Enerpac Tool Group Corporation

12/22/2025 | Press release | Distributed by Public on 12/22/2025 14:37

Quarterly Report for Quarter Ending November 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Enerpac Tool Group Corp. is a premier industrial tools, services, technology, and solutions provider serving a broad and diverse set of customers and end markets for mission-critical applications in more than 100 countries. Enerpac Tool Group's businesses are global leaders in providing high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers safely and reliably tackle some of the most challenging jobs around the world. The Company was founded in 1910 and is headquartered in Milwaukee, Wisconsin. The Company has one reportable segment, the Industrial Tools & Service Segment ("IT&S"), and an Other operating segment, which does not meet the criteria to be considered a reportable segment. The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the refinery/petrochemical; general industrial; industrial maintenance, repair and operations ("MRO"), machining & manufacturing; power generation, infrastructure, mining and other markets. Financial information related to the Company's reportable segment is included in Note 11, "Segment Information"in the notes to the condensed consolidated financial statements.
Our businesses provide an array of products and services across multiple markets and geographies, which results in significant diversification. The IT&S segment and the Company are well-positioned to drive shareholder value through a sustainable business strategy built on well-established brands, broad global distribution and end markets, clear focus on the core tools and services business and disciplined capital deployment.
Our Business Model
Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow, and being disciplined in the deployment of our capital. We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and an expansion in emerging markets such as Asia Pacific. In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement and 80/20, to drive productivity and lower costs, as well as optimizing our selling, general and administrative expenses through consolidation and shared service implementation. We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing. Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives. We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital. We intend to allocate the cash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A program and opportunistically returning capital to shareholders. We anticipate the compounding effect of reinvesting in our business will fuel further growth and profitable returns.
Results of Operations
The following table sets forth our results of operations (dollars in millions, except per share amounts):
Three Months Ended November 30,
Results from Operations(1)
2025 2024
Net sales $ 144 100 % $ 145 100 %
Cost of products sold 71 49 % 71 49 %
Gross profit 73 51 % 75 51 %
Selling, general and administrative expenses 43 30 % 42 29 %
Amortization of intangible assets 2 1 % 1 1 %
Operating profit 28 20 % 31 21 %
Financing costs, net 2 2 % 3 2 %
Other expense, net 1 - % 0 0 %
Earnings before income tax expense 26 18 % 28 19 %
Income tax expense 6 4 % 6 4 %
Net earnings $ 19 13 % $ 22 15 %
Diluted