrical segment. This reflected both the price increases that we put in last May and June in fiscal '11, as well as improved demand from the retail, OEM, the Internet, electrical distribution and utility end markets. While we're not increasing our full year core sales outlook for this segment, we're encouraged by what we've seen in the first quarter. As previously mentioned, Mastervolt also had a better-than-expected quarter, with good solar inverter sales, most notably in the U.K. We made good progress with more aggressive sales campaigns in the quarter, which also helped reduce inverter inventory. Electrical segment EBITDA margins were up modestly in a year-over-year basis, but operating profit margins were down on account of Mastervolt acquisition mix, as well as some plant consolidation costs we incurred in the quarter to shift transformer production from North Carolina to Mexico. Rounding out the portfolio, the Engineered Solutions segment reported 23% top line growth and 150 basis points of operating profit margin expansion. All the top line growth was from the Weasler acquisition and the weaker U.S. dollar. Core sales were flat with the prior year, reflecting weaker automotive sales. Our truck sales were still strong globally but European OEMs have cut production schedules for our fiscal second quarter, which we will cover in our guidance discussion later on the call. Despite the flat core sales, our margins improved and it continued to grow in Engineered Solutions, reflecting operational improvements, cost controls and favorable Weasler results. In addition to strong sales margins and EPS growth, we also had a solid cash flow quarter with $25 million of free cash flow. We used $20 million of this to buy back approximately 1 million shares of our stock in the quarter, which will add about $0.03 a share to our full year 2012 EPS. Net debt and net debt-to-EBITDA leverage for the quarter were essentially unchanged from year end due to the stock buybacks. Our leverage was unchanged at 1.8x, which is comfortably within our 1.5x to 2.5x long-term leverage comfort zone. Our liquidity also remains in great shape, with over $525 million of unused revolver capacity available to fund growth initiatives and stock repurchases. That's it for my prepared remarks today. Bob, back to you.

