Actuant Corporation Q3 2006 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Deane Dray - Goldman Sachs - Analyst : On the guidance, you identified, and it was very helpful, and calibrated the impact on the Truck for next year as well as commodities. And you also, there were 2 other items; maybe you can help calibrate those. The first was on the acquisition contribution. If we compare last year, if I have my numbers right, it looked like you had a carryover of about $140 million from ACI and Headley and so forth. What's that number going into '07? Is it in that $30, $35 million range?

Question: Deane Dray - Goldman Sachs - Analyst : Okay. And then the other piece, and I'll come back to acquisitions, I just want to make sure we calibrated that, I know you don't include acquisitions in your guidance, in the fourth item, beyond the commodities, Truck and acquisitions, it was just a general sense that you'll get some of the Tools business, the Enerpac business, is likely not going to grow double-digits forever. And so could you address what kind of moderating growth you are expecting out of Enerpac next year?

Question: Deane Dray - Goldman Sachs - Analyst : Well, I would say a 7 to 9% is still a very healthy growth for Industrial businesses.

Question: Deane Dray - Goldman Sachs - Analyst : Okay. And then 4 to 5% is your internal growth guidance for '07.

Question: Deane Dray - Goldman Sachs - Analyst : And then last question is give us a sense on the acquisition pipeline in terms of how realistic do you think there will be transactions done or are you a ways away on those?

Question: Deane Dray - Goldman Sachs - Analyst : And that's for '07. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Scott Graham - Bear Stearns - Analyst : Bob, you did a great job, as usual, of the laying out of Enerpac and some of the other things that you talked about. Could you do the same type of what your thought processes behind the 4 to 5% organic growth for the other businesses as well, even if it's just for the 30,000 feet. The one thing I will add, if you don't mind is, the European DIY business with what is looking like a fairly sweeping set of changes are going to take place there, to what extent have you incorporated within your 4 to 5% organic growth that this will impact Kopp and Dresco sales?

Question: Scott Graham - Bear Stearns - Analyst : It does, indeed, on the sales side. If I just could ask this one other question. To the extent that you're working on margins in your businesses, which you delineate in your press release, could you give us a little bit more about what the game plan is on the European restructuring, what happens on the first 100 days, what happens in the first 6 months, and what are some of the other things you are doing in the other businesses as well?

Question: Charlie Brady - DMO Capital Markets - Analyst : On Enerpac, how much growth in '06 is from pricing versus just organic growth?

Question: Charlie Brady - DMO Capital Markets - Analyst : Okay. And then on the --

Question: Charlie Brady - DMO Capital Markets - Analyst : So 3 to 4% pricing in '06. And even with taking the pricing out, your base growth on Enerpac is still double-digits? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Charlie Brady - DMO Capital Markets - Analyst : And then that double-digit base growth dropped over 50% to '07 in my -- at least in your guidance. Would that be kind of what you're telling us?

Question: Charlie Brady - DMO Capital Markets - Analyst : But you don't have any -- you haven't seen a significant slowing yet. Price slowing at Q3, but nothing that would indicate that magnitude of slowing, at least in the near term?

Question: Charlie Brady - DMO Capital Markets - Analyst : On the [Packer] business, have you seen any similar slowdown going into the fourth quarter on bolting? Or in the third quarter, did you see any slowing of bolting?

Question: Charlie Brady - DMO Capital Markets - Analyst : Now that you've got the Ricci acquisitions and the other ones, you sort of formed it all with the Hydrotight business, and I know Ricci is not as high in oil and gas as the other. What do you think the overall blended mix tied to oil and gas markets would be? 50%?

Question: Charlie Brady - DMO Capital Markets - Analyst : Okay. Switching gears a little bit, on the Trucking side with Gits, and in your guidance you see it down significantly and have it at 7 on its pre-buy. Is that a shift in your thinking to what you would have thought 3, 6 months ago?

Question: Robert McCarthy - Robert W. Baird - Analyst : Bob, following on that last question, you've been talking about a 30 to 35% decline in Truck. What are you talking about?

Question: Robert McCarthy - Robert W. Baird - Analyst : Yeah. So that $20 million is a 30 to 35% decline at Gits?

