Enerpac Tool Group Corp. (EPAC) Q4 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Actuant Corporation’s Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, September 28, 2016. It is now my pleasure to turn the conference over to Karen Bauer, Communications and Investor Relations Leader. Please go ahead, Ms. Bauer.

Great. Thanks. Good morning and welcome everyone to Actuant’s fourth quarter earnings conference call. On the call with me today are Randy Baker, Actuant’s CEO; and Andy Lampereur, CFO. Our earnings release and the slide presentation for today’s call are available in the Investors section of our website. But before we start, a word of caution. 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 number of factors that could cause actual results to differ materially from these statements. These factors are outlined in our SEC filings. Consistent with prior quarters, we will utilize the one question, one follow-up rule in order to keep today’s call to an hour. Thank you in advance for following this practice. And with that, I will turn the call over to Randy.

Good morning, everyone and thank you for joining our fourth quarter conference call. Beginning on Slide 3, as you read in today’s press release, we delivered sales and earnings comfortably within our guidance range, excluding the impact of restructuring and divestitures. Our sales teams are pushing hard to capture new customers and provide outstanding service to our current ones. I see real progress in our sales effectiveness and results. Our core sales were in line with expectations in both energy and industrial. However, engineered solution missed expectations as our customers continued to reduce their production orders. Most markets remain difficult in the quarter, but end demand is becoming more stable. We delivered $112 million of free cash flow for the year, which is a 155% conversion rate on net earnings and is the 16th consecutive year of conversion above 100%. And importantly, there is capital to fuel future growth. Cash flow generation is a true measure of a great business and is a primary driver of value creation. The acquisitions within the industrial and energy areas are progressing well and contributed about 4% to our top line growth and are solidly accretive. Both businesses are very supportive to our growth strategy and we are increasing our regional coverage. We also took action to streamline our portfolio, divesting the Sanlo business. While small, this represents the type of actions we will continue to take to reposition the portfolio for future growth. With that, I will turn the call over to Andy to walk through the details on the quarter and I will come back with an overview on the markets for 2017 guidance and some additional updates. Andy?