Thanks, Andy. On a trailing 12-month basis, Actuant is now operating at a level above our 2008 peak in terms of sales, net earnings and cash flow, as you can see here on this slide. Our focus since the Great Recession has been on repositioning Actuant's portfolio through divestitures and strategic acquisitions, the markets that are benefiting from global megatrends. We have also increased our focus on expanding our existing businesses in emerging markets. While we feel we're -- it's good to be back to record levels on these key financial metrics, we're expecting to continue to set records and new highs each quarter as we did from 2000 to 2008. In times of uncertainty, it's definitely a benefit to have revenue diversity in terms of end markets, geographies and customers. Couple this with the core growth and capital allocation strategies we've been executing to increase our exposure in faster growing end markets, and that diversity is even more beneficial today. As you see here, our sales for the secular markets, such as energy and in agriculture now account for about 40% of our total revenue. Less than 20% of our sales today are exposed to markets that are seeing a modest pullback such as heavy-duty truck and auto in Europe. To me, this means our strategy is working. Our diversified business model is what drove consistent top and bottom line growth and shareholder returns from the spinoff to the Great Recession, and it's the same model that has delivered consistent results that we've reported in each quarter since the end of 2009. The single most common question we get from investors today is about our exposure in Europe. We talked about this on Investor Day in October, but it bears repeating today. Approximately 35% of our revenue is generated on product sales shipped within our European-based businesses. We estimate that 1/3 of this revenue ends up in other parts of the world, including emerging markets. For example, about 20% of our European truck production is exported to places like the Middle East and Africa. Nearly half of the convertible autos that are built in Europe are exported around the globe. And finally, Cortland's umbilical and seismic tow cables are manufactured and sold in Europe but then are put on ships and ROVs all over the world. Of the remaining 25% of European sales that are tied to the European economy, 7% are tied to the broader oil and gas and energy markets that have been riding a wave of strong global energy demand and are not following European truck and auto trends. The only meaningful changes from -- versus our fiscal 2012 guidance is -- that we're seeing in Europe involve the heavy-duty truck and convertible top markets, which are slowing more than anticipated in our original guidance. I emphasized the word more because our original guidance in the European truck was to slow as the year progressed, to flat for the fiscal year. So now we're projecting it to be down 5% for the fiscal year. Similarly, auto, we assumed, had a 10% core reduction. Now we're expecting it to be closer to 20%. Demand in other European industrial markets like Enerpac are moderating but are in line with our original expectations. So in summary, the changes we are seeing versus our original guidance only impact European heavy-duty truck and convertible tops, and those are largely being offset by strength in other geographies and other vertical markets. In today's uncertain economic environment, we are cautious with new investments that will increase Actuant's fixed cost. Similar to 2011, we've continued to do quiet restructuring, primarily moving some assembly operations from higher-cost countries to lower cost regions. We have clearly invested in new growth and innovation capabilities and resources for that initiative, and we've been careful not to cut this growth pipeline. We continue to have -- use LEAD to drive operational excellence throughout the organization, as you can see on this slide. Actions such as these have allowed us to deliver 8 consecutive quarters of year-over-year margin expansion. We are quite encouraged by Actuant's organic and acquisition growth prospects despite the doom and gloom you hear about in the news every day. I feel that the momentum is growing in our businesses, with the efforts focused on new product introductions, life cycle pricing strategies and deeper penetration into emerging markets. We are starting to put some points on the board with our growth and innovation initiatives. The recent sizable IS wins that Andy discussed in North America and the Gorgon contract expansion provide confidence that we're on the right track. Acquisitions have been an important part of ATU's growth strategies over the last decade, and will continue to be so going forward. While we did not close any transactions this quarter, a number of them are moving towards completion. We expect to close some during the balance of this fiscal year. While M&A auction market has cooled a bit in the last 90 days, we actually view this as a positive in terms of valuation and the opportunities going forward. Now let's move to guidance. As you saw in this morning's press release, we are increasing our EPS guidance and cash flow guidance for fiscal 2012. We will now provide you a little more color and assumptions on that outlook. Due primarily to the weaker euro, we are not increasing our fiscal 2012 full year sales guidance. It remains at $1.6 billion to $1.65 billion. The original core sales guidance assumptions by segment held steady with our updated internal forecast, with the exception of Engineered Solutions, which we now expect to be down 3% to 6% for the fiscal year on account of the European truck and auto outlooks that we've already discussed. We remain comfortable that the full year consolidated core sales range will land in the 5% to 8% range, with the other segments offsetting the decline in Engineered Solutions. Now let's turn to EPS. First, we had a great first quarter and the EPS of $0.05 above the top end of guidance. This provides us a strong start to the year. With that strong start, our trailing 12-month EPS from continuing operations is $1.81 a share. This excludes EPS accretion from the stock buyback which largely happened later in the quarter and a carryover impact of the Weasler acquisition which was completed in June. The trailing EPS also does not include earnings growth that we are expecting over the next 9 months from further core sales growth and margin expansion. We continue to expect margin expansion for fiscal 2012. Similar to the sales guidance, currency is a bit of a headwind on earnings as well as well as if the euro stays below the $1.40 euro exchange rate that we had in the plan. For updated purposes, we're now assuming an average euro exchange rate of $1.35 for the year. Taking this into account, we now expect diluted EPS from continuing operations for the year to be in a range of $1.85 to $2.05. Given the higher projected earnings, we've also increased our free cash flow guidance for the year by $5 million to $1.60 to -- sorry, $160 million to $170 million. For the second quarter, we expect normal seasonality to impact sequential comparisons given the holidays and the short month in February. We are endorsing sales guidance of $360 million to $370 million for the second quarter. We expect corresponding EPS to be $0.35 to $0.40, representing about a 25% year-over-year improvement at the midpoint of that guidance. Consistent with past practices, our guidance does not include further acquisitions or stock buybacks. It also assumes the euro will be $1.35 and the British pound, $1.55. These are weaker FX assumptions than our original guidance but above today's euro exchange rate. To the extent the euro averages below the $1.35 for the balance of the year, you can expect a translational impact of about $750,000 of sales per quarter for every one-point drop in the euro to dollar exchange rate. That's it for my prepared remarks. I do want to wish everybody a happy holiday season before I turn it over to the operator for the phone lines for the question-and-answer session. Operator?

[Operator Instructions] Our first question from the line of Jim Lucas with Janney Capital Markets.

Two questions. First with regards to Industrial, if -- I was wondering if you could talk a little bit more about what specifically is contributing to the IS margin improvement that you cited and as well as some more color on the 2 North American contracts. And the second question with regards to Energy where you cite mix, what specifically was the mix in the second and the first quarter? And how are you thinking about that, the remainder of the year?

Okay. So I'll handle the first part of that, for the Industrial, and Andy, why don't you handle the margins for Energy? Jim, the biggest thing that is affecting the IS margin's improvement is if you recollect, when we did the 2 small IS acquisitions a year ago, we built a global group and organization, a cost structure to support a global initiative, so that group was separated from Enerpac. We invested resources there and now we're getting the revenue. So we had to put the horses in front of the cart, so to speak, and that is what happened. It hurt our margins early, but as the volume starts coming through, it's been better. There's obviously LEAD improvement and efficiencies going on, and we've done a lot with the facility in the Netherlands, but -- basically, that is the major piece there.

With regard to the second question on margin, my understanding, what it was, was just asking within Energy, what was the mix issue within it and how do we look at margins in this relative to last year and going forward. Cortland does not carry the same margins that Hydratight does. And Cortland certainly had decent sales growth in the quarter, so that's really the mix issue there. The other piece that I would add in there, Jim, is we definitely have been investing for growth in this thing, adding sales people geographically, really, around the globe to try to globalize the Cortland business, adding more people in Hydratight as well. And I think that's part of the story as well for margins in the first quarter. Fourth quarter margins in Energy were pretty good and didn't think they would be sustainable throughout the entire year. So those would be the comments.

