Enerpac Tool Group Tanks On Weak Guidance
Enerpac Tool Group (NYSE: EPAC) is not the first company to report the impact of Russia’s war on Ukraine is affecting business. It is the first, however, that we’ve read, to quantify that impact as a headwind and to lump it together inflation and foreign exchange as a detriment to business in the second half of the year. The takeaway is that Enerpac Toolgroup lowered its full-year guidance because of it and to a range below the Marketbeat.com consensus. This sparked a double-digit decline in share prices and is evidence of a growing weakness within the broader market.
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With no end to Russia’s war in sight, oil prices heading back up to the $130 level, the dollar strengthening on FOMC interest rate outlook, and inflation still an omnipresent threat to business and the economy, we are expecting to see more reports like this one as the calendar Q1 reporting cycle unfolds and that won’t be good for the market, not one bit.
“ Despite the strong quarter, the turmoil of global events in the last month and the resulting macroeconomic challenges have created second half headwinds and uncertainty in our markets … factors such as the stronger US Dollar … continued inflationary pressures, continued supply chain disruptions as well as greater supply chain difficulties resulting from the Russia-Ukraine conflict … have caused us to revise our full year sales guidance,
Enerpac Tool Group Had A Good Quarter, But …
Enerpac Toolgroup is, or was we should say, well-positioned for revenue and earnings growth in calendar 2022 but the outlook is changing. That said, the FQ2 results were strong and point to underlying strength in the global economy. The company reported $136.6 million in revenue for a gain of 13.2% over last year and about the same in the 2-year stack. The gains are driven by a 16% increase in core sales from ongoing operations offset by divested businesses and beat the Marketbeat.com consensus estimate by 625 basis points. On a segment basis, the main Products segment grew by 16% and the Services segment by 13% with net revenue offset by 200 basis points due to FX conversion.
The company reported narrowing margins as well but less than what the analysts were expecting. This left the GAAP EPS at $0.03 and well below last year’s levels but multiple one-time charges related to restructuring and divestitures were recorded. On an adjusted basis, the operating margin contracted nearly 1% to 12.4% producing $0.14 in EPS or $0.06 better than last year and a penny ahead of the consensus targets.
So, Enerpac Toolgroup had a good quarter but the outlook is clouding and may not clear until much later in the year. The company lowered its full-year revenue guidance to $560 to $580 and it may fall again if global activity begins to stall. That range compares unfavorably with the $589 consensus target and is why share prices are falling now.
The Technical Outlook: Enerpac Toolgroup Hits The Ceiling
Shares of Enerpac Toolgroup surged on the Q2 results but quickly fell under the pressure of profit-taking, rotation, and plain old bearishness. While the results are good, the outlook is poor and will likely cap gains going forward. In our view, resistance is strong at the $22 level and will likely result in a test of support in the range of $19 to $20. If support does not hold up at that level a move down to $18 is expected.
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