Thanks, Randy and good morning everyone. I am going to start my review this morning with the bridge schedule on Slide 4, which removes the Sanlo divestiture and restructuring costs from our results to put them on a basis that’s consistent with our guidance in the prior year. Our GAAP sales and EPS for the quarter were $276 million and $0.29 a share. And after backing out these items, our adjusted EPS was $0.30 a share, which was in the middle of our $0.28 to $0.33 a share guidance range for earnings per share. The Sanlo divestiture resulted in a net gain of $1.5 million or $0.02 a share after taking into account favorable tax attributes. We will deploy the $10 million of proceeds from this divestiture in growth opportunities going forward. On the restructuring front, there were no surprises as we continue to run at $3 million to $4 million of charges per quarter which will continue for the next several quarters. Some of the larger projects currently underway include the consolidation of manufacturing sites at both Weasler and Precision-Hayes in targeted personnel reductions elsewhere. Slide 5 is a comparison of our adjusted fiscal ‘16 fourth quarter results versus the prior year. As you can see, our sales declined 8% year-over-year from $300 million to $276 million primarily reflecting end market weakness that more than offset the benefit of this year’s two tuck-in acquisitions. I will provide more color on sales on the next slide. For the first time this year, our adjusted operating profit margin was in line with the prior year with both just under 10%, reflecting cost savings offsetting the impact of lower sales and production volumes this quarter. At the bottom line, current year fourth quarter EPS was $0.30 a share compared to $0.37 a year ago. About $0.04 of this decline is due to the lower prior year effective income tax rate with the remaining $0.03 due to the revenue decline this year. I will dissect these adjusted results in greater detail starting with sales on Slide 6. Our consolidated sales in the quarter were down 8%, which reflected a 1% currency headwind, 4% benefit from the tuck-in acquisitions and the 11% core sales decline. Each of our three business segments reported a year-over-year core sales decline, which is what we had expected. On a core year-over-year basis, industrial was down 8%, energy segment down 15% and engineered solutions down 9%. I will provide color on my segment reviews, but can summarize overall market demand as weak due to sluggish economic conditions, which is being exacerbated by related OEM destocking impacting our engineered solutions in particular. With the exception of the anticipated step down in energy core sales trends from the third to the fourth quarter, things did not get worse sequentially, but instead appear to be stabilizing at these lower levels. We expect these trends will continue in the first quarter, with the exception of the energy segment, which will decline further on a core basis due to very tough first half comps from a year ago. Slide 7 summarizes our quarterly adjusted operating margin trend. Consolidated fourth quarter OP margin of 9.6% was down a hair sequentially, but even on a year-over-year basis. This reflects the combination of unfavorable sales mix with energy’s fourth quarter sales decline as well as lower production levels and the resulting lower fixed cost under-absorption across all of our segments. Destocking both by ES, or engineered solutions, OEM customers and our own businesses in all segments accelerated in the fourth quarter and was a margin headwind for us. As a reference point, at Actuant, we reduced our inventory levels by 10% in the second half of the fiscal year, which benefited free cash flow at the expense of margins. Now, I will spend a few minutes on each of our three segments starting first with industrial on Slide 8. The industrial segment reported fourth quarter sales that were 6% below the prior year. Core sales were down 8%, while acquisitions provided a 2% benefit and currency was not a meaningful factor. The 8% core sales decline was a modest sequential improvement from the 9% and 14% year-over-year declines that we saw in each of the last two quarters, which we take as stabilization in market demand. All geographic regions within industrial saw weak demand, with the Americas and Asia-Pac weaker than Europe, the Middle East and Africa. We do anticipate improving core sales trend rates from industrial as we move through fiscal ‘17 as comps continue to get easier, new products are introduced and Enerpac’s second-tier branding strategy takes hold. From a profitability standpoint, industrial’s 23.6% operating profit margin in the fourth quarter was down from last year on lower volume, unfavorable mix between integrated solutions and industrial tools within Enerpac as well as second half destocking by us. While it’s down year-over-year, I am not concerned about this segment’s long-term profitability and its ability to post much higher margins when volume and mix improve. Now, on to Slide 9 to discuss energy’s segment results. The results in energy changed the most sequentially. Year-over-year fourth quarter sales declined 15% following a flat comparison in the third quarter. That was expected and communicated in our earnings call from last quarter. The fourth quarter of last year was a start of an outstanding fourth quarter run for Hydratight, with last year benefiting from a catch-up in delayed and deferred maintenance. The unfavorable comp situation will continue over the next couple of quarters for Hydratight as it will be up against the Petro Rabigh job impact in the first half of fiscal ‘16. Despite this air pocket, the reality is that Hydratight is operating very well in a challenging environment, but there simply aren’t many large projects on the horizon that will offset the big ones that we had last year. Elsewhere in this segment, there were no surprises as Viking and Cortland continue to face stiff headwinds on account of low oil and gas capital spending, but they were in line with our forecast. Despite the lower sales volume in the quarter, overall energy segment profit margins were up year-over-year from 9% to 9.8% this year, reflecting the benefit of significant cost reductions. I will wrap up my segment level discussions with engineered solutions on Slide 10. Sales were down 9% year-over-year in the fourth quarter compared to an 8% decline in the third. The second half of fiscal 2016 has been defined by weakening Ag sales, which is the combination of both lower farm income and end market demand as well as excess inventory at our OEM customers and their dealers. This de-stocking and overall weakness was also evident in other off-highway markets and was slightly worse than the pace that we have predicted on our last quarterly earnings call. The bright spot has been on-highway vehicles, such as trucks and autos, which were up and flat for the year, respectively. Not surprisingly, profit margins in the engineered solutions segment were pressured as a result of these lower production levels and the resulting weak overhead absorption. We also had a $2 million warranty provision in the quarter in this segment that reduced its margins by 200 basis points alone. Looking ahead, we expect similar demand trends for the near-term, which should give way to growth when OEMs finally start production on new models that we have already won and OEM production levels match end market demand. Many of the new models that we were supposed to launch in fiscal ‘16 were delayed anywhere from 6 months to 18 months due to slow movement in existing inventories at OEMs and dealers. So that’s it for my segment deep dives. Before moving on to the income statement though and being the end of the fiscal year, I wanted to quickly recap our full year results. On Slide 11, we have summarized and – comparative fiscal ‘15 full year to ‘16 results, excluding restructuring and impairment charges and the Sanlo divestiture. For the full year, sales were down $100 million or 8% year-over-year, reflecting a 6% core sales decline, 3% currency headwind and a net 1% benefit from acquisitions and divestitures. Sales were well below our original fiscal ‘16 guidance due to worse than expected market conditions pretty much everywhere, except for heavy-duty truck. Our adjusted EBITDA declined 20% and EBITDA margins declined 350 basis points, primarily the result of lower volume and energy pricing, unfavorable absorption as well as unfavorable mix. The revenues at our highest margin businesses in each of our three segments the Enerpac, Viking and Weasler declined year-over-year, while lower margin businesses such as auto and truck fared better on the top line. Our fiscal ‘16 adjusted EPS was $1.22 and that was actually within our original guidance range due to the better than planned effective tax rate, but it fell well short of guidance on a pretax basis on account of lower sales and margins. Finally, despite the lower sales and earnings, our free cash flow was in line with the prior year and within guidance on account of strong working capital management and lower cash taxes. In this environment with really depressed end markets, free cash flow was the thing we can most control on this page and we think we did a pretty good job with it. That $112 million of free cash flow represents 155% conversion, as Randy mentioned. This kept our free cash flow conversion track record intact, as you can see on Slide 12. So that’s a good segue to Slide 13, actually which summarizes our year end debt position. Strong fourth quarter free cash flow helped us reduce net debt to EBITDA leverage to 2.5x as we had targeted. Our $600 million revolver was untapped at the end of the fiscal year and coupled with $180 million of cash on the balance sheet, provides us great liquidity to fund growth going forward. So that’s it for my prepared comments and remarks today. I will turn the line back over to Randy.