As for the 2 North American contracts that you mentioned, both are subject to confidentiality agreements with customers. One, we will probably announce within the next month once they let us. The other one will never be announced. It's just a -- it's a confidential program.

Our next question from the line of Robert Barry from UBS.

I was wondering if you could just walk us from the old guidance to the new. It looks like you beat by about $0.07, and I estimate the impact on EPS from repurchasing the shares is about $0.03, so that's $0.10 higher. How do we get down to the $0.05? I assume some of it's FX and the rest would be business performance.

Yes, I guess the way I would look at that, Rob, is that our range for the first quarter was $0.40 to $0.45, it wasn't $0.43, first off. So we had about a $0.05 beat on top of our range. So that would be a piece of it, the stock buyback. You're right, it's in that kind of range, $0.025, $0.03 there. Currency is a headwind. When I look in the -- for the balance of the year, it's probably a $0.03 drag or so. And the last piece of this would be kind of the combination of the little bit more modest look, more consecutive look at auto and truck in light of some of the new information that we've got, as well as just other wiggles around within the business. But those would be the pieces of it.

If you weren't facing some of the European headwinds and some of the feelings that you have there, knowing where the euro is going to go, I don't -- I think we might have gone higher. But you've got to look at the conservative nature of our outlook. I mean, there are still areas that are spooky. I had an investor already this morning say, "Why did you take it up at all with everything going on?" So you're damned if you do, damned if you don't. What I would tell you is we do our forecasting the same way we've always done it. We went into the year with conservative expectations. I'm glad we did, because when I look at how the year is coming together with what's going on in Europe, you've got to worry about that. The only real meaningful change we've had is in auto and truck. Everything else, there are puts and takes with it, all kind of netting out to nothing. But I think we were comfortable with the $0.05, it was what we beat by. And then the other puts and takes, Andy went you through already. The buyback was a plus, the euro is a minus. You go back and forth, you end up with the $0.05.

Yes, if I could also just ask one on Industrial. I know you were looking for core growth of 5% to 10%, you did 13% in the quarter. You mentioned strong IS bookings. The comps look like they're flat to easier so both of those things looked like tailwinds. So I mean, how should we think about that 5% to 10%? Is there something you think is going to pose an incremental headwind? I mean maybe a little currency, but how are you thinking about that?

Yes, I think our 5% to 10%, again, was not an expectation for quarterly growth year-over-year, it was a full year expectation. So we -- when we set that 5% to 10%, our expectation was we would be doing better than 10% out of the blocks, and it would average down to 5% or 10% over time. So we are very happy with the start of Enerpac, we're encouraged by it. Could there be upside to it? Sure, there could be. Could be downside as well, but that's kind of, I guess, we think 5% to 10% is a good average for the entire year.

Yes, very short cycle business. I mean, we get an order today, it ships on Friday and that's just the nature of most of this. Now the IS, as we talked about, is better, you get a little more visibility because these projects take a while to get done, so I get a lot of confidence that the 2 North American wins that we got are going to be there, and those projects will go forward. But you deliberately have to kind of err on the conservative side with Enerpac because of the short cycle.

And the margins.

Our next question from the line of Deane Dray from Citigroup.

James Bank filling in for Deane. Within Mastervolt, it looks like some success is brewing there, it's beginning to hum along. I just wanted to get a better sense, if that's more pricing, cleared some inventory in the channel or are you seeing some incremental demand, and I guess, just specifically in the U.K.?

Well, I think if you look at our discussion about Mastervolt since we bought it, it's been about the inventory in the channel, and those European-served markets, we're not in the U.S., and it's always been about those European markets. And I think we told you guys in the fourth quarter that we were beginning to see some movement of that inventory in the channel. U.K. was a unique situation around a feed-in tariff that was pulled forward from the first quarter of '12 back to December, and that led to a flurry of activity, and we happen to be really well positioned to take that on. Again, small inverters so these are not the big ones. You wouldn't hear about this probably from some of the bigger players. But for our target market, it was perfect. And we were able to drive quite a bit of inventory out of the system, and we were very happy with that because both our distributors and ourselves were pretty stuffed. And so this was a great quarter for that. It did not come with the world's greatest margins, and so you probably saw that in the Electrical segment's margins. But it did move a lot of inventory and being a cash-flow-ROIC guy, we had paid for that inventory a while ago. I was happy to get rid of it.

Understood, understood. And just circling back on the pace of the buybacks, if you could just give us a little bit more color on that versus your M&A pipeline. I know you mentioned that in your prepared remarks, and you hope to close some in the next or this fiscal year, but maybe if you could elaborate on some of the metrics you might be looking at versus the 2, why you might be purchasing shares in the market versus going after some of this deal activity, and that's all I have.