Question: Robert McCarthy - Robert W. Baird - Analyst : Okay. Compared with this $2 to $3 million per quarter headwind in raw material costs, which I gather you're just assuming is going to last all next year. Is that right? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Robert McCarthy - Robert W. Baird - Analyst : And you're anticipating taking some pricing actions?

Question: Robert McCarthy - Robert W. Baird - Analyst : Okay, but you would, of course, continue to make efforts, as next year unfolds, to get more pricing if costs remain at elevated levels? Wouldn't that be right?

Question: Robert McCarthy - Robert W. Baird - Analyst : Okay. And compared with the $2 to $3 million, that's the number you're talking about you think you will see on the fourth quarter. How big was the number in the third?

Question: Robert McCarthy - Robert W. Baird - Analyst : And I gather from the way you were talking about the RV business, you think you could see a positive revenue comparison in the fourth quarter?

Question: Robert McCarthy - Robert W. Baird - Analyst : Okay. But then would -- you're saying you think it would -- you are not going to count on anymore than, what, lower single-digit kind of growth going forward?

Question: Robert McCarthy - Robert W. Baird - Analyst : 5, okay. In Auto, I'm a little confused, Bob. You have startup problems associated with a lot of new business, you got huge quantities being yanked around, etc. Why would that be a persistent problem in future quarters?

Question: Robert McCarthy - Robert W. Baird - Analyst : You don't have any -- you haven't discovered any pricing problems in any of your programs, have you?

Question: Robert McCarthy - Robert W. Baird - Analyst : Okay. And with the improvement, would you get back to -- I mean, historically, we talked about this 10% level as kind of a minimally acceptable level for that business. Do you think you can get back to that level before the year is over?

Question: Robert McCarthy - Robert W. Baird - Analyst : Okay. One more, if you will indulge me. In your outlook for -- or I'm sorry. In your summary of how third quarter sales performed in the different business units, the table with the 0 to 5, 6 to 10, over 10?

Question: Robert McCarthy - Robert W. Baird - Analyst : How do I split the domestic DIY from the European? How did they perform relative -- because they are both in DIY Electrical, right?

Question: Robert McCarthy - Robert W. Baird - Analyst : Okay, my question is I gather GB was up well over 10% and Kopp was up --

Question: Robert McCarthy - Robert W. Baird - Analyst : So you really did have a very strong comparison in the European business?

Question: Robert McCarthy - Robert W. Baird - Analyst : I've got it.

Question: Robert McCarthy - Robert W. Baird - Analyst : That's understood, but if you are going to generate $7 to $8 million in cost savings, that's against a -- in Europe, isn't your sales base there something like $140 million?

Question: Robert McCarthy - Robert W. Baird - Analyst : Oh, a big incremental margin. Okay, thanks guys.

Question: Mike Hamilton - RBC Dain Rauscher - Analyst : I was wondering if you could comment a little bit on the China business within the country? What you're seeing and what your feelings are on economic trends there?

Question: Mike Hamilton - RBC Dain Rauscher - Analyst : If we could shift over to European Electrical. As you've been able to analyze what it's going to take to get that business to where you want, what do you see are the Actuant core competencies that you're bringing to that marketplace? So what compels you to want to stay there and go through the pain?

Question: Mike Hamilton - RBC Dain Rauscher - Analyst : And I assume you're -- I'm sorry.

Question: Mike Hamilton - RBC Dain Rauscher - Analyst : I assume that you also have not seen your competition make a lot of the outsourcing moves in Europe?

Question: Mike Hamilton - RBC Dain Rauscher - Analyst : Last one. As you look at your excellent job in diversifying across cycles and just in your inherent growth, how do you feel on your 15% longer-term EPS target and do you think you are going to need to do some things like share repurchase realistically to be able to stay there as you take a longer-term approach?

Question: Steve Fisher - UBS - Analyst : Just a couple of clarifications here. I know you said you'd see $7 to $8 million of savings starting in fiscal 2008 from the restructuring. How does that ramp up? Are you going to see anything material on the back half of fiscal 07?

Question: Steve Fisher - UBS - Analyst : Okay, great. And you may have covered this already, but how does that 25 to 50 basis points in margin improvement in '07 break out by your 2 segments?