Thanks Andy. Turning over to Slide 14, portfolio management is a critical component of our strategy. The sale of Sanlo product line represents the type of portfolio streamlining we intend to continue in order to focus on Actuant’s best businesses. In terms of additions to the portfolio, I am very pleased with the integration process in the quarter related to both Larzep and the PPS energy maintenance acquisitions, both performing at or above expected levels and are on track to deliver both sales and cost synergies as planned. Larzep is extending our product lines in Europe and opening a second tier customer base, while the energy pipeline services acquisition is extending our original coverage and increasing our service capabilities. These are great examples of the size and caliber of tuck-in transactions we are focusing on. Moving on to Slide 15, this is an update on the macroeconomic factors we are currently facing. Oil prices have traded in the range of $40 to $50 a barrel. While improved, they are not holding consistently and oversupply remains an issue. As a result, CapEx projects stay on hold and maintenance is on fixed scale or extended intervals. Off-highway mobile equipment continues to be very weak, particularly in agriculture. While major manufacturers are reducing their inventory due to low crop prices and weak model year 2017 order writing. I expect we will now have at least two full planting seasons before we see improved end market activity. The general industrial market appears to have stabilized, but shows little signs of growth. Industrial distributors continue to report sluggish retail order demand. The impact of weak oil, construction, general manufacturing markets have constrained with level of sales improvements throughout the world. Regionally, the U.S. remains the most challenged, while Europe does not seem meaningfully impacted by the Brexit panic. On a positive side, the truck – on-road truck market in Europe and China remains supported by good registrations on an aged fleet. Turning over to Slide 16, this is 2017 core sales expectations by segment. In summary, we are not anticipating a meaningful market recovery in ‘17. We do expect some easier comparisons, especially as we move through the second half of the fiscal year. In addition, we expect OEM de-stocking to slow in the year progressing, thus demand will be more in line with the end markets. We are aggressively executing our growth strategies within each business segment, with focus on industrial where we expect to see improvements in the second half of ‘17. We are opening new regions where we have limited coverage, launching new products and investing in markets with growth potential. These are examples of tactics we are executing within the organization. Our objective is to find growth, which outpaces the market condition. I want to specifically call out the energy core sales reduction, which is driven by two large projects we benefited from in 2016, which will not repeat in ‘17. The base MRO business is performing exceptionally well and I don’t want to take away from their gains into market share or geographic penetration. But the reality is we currently do not see line of sight to any large single jobs in ‘17. Turning over to Slide 17, this is our current guidance and assumptions. As discussed, the sluggish market conditions, along with unfavorable year-over-year items, have dictated an EPS guidance range of $1 to $1.20 on sales of $1.075 billion to $1.125 billion. This excludes restructuring charges and any future acquisitions or divestitures. At a high level, the benefit of our restructuring action and accretion from acquisitions are offset by the impact of core sales decline and higher tax rate. Free cash flow of approximately $85 million to $95 million will translate to Actuant’s 17th consecutive year of conversion in excess of 100% of net earnings. The first quarter will be the toughest comparable of the year, specifically in energy segment, where Hydratight has a 30% growth comparable. Moving on to Slide 18, it provides a bridge from the ‘16 EPS to the ‘17 guidance range. As you can see, the single largest factor impacting our year-over-year earnings is a higher tax rate in the 15% range, which is $0.12 to $0.16 per share headwind. In terms of cost reduction actions, the teams continue to execute well on the $25 million project funnel and we expect incremental savings between $3 million and $5 million in 2017. This represents approximately $0.04 to $0.06 per share on a year-over-year basis. The acquisitions, net of the Sanlo divestiture are expected to add $0.05 to $0.07 a share on a year-over-year basis. Lastly, the base businesses will see net core sales decline, as we discussed. Wrapping up on Slide 19, I want to provide a brief preview on the upcoming Investor Day. During the past six months, I visited our facilities, met with many customers, analyzed our businesses and we have crystallized our strategy. We have already begun to make changes within the management team, sales processes, lean manufacturing and portfolio management. Next week, I will provide details in our strategy and the execution. We are building on the solid foundation of Actuant’s strong cash flow and financial discipline while strengthening the culture of execution, sales effectiveness and expanding our global coverage. I look forward to sharing these programs with you next week in New York City. And with that operator let’s turn it over to questions and answers.