Sure, the buyback authorization that we received from the board was for about 10% of our stock or 7 million shares. As we stated from the onset, this was going to be a multiyear buyback program and not a situation where we'll be buying back half of it in the first quarter. We certainly were patient as we talked about in the last earnings call and with our investor conference call as well or investor conference, I should say. I think you'll see us continue to be patient going forward, and we don't feel a need that we have to go racing out to buy up a bunch of stock all at once. I don't think this is a situation of either or, or. This is a situation of we're going to buy stock back and we're going to buy acquisitions. The only thing that would slow us down in the stock buyback is if we had too much on the acquisition front, where our leverage would inch up, but I certainly don't see that in the near term here. So I think you'll see more of the same on this. And you heard Bob's comments on acquisitions, we feel pretty good that there will be some deals later this year.

Our next question from the line of Andrew Obin from Merrill Lynch.

Just a question on Industrial and Electric margin. Just thinking, maybe not 1 quarter or 2, but if volumes hold up, can Industrial and Energy margins go back to where they were in '07, '08? Or on Energy, is the mix shift permanent?

I'll take that one. If you look at the margins, you really have to dissect both Industrial and Energy to take into account the acquisitions that have taken place. We are at and slightly above 2008 margins for Industrial if you exclude the IS business, which has essentially been added since there. So the margins are in good shape. Can they go higher? Yes, incremental, they can go a little bit higher, but this isn't something you should bank on. We are definitely putting investments into this business to grow it going forward, and that'll help the core sales as we move forward. Similarly, and the other thing on Industrial, I would say, is we commented that the IS margins came in low, but we are making progress on them. During the quarter, I believe, they were up a couple hundred basis points year-over-year, so we're encouraged by that. We put in a lot of pricing discipline into the process there. On the Energy side, it's a similar situation. Hydratight margins are approaching where they were at before from a stand-alone standpoint. It's just Cortland came in quite a bit less than -- quite a bit lower than Energy or the Energy at that time, which is Hydratight, and we think we can get those up and as well with more volume.

Right. So I should not be thinking that -- I mean, I guess that was one of the negative surprises relative to our model. So I mean, just thinking how long does it take to get the Energy mix back to "normal"?

Well, I'm sure we were over your model in the fourth quarter when we did 26%.

Well right, that's exactly right.

It's a business that's got lumpy margins and it's got mix issues. We had a lot of service revenue that's a little less than in terms of profitability. There is some geographic profitability. Nothing that's outside of the normal lumpiness that we've got with this business. Get ready for the second quarter, that's the one where we normally have our lowest margins because you can't work on a rig in the North Sea in the middle of January. So this is just part of the business. It -- there is absolutely nothing going on within Hydratight or Cortland that is negative in a margin picture. It's quite the opposite as volume comes back. But it was a quarter where that lumpiness came through.

And just a follow-up question. Historically, you said Industrial business has been the most economically sensitive. What is the latest you guys are seeing out of that business on U.S. and Europe just directionally?

Yes, I think the leading -- kind of the early cycle or canary in the coal mine for us has always been kind of the truck business, and I think we saw that and commented on that already today. It is a short-cycle industrial business. We just had a great quarter, and there was no issues, there was no inventory. We didn't see any discernible change in inventory patterns of our distributors. There was plenty of activity. Obviously, we ask that question about 1,000x a week around here. And the information is it's pretty steady. And I've read a number of articles that say, "We all ought to turn off our browsers because the activity in industrial landscape isn't that bad." And I think Enerpac feels that and states, "It's just -- it's doing fine".

Our next question from the line of Ann Duignan from JPMorgan. Ann P. Duignan - JP Morgan Chase & Co, Research Division: I'm sitting here laughing because I cannot fathom the U.K. and solar in the same sentence, seems like an oxymoron. I just think it's unusual. But -- could -- on that note, could you just talk a little bit about Mastervolt's organic growth and what kind of growth that it deliver in the quarter? And then you mentioned that it was pulled forward out of next quarter into this quarter. What kind of organic growth are you looking for, for that business going forward?

Okay. Well, I'm going to start that comment, but Andy has got to fill it in. Ann, we're going to have to apologize because we didn't own Mastervolt last year, so there is no quarter to compare it to. If you go back and pro forma, that was the highest quarter in the history of the solar industry, was the fall of 2010. So I don't have a comparison there to give you. What I can tell you is that sequentially against the second, third and fourth quarter that we owned it, this was up somewhere between 15% and 25% sequentially between any of those quarters. And I think fourth quarter is a little stronger than the third but then, this was materially stronger than that. The U.K. order was a big chunk of that. I don't think we're sitting here saying you're going to see that every quarter, we're certainly not. I think we're, as Andy said earlier, we're not taking up the core guidance for Electrical even though we had a really a pretty good result. So that would be the guidance I'd give you. Anything Andy you want to add to that?