Thank you very much, sir. [Operator Instructions] One moment please for our first question which comes from the line of Charley Brady with SunTrust Robinson Humphrey, your line is open. Please go ahead.

Hi, thanks. Good morning, guys. Good morning, Karen.

Hi, Charley. Good morning.

Hi, Charley.

Looking at industrial for a second, I guess number one is can you give any granularity about how much IS was up and really how much the tools was down? It would seem tools have probably down in double-digit range just the way the math kind of works. You may correct me if I am wrong in that. And the second part of my question, I am looking at Slide 16 on the core sales expectations for industrial, well, you are down low singles in first half, you are up low singles in the second half and for the full year flat to up 3. I guess I am struggling to see how you get to up 3 if you are down low in the first half and in best case you are up low single in the second half. Is there some sort of visibility that you guys have into that you can give us a little more insight into or because generally, that business doesn’t have 12 months of visibility into it?

Right. Let me tackle item one and then Andy can bring some color into that as well. The IS versus the IT, we have seen some real strength in our IS systems, particularly gantries and some of the larger projects we have tackled in the last couple of months. And it has been really nice for us. On the downside, that does have a lower margin than our general industrial tool business. The second part of your question on...

I will just elaborate on that, Charley. The IT sales were pretty consistent in terms of core trend over the last couple of quarters. They did not really change – get worse or anything like that high – down roughly 10%. IS was up mid single-digits year-over-year.

Okay. And the second part of your question, Charley, on really how do we see the industrial market progressing through the balance of the year. And a lot of that has to do with what we are going to do within the market. We are working hard on several things that you will see next week in Asia-Pacific and I believe that we are going to see some uplift on our own account. I also think that some of the destocking and our distributors are going to be looking for more demand in the second half of the year. Clearly, we are not seeing the market shifting dramatically. So, we are driving the business ourselves.

On that destocking point, are you hearing that from the OEM customers telling you, second half, we expect to be done with destocking or probably have to restock a little bit or is that – that’s kind of, I guess, guesstimating or kind of anticipating that’s what’s going to happen as opposed to having it directly told you?

Well, I think largely the destocking has occurred. And I think what will happen is the dealers and the larger distributors wind up having more line of sight to more demand. They are going to bring more inventory in. They have been very, very cautious with bringing any stock in and which is probably a good thing for us in the market that they are not filling their distributors and their shelves with inventory that’s going to take multiple quarters to use. So, I really think as we move through ‘17, we are going to see some improvement in that general industrial market.

Thank you.

And our next question comes from the line of Ann Duignan with JPMorgan. Your line is open. Please go ahead.

Hi, good morning everyone.

Good morning, Ann.

Maybe similar question around the engineered solutions, maybe you could talk us through each of the segments there. I mean, you mentioned agriculture weak orders into 2017, just a little bit more color on each of the segments in that?

Ann, I think you follow the ag market pretty close like we do. And what we have seen is that the major distributors around the world are sitting on a lot of inventory. And so as the major OEMs have completed their order writing campaigns for combines, spring equipments, planting and seeding equipment it is a weak order demand. And I think you would have heard that from our major customers. The flow through on that is when they are looking at their lock schedule of production plans, they adjusted those and they are matched now with their model years 2017 component requirements. From our perspective, most of them have fairly managed days of supply of those components flowing through their system. So, that decline we saw in the third and the fourth quarter in ES, I think is where we are going to be through model year ‘17. The key is do we move all that inventory through the end user dealer inventory? Is that moved in this ‘17 production year and crop year? That’s the important thing. And on the construction machinery side, literally, we see no green shoots yet of any major OEM getting movement in either excavators or ladder equipment that we sell into it.

And the off-highway truck, to round it out, expecting….

You said on-highway?

On-highway, I am sorry, Ann, on-highway truck, heavy-duty trucks, we expect mid single-digit growth for next year, which is kind of the other piece of the pie for engineered solutions.

Yes. Maybe you could comment on that a little bit more. European trucks up again next year. I mean, we have had three years above trend. I think most people are anticipating a decline next year, calendar year, so...

Not what we are hearing.

Yes, the latest reports, Ann, is we have at least 1 more year of solid registrations and demand requirements out of our European truck suppliers and we have seen that sequentially. So, I think we are in good shape there.

China is also a factor there, Ann. We have been seeing a pickup there as well.

Okay. I will get back in queue and follow back up. Thanks.

Thanks, Ann.

And our next question comes from the line of James Picariello with KeyBanc Capital Markets. Your line is open. Please go ahead.

Hey, guys. The first question I had would be on the margins. There is a – to get to the full year if I read the press release correctly, you are expecting margins to be up year-over-year. And the first quarter, the implied guidance would have margins down somewhere in the order of 250 basis points. So, can you just walk through the progression through the year to get margins up year-over-year?

Yes, we are expecting margins to be up roughly 25 to 50 basis points next year. It will be back end loaded and the reason for that is partly what we have been talking about here with the destocking going on, on the OEM side. We cannot cut much more cost out of some of our facilities that are single, single line of business, if you will facilities. So, the absorption will be low first half of the year, we expect that to improve once we have retail demand that is actually – or production levels that are actually tracking retail demand, which clearly has not been the case in the last half of the year. We also are going to see restructuring savings kicking in, in the back half of the year, in particular, midway through third quarter as we wrap up some of the restructuring at Weasler with facilities and Precision-Hayes as well. So, the savings clearly in the back half of the year will be more significant in the first half and our margins in the back half are always higher than the first half as well. So, I think we feel good about that. Just the growth that we are anticipating in industrial segment as well with the robust margins that are generated by Enerpac, we are expecting the back half of the year to be stronger than the first half and volume that will clearly help our margins as well.

Got it. Thanks. So, if I look at it on a segment basis, industrial growing the back half, we could see the leverage there and we could – it would make sense that margins potentially improve year-over-year. For industrial, energy is going to be down. I assume margins will likely be down year-over-year for that segment. And then engineered solutions that was sort of the messiest segment in FY ‘16, how do we think about the margin progression maybe there within engineered solutions and maybe correct any comments I made on the other segments?

No, you are on point with energy. We expect them to be challenged this year on it. We worked out a lot of cost, but still with the volume in the first half, in particular, will be down. I think engineered solutions is going to mirror industrial to a large extent that we back-end loaded as production picks up back half of the year as we are balancing production with retail demand. And secondly, as I mentioned, the restructuring savings that are coming and the biggest piece will be coming through the engineered solutions segment in particular. So, we do expect he ES margins to be up for the year.

[Operator Instructions] Our next question comes from the line of Scott Graham with BMO Capital Markets. Your line is open. Please go ahead.