No, I think that's consistent. It answers our core number in the third quarter. I mean, we were projecting 10%, 15% up for the back half of the year.

Yes, but a very -- as you guys lived through with us...

Truck was very low numbers.

Yes, as you look through us, it's -- it'll be up, but it's far from where we expect it to be. So we're still looking at it very aggressively, how do we keep driving that higher. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay, that's good. And then on the European truck and automotive, can you give us a little bit more color? I mean, Scania took down their build schedule for -- by 15% for 2012 yesterday. Are you seeing that broadly across all of the OEMs? And then same kind of deal across all of the automotive OEMs please.

Yes, I mean, I think it is reasonably broad-based. I don't think we're going to try to define each of our customer's delivery schedules, but it's fair to say the forecast that we've gone to, which is this minus 3% to minus 6% for Engineered Solutions, which includes about a minus 10% in truck in our fiscal year, so you had a reasonable fourth quarter. Andy's going to correct me on the number but it's a -- it's an -- it basically is based on a bottoms up drive from those truck accounts. So we get kind of 90-day out delivery schedules. Clearly, a lot of holiday shutdowns in December. We were hearing that in November and late October, so that was all part of the data. I think what you're saying in the range of 0% to 10% down in truck in Europe, that sounds like kind of a consensus number that we're hearing from most of our customers, with a little bit of variability business-to-business. The other thing that I think we studied and feel pretty comfortable with is the inventory levels that are in the field. Do you have a kind of a double whammy like we had in the last recession where not only was production down but they were taking inventory out of the field? I don't see that this time. I don't think they rebuilt the inventory in the field, and so I think it's going to be more in line.

Yes. Two comments I'll to add to that, Ann, is you'd also asked about automotive. We are seeing automotive demand slow from the OEMs. They've just recently took down their schedules in some of our vehicles for the second quarter. In one case, they're not going to make any in the second quarter, it's a very small platform. But I wouldn't say it's necessarily hand-in-glove or lockstep with the truck. Automotive for us, a big part of the decline, is the fact that we had 2 items. We had some new platform introductions a year ago, and we also had some power lift gate business that went away over time. So those are the 2 drivers. The other comment here I just have to -- let me elaborate a little bit is on what the calendar year companies are saying and what we are saying, okay? Our -- we're looking down at 5-ish or so for truck for the fiscal year in Europe. We were up 15% this past quarter, okay? So we've got a plus 15% with the next 9 months of production. That's how we end up with the down 5% for this as opposed to our number looking light relative to light and the downward side relative to what the OEMs are saying.

Our next question from the line of Charlie Brady from BMO Capital Markets.

Hey, just on Mastervolt, can you just -- can you quantify for us that -- was it profitable in the quarter just given the language in the press release about aggressive sales promotions?

Yes, EBITDA margins, definitely, we were up. Yes, yes, they're positive territory.

All right. And then switching over to Electrical retail, DIY electrical. It sounds from your comments that you're -- that's starting to see a little bit of improvement. I'm wondering if you could just give us a little more color on specifically into that market, what you're seeing there.

Yes, it was a little improvement. And I put the word little with a big L, but it was a little improvement. We also won some share in some channels outside of the big box. There, picked up a little business with Walmart. We've been a Walmart supplier for a while, but picked up a new cable tie program there and picked up some stuff in professional distribution. So those were also a couple of reasonable results. But you did see some improvement in the DIY on a unit basis, and then obviously, we've talked at length about the price increases over the last 3 or 4 quarters and obviously, that was a driver in that 7% core.

Have you guys repurchased shares subsequent to the quarter end? And can you give us what the share count was specifically at the quarter end?

Not going to comment on that.

The share counts, the actual share count, we can dig that up. We'll provide it later on the call. But in terms of what our buyback activity is, we're not going to provide any kind of comments on that. So we'll give that in -- later on the call here, Charlie.

Our next question from the line of Ajay Kejriwal from FRB (sic) [FBR] Capital Markets. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: So wanted to follow up on Engineered Solutions, you had flat organic but nice margin improvement. So could you maybe comment on what was the business mix impact? I know Weasler helped, but what was the business mix?

Yes, it was a -- it really was a good quarter. If you've seen the Engineered Solutions for the last 4 quarters, Andy's been giving it the gold star as those margins have come up with volume. This quarter, we didn't have the volume. It was flat, but we still saw the margin expansion. Weasler was a pretty big help there. Weasler's cooking both on the top line and the bottom. The top line is not in the core yet, as Andy talked about, but the margins are in the numbers and had a great quarter, north of 20%. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: So how should we think about the...

Net EBITDA guidance there -- EBITDA margin. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Yes. So as we think about the rest of the year and you talked about truck and auto, so how do those businesses lever down? I'd imagine about segment average, but any color on how should we think about the margins for the group?

Yes. Those businesses have a lot of temporary employees, so we do lever down and up some of our direct labor, that is something we can do. Again, we're an assembly operation, we don't do a lot of machining, so that's a big plus as how it levers down. So it's going to be incrementally, 25%, 30% would be our normal average in truck and auto would be in the middle of that and...

Outside of Q2.

Yes, outside of Q2. And so that would be how I'd guide you on that. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Good. Maybe just on Australia, Gorgon field, any color on what that opportunity is in terms of size and the duration, how long does that play out? And any other opportunities on the horizon, similar opportunities that you're looking at?

Well, why don't I start with kind of the strategic? And Andy, you noodle about the number questions that he's asking. The field of Gorgon is an LP field in the northern corner of Australia. And there's 4 or 5 other fields in Australia alone that are being investigated, trying to be permitted, things like that. So this is just what's going on with natural gas. You see it in frac gas here, you see a lot of offshore gas around the world. Hydratight's in a great position for this. I think we commented on the last call that the Gorgon field was unique in that we are certifying other people's work, so there's an extra level of regulation that they're going to -- that the customer is doing from a safety and an environmental point of view. What added the extra field is just more work. There's -- the Gorgon field is massive, there's a lot of construction of the underlying infrastructure that happens globally, so we're literally doing work in Korea that will end up getting shipped down there. And we'll have Hydratight people certifying things before it leaves Korea. So it's a massive program, classic, big oil and gas, new asset kind of a field. And there -- what's positive for is there are some other ones that are behind it. What behind it means could be this year, it could be 3 years from now but it is -- it's an exciting part of the world for us on that. Andy, you want to quantify some numbers for us?

Yes, sure. If you dial back to our investor call -- excuse me, our investor conference back in early October, we talked about Gorgon being a 4- or 5-year contract on the same $15 million to $20 million over the course of those years. We're looking up $10 million on that right now, so it's a pretty meaningful increase. The other question I'll just cover, Ajay, just give me a second, was the -- Charlie's question on the share count. On the face of our income statement, our fully diluted shares outstanding, which includes our stock options and that sort of stuff, was 75,142,000. As of the end of November that was an even 75 million, so that's kind of the run rate going forward, assuming there are no buybacks subsequent to November 30. So just slightly below what you see on the face of the income statement. Ajay, I don't know if you have another question there, are you done? Ajay Kejriwal - FBR Capital Markets & Co., Research Division: No, I'm good.

Our next question from the line of Jeff Hammond from KeyBanc Capital Markets.

You guys are talking more about Growth + Innovation, it sounds like you're having some early success in Integrated Solutions. So I'm just wondering if you're able to or you have any process for kind of tracking progress, whether it'd be how do we think a point of our core growth is from Growth + Innovation. Just any way to kind of give us a report card, in terms -- as that matures, how that's progressing.

Yes, I'm going to start this and then I'll ask Mark to chime in because it's -- it really, this initiative, I want to be very candid. Mark drives it a lot more than I do. This is -- but this program started about 18 months ago, and Michael Tracy [ph] and some of the involvement we've had said expect that the first year is you're sowing the ground. And then year 2, you can start seeing some of the benefit. And that's almost precisely what happened from our point of view. We are not -- we do have 4 or 5 metrics internally that we use. They're based on kind of time-based, how long things happen to have, and Mark, you can walk through some of those. I don't think we're going to come out with a Wall Street this is how much sales are related to Growth + Innovation. I think we will be talking to you after the fact of what we think it meant like we did this quarter, talking about those 2 big wins, and that we thought those were related to Growth + Innovation. But I hope you see it and I hope the metric is in core sales, that our core sales are growing at or above the best of the best in Industrial landscape. That's the whole purpose of this plan. And you're not going to get there in a year, but this is an initiative that is very similar to LEAD where it's a multiyear focus. So with that, Mark, maybe give a little color on some of the programs that we can talk about.

So the first thing that we've done is really put together a Growth + Innovation process that we use across all businesses across the enterprise, and it really starts with visioning strategy and works through to the new product development phase gate process. The second thing was hiring the right resources. We hired about 90 people in sales, marketing and engineering over the past year to really focus on this. And we're beginning to see some good results there. The metrics that we've put together are around product vitality, so it's products introduced over the last 3 years as a percentage of total. Our Growth + Innovation index, which is really looking at the funnel of opportunity that we had before it gets to phase gate, we're focused on emerging markets, so we're looking at that and we're looking at vertical markets like mining and rail and some of the other verticals that we've talked about in prior calls. We focused on taking big ideas into smallest replicable units and doing pressure tests. And the biggest and the best example I have is around the Ag cedar [ph], which is in the Engineered Solutions business, where a lot of work was done over about a 3-, 4-month period around pressure testing, the idea about the Ag cedar [ph], and we've recently received 2 prototype orders, and those will be launching into production over the next year or so.