Hey, good morning. And the guidance that you have laid out, the clarity of it, first half versus second half much appreciated, because certainly because of the cadence of your earnings this year. I guess, the one question that I had because you have been very clear on everything else is maybe that one of those last slides, Randy, that you were talking about portfolio management. And the engineered solutions segment has been problematic for years. Would we – could we expect going forward maybe to be a little bit more divestiture focused in that business and then using those funds and your free cash flow to build where maybe you are stronger, where the margins are a little bit better? In other words, is this a portfolio improvement exercise that’s focused on building the better businesses and continuing to eliminate some of the stragglers or is it something different than that? Is it maybe really that ES just doesn’t belong?

One, it doesn’t. That’s not the case at all. ES does belong within the portfolio and you will see that when we run through our strategy next week, but we are actively going to manage this portfolio. We have – and you will see this on our strategy discussion. Relative to ES, we have some focused technologies and segment strategies that will line up to how we look at that portfolio. And clearly, we are going to go after businesses where we have growth potential and strongest margins. And so as you look at our portfolio and you think about the businesses comprised in it and when we lay out the strategy next week, you will see exactly how that fits. But we are going to be very, very proactive on how we manage our portfolio. And that’s not something new, that Actuant has done this in the past. We have divested businesses as we have transformed this company. So I would say stay tuned on what we do there. And the third element yes, we will take that divestiture capital and redeploy it into the business in areas where we can grow.

And let me just add onto that if I may, because you hit the core, the organic side of your thinking well and the divestiture side, I understand what you are thinking there and I was hoping – now what about on the positive side, what about on the additions, is this really going to just – an effort that’s going to be focused on building around Enerpac and building around Hydratight, are there other areas of the portfolio where you can see the build around?

Well certainly, the sweet spot of our portfolio has been energy maintenance. As we build out a global energy maintenance footprint, we see that as a very, very good way to build value for the company and we have done extremely well there. The latest acquisition has come in. It’s accretive and it’s absolutely fulfilled what we said we will do. Our industrial tooling side, I would love it if we could continue to grow that business, bring in other segments into that industrial tool business, its great margins. It has a very, very wide industrial footprint. I mean we have a lot of customers we can serve. And then lastly, we are looking at ways that we can enhance the ES business and provide more systems solutions to customers. Having been a big OEM and running some of our larger customers, I know what we look for. We don’t want all kinds of suppliers. We want suppliers that can provide a broader array of value added systems. Now the keywords you are going to hear from us a lot are system critical components. We want components that are absolutely integral piece of the products that we are making and our customers are making and that’s a very key element. So a lot of this, you will be real clear and I don’t know if you are being – and you will be attending the conference next week. But we are going to lay all that out next week, exactly where we are going with each segment.

Very much appreciate that response, very comprehensive. Thank you.

And our next question comes from the line of Mig Dobre with Robert Baird. Your line is open. Please go ahead.

Yes. Good morning everyone. I apologize for any background. I guess, my first question is just clarification Randy, I am not sure if I heard this right, but were you in your comments implying that you are expecting Ag end markets to recover 2 years from now, two harvest seasons, did I understand that correctly?

What you typically see is we are just finishing the order writing for 2017 model year, which means that we have got some time in front of us now before they go from this planting season. What I hope – I don’t want to use the word hope, what I expect to see improvement as we go into model year 2018 order writing, which will be the back half of next year, will be the fall of ‘17 when that model year order writing starts. If things follow past practices, the dealers will have flushed out their inventory in this model year. They have cleaned up their use and the plans are ready to go back to business. But that’s the timing I am expecting.

Okay, that’s helpful. Thank you. And then the second question is really on the guidance, and I think a few of my predecessors have asked about this really, but I am trying to figure out the cadence of earnings here versus what we historically have seen from Actuant because 15% of total earnings coming in the first quarter is pretty unusual and would imply a ramp that you really haven’t seen in 15 years, so how confident are you that you can get that, can you point to specific savings or actions that will get us there?