I think in my prepared remarks, I made the real comment that was the zinger for you guys, and I think you should really take to heart. We are protecting these. We are protecting the pipeline of the Growth + Innovation initiatives. I can't control what's going to happen in the worldwide economy. I think we've got a good forecast out there. But one thing I can control is some of our Growth + Innovation. And we are going to fund these initiatives. Obviously, you pull back on incremental additional initiatives, but we are really focused on this and using this to be something fundamentally different than the last recession. We're really going to drive that Growth + Innovation. So obviously, you can see I've got a lot of passion on this area, and it's an area that has a great deal of focus here at Actuant.

Our next question from the line of Jamie Sullivan from RBC Capital Markets.

Question on China. You had that listed as one of the areas where things are a little bit softer. I just wonder if you can touch on that a little bit more, what you're seeing across the various segments and what your outlook is there.

Yes. So yes, China has been softer, that's kind of not new news. We've had it for 2 or 3 quarters already, and so you're starting to get in close. By another quarter, you're going to be anniversary-ing that. The slowness is -- probably the largest place we've felt it is in their truck, their Class 8 truck. We are starting to find some additional customers that we didn't have any volume last year with, so that hopefully starts offsetting some of this because you can't go lower than 0, so anything we get will be incremental. But truck was the largest piece. Enerpac was up low single-digits for the most recent quarter after being flat to down in prior. So that one seems like it's already moved through that phase. And the last piece that we have a reasonable piece in is in our Energy, and that was flat for the quarter.

Okay. And then I guess just on Energy overall, it sounds like you have some larger projects that give you visibility. I just wonder if you could touch on what you're hearing from customers on budgets for next year for maintenance as well as capital projects and just your outlook on that segment.

I think we're hearing pretty favorable comments. I think people like the price of oil right now and are investing. I think there is some deferred maintenance that got deferred during the recession that is getting scheduled, and it seems like it's a little steadier, not getting pushed around as much. And then the last call out I would say would be in refinery, which really took a very steep decline over the last 2 or 3 years and is climbing its way back. It's probably not back to the prior peak, but it is climbing its way back and I think that's helping us. The last nugget would be power generation. We have really seen a pretty good nuclear increase coming through our power generation product. These are turnarounds at nuclear facilities. I don't know if it has anything to do with Japan, but there is a kind of a resurgence of some nuclear activity. We bought the Biach asset, which got us a lot of brand cache and also relationships with some of these power generation companies, and then Hydratight's been slipping in the back there with our D.L. Ricci product to do some of that machining. So good example of how a Biach relationship is expanding into Hydratight.

Our next question from the line of Robert McCarthy with Robert W. Baird. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: As I run the numbers, it looks to me like your revised core sales growth outlook for Engineered Solutions is down by order of magnitude 7 to 8 points. If you had an internal point estimate for organic growth expectations for the year and for it to be unchanged, you'd have to have raised your expectations for the other 3 segments by something approaching 2% in each case. But I don't -- I suspect that's not really the case. I -- you had sales brought forward at Mastervolt to explain some of the upside of Electrical. And any upside that you had in Industrial, you probably -- I mean, because of the short cycle nature of the business and the fact that you haven't seen any impact in Europe, that probably means you want to be really careful there. So my read is that the unchanged guidance is largely a factor of better expectations for the acquisitions, especially Weasler, and a little bit of help from mix and the share repurchase authorization. Is that a fair way to present it? Because that means that a point estimate organic growth expectation that you had internally has probably come in just a little bit because of the Engineered Solutions segment.

Yes, I think that's fair. The one thing I would add to it, Rob, is we laid out ranges in core growth by segments, and where we were at with ranges was I think we feel better now where we're at in the ranges relative to originally so...

In Industrial and Energy and in Electrical.

Right. How we're feeling about where we were at before and where we're at today with regard to Energy and Industrial, I feel better. Electrical, we're up certainly higher than I expect it to be, whether we can hold on to that for the full year remains to be seen. But I'd say it's a combination of yes, Mastervolt and Weasler, Weasler more so doing a little bit better than what we have baked in. The other 3 segments being higher up in the range than maybe we had them pegged originally from a conservatism standpoint offset by, as you pointed out, Engineered Solutions. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: Okay, but in other words, you do feel a little better about each of the other 3?

Yes, absolutely.

Yes. I think it's the classic put and take with Actuant, and you -- and we do feel better. And so I think that's exactly right. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: Okay, and I wanted to just probe a little bit as -- one of the things that was said as part of opening remarks, I think you brought it up, Andy, that September was the weakest month in the quarter for core growth. And having just said that, my read is that if November had been the strongest, you probably would've identified that as well. Yet November probably saw, I'm going to guess, the lion's share of the Mastervolt impact. So if you kind of adjust for any unusual impact in November, was there really any trend in the quarter in terms of organic growth or would you still say it seemed to get a bit stronger as the quarter went on?

Rob, did you get your degree in forensic accounting? Where did get your degree in? Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: Well, I mean, you brought it up for a reason, and I'm trying to understand exactly why.

The November, December were reasonably close to each other, within...

October, November.

Sorry, October and November.

October was better.

So yes, October was better. Your forensic analysis of our words was correct. But it wasn't a big -- it was not a big change, and a lot of the solar actually happened in October as well as November. So it's not even in the quarters, so yes, that's right.

Yes, neither Mastervolt nor Weasler are in the core numbers.

Had anything to do with that.

Yes. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: Okay. So the implication of that then is that you exited the quarter maybe with a little more momentum than the core sales growth number that you reported for the full quarter. And that has something to do with why you're more optimistic.

You're saying the pro forma for the 2 deals?

No, he's saying that September was the weakest, and October and November were a little better. Is that part of the reason that momentum -- or feeling better on that?

I don't know if it's as much that, Rob, as it is just where our November forecast. We will forecast 4x a year so it's looking forward, some of the new contracts we've won as well, I would definitely point out that it did not accelerate month-on-month-on-month. In the quarter, October was the best month, November a little bit lighter than that, but I think it's more so just our stepping back in the whole business, not so much looking at one quarter over the next. It's how we're stacking up for the year, some of the newer stuff we've won as well. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: Could I just follow up real quickly on the repurchase question? You worked -- when you guys announced the authorization in the first place, you're quite clear that it wasn't intended to be an ongoing program but rather to give you the firepower to do something opportunistically. And then you acted immediately in the quarter. And I'm just -- I'm curious how that decision was reached. Is it frustration with valuation level of the stock? Or did it have simply more to do with the timing of we don't have any certain thing we need to use the cash for right now in terms of acquisition. We don't really need to be building a kitty, so why not? Could you just talk a little bit about how you reached the decision?

Yes. And we kind of said we're not going to get into this every quarter but we had to get board approval, so we have to put an analysis to the board for them to understand what we're talking about. And almost immediately after announcing that, our stock price was $19. So we jumped and jumped hard, and that's how we averaged $20 for the quarter. I don't know how else to describe it than that.

I guess I don't view 1 million shares out of 7 million as being incredibly aggressive for this program. Bob is right, the majority of shares were under $20, so we think that's a pretty attractive price. I think it looks good based on where we're at today.

Yes. I guess the last comment on the buyback, and it is -- recognize that there's a lot of companies who put a buyback in who don't really have an intention of using it. We put it in for a reason. We put it in because there are times where our stock appears to be dislocated from the economics that we're endorsing and that we're talking about. And when that happens, we want to have the luxury to buy our stock just like we buy acquisitions. And that is why we put the program in place. You should expect us to use it, not for it just to sit on the shelf but for us to use it. And I would expect when you see why we're using, it's because we're confident of the future and we've got great liquidity in our balance sheet. And that's when you're going to see us using it. And all of that existed in that -- in those early -- in the first quarter.

Our last question from the line of Scott Graham from Jefferies & Company. R. Scott Graham - Jefferies & Company, Inc., Research Division: I got to admit, I got a little bit lost there on the forensic stuff, so -- but it was a very interesting listen. And I will go back in my notes to try to figure out what he said. That was good stuff.

Don't put a lot of credibility into it. R. Scott Graham - Jefferies & Company, Inc., Research Division: No, I put a lot -- I do put a lot of credibility in it, that was good. Here's -- my only question is about -- well, 2 questions is about a, when do you see the order cycle based on the platform wins you got out there starting to turn for you? And b, Bob, Andy, if you could, give us an idea of maybe a little bit more granularity on the M&A. You're saying some things are moving to fruition. That is certainly good. Can you give us idea of sizes of what you're looking at? Is anything bigger than a bread box out there?

All right, so I'll handle the M&A, and Andy, you can noodle on the auto question. The M&A, some of the stuff we talked about last quarter is the stuff that's moving to the funnel. So we talked about some emerging market deals, we talked a little bit about international type trend things, focused mostly on Industrial and Energy. Those are the segments that I think most of the activity will happen in. And small tuck-in in nature. There are some bigger things in the funnel, but the ones that we talked about last quarter that are moving towards fruition tend to be more of the tuck-in type. Anything you want to add to that, Andy? And go to the auto.

Yes. On the auto front, which is where we think you're talking with the platforms, we expect kind of the next flurry of startup productions on the platforms to be fiscal '13, kind of the late, late fall of this calendar year, more so into next calendar, calendar '13, is when you see a lot of the stuff that we've won starting in production.

Speakers, we have no further questions at this time. Back to you.

Great. Thanks for joining our call today, everyone. Just a note that our second quarter call will be held on March 21. We'll be around all day to take follow-up questions you will -- may have, and have a happy holiday. Thank you.

Ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a good day, everyone.