Mig, I think it’s consistent with what we talked about before. We are expecting a tough mix certainly in the first quarter as you move forward with Hydratight not having the same comps as it did a year ago. We are expecting weak absorption in ES in the first half of the year. As for the reasons Randy just outlined that production and orders from OEM customers is definitely under pacing retail or their sell-through is right now on that. We expect some structured savings coming in the back half of the year, as I mentioned earlier. We are expecting improving some growth actually in the back half of the year in industrial, which carries some robust margins with it. So it’s a combination of all of those items. I agree that from a historical standpoint, the trend isn’t necessarily consistent, but the flipside I would say is I don’t think these are normal historical times, right. We have got some very specific things that are going on from a de-stocking standpoint to restructuring standpoint that’s going to make the year lopsided from a profitability standpoint on that. So those are the things we are looking at. It is absolutely our best estimate as to the way the year is going to roll out.

I appreciate that. And maybe my last question is going to be really on the restructuring savings, is there a way to kind of parse out second half versus front half?

Yes. There will be incremental stuff coming online in the back half of the year probably $3 million, $4 million in the back half, in particular, by the back four months, five months that we won’t see from a fee standpoint in the first half of the year. So that certainly will help matters out as well. And as we get more efficient with the stuff that we have already done from a facility standpoint that helped the full year a little bit more, so I think that’s kind of what we are looking at.

I appreciate it. Good luck.

And our next question comes from the line of Justin Bergner with Gabelli & Company. Your line is open. Please go ahead.

Good morning and Thank you for taking my questions.

Good morning.

Just a clarifying question, the $0.05 to $0.07 of EPS growth from acquisitions and divestitures, is that actual accretion or is that not implying an interest expense for the acquisition outlays for this year?

No, that’s all in.

Okay. So the $0.05 to $0.07, net of sort of whatever interest rate one will apply to that $80 million of outlays?

Yes.

Okay, great. Secondly, is it possible to remind us how large the two projects were in your energy segment that added to revenue in the just completed fiscal year and were those both affecting Hydratight?

Yes. They both were affecting Hydratight. The first of which is a big refinery turnaround in the Middle East. It impacted the first half by $20 million, including about $15 million in the first quarter and $5 million in the second quarter. The second of these is a big sub-sea order that was about $20 million in volume, probably more spread out in the last three quarters of the year, pretty evenly in the last three quarters of the year. So that’s kind of what we are up against. There is a lot of other projects that are out there, but there is nothing on the horizon that we are saying, gee, we are going to get a $20 million pop from – we are talking a lot of the $1 million, $2 million, $3 million type projects, but that’s really what we are up against.

Great. Thanks. I will hop back in queue.

And our next question comes as a follow-up from the line of Ann Duignan with JPMorgan. Your line is open. Please go ahead.

Actually my question has just been answered. I was going to ask the same question about Hydratight, so I appreciate it. My other questions are more long-term in nature, so I will keep those for next week for the Analyst Meeting.

Okay.

And our next question comes as a follow-up from Justin Bergner with Gabelli & Company. Your line is open. Please go ahead.

Thanks again. I just wanted to ask about the core sales growth guidance for 2017 fiscal year, within that down 2% to down 6% number, what level of out growth are you assuming or sort of implied by that number versus your end markets?

That – where that is happening, we – there is some across all segments. I mean really engineered – there is probably I would say, 2% to 3%, probably a little bit more in industrial in the back half of the year there has been some new products we are introducing and sharing and that sort of thing, but in our industrial, it might be 5% in there. Benefit in there, were lesser and energy and ES is probably in that 2% to 3%, 2% to 4% range.

Okay, great. And then within Hydratight, outside of the, I guess, lapping the large projects from the year just completed, do you still see your Actuant as gaining share in Hydratight versus the competitive set?

I can honestly say that we have a different value proposition in a lot of our competitors. So, we are getting more business and with the recent acquisition, we are actually adding service capability in terms of pipeline service not as just joint integrity, but also pipe inspection and certification and cleaning. And that actually is helping us expand where we are going. So, if you could argue that, that is a share gain, but I really believe it’s more of a market expansion and then a regional expansion more than it is a share gain. I do think that our teams do a great job of getting their fair share of the jobs that are available well.

Great. Thanks for taking my follow-up.

And I would now like to turn the conference back to the presenters. Please continue with your presentation or closing remarks.

Yes. So, in closing, just thanks to everybody for joining the call today. I will certainly be around to answer any follow-up questions you have and just a reminder for your planning December 21 will be our first quarter fiscal ‘17 earnings call. Thanks again. Bye-bye.

Thank you.

And ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation. You are now free to disconnect your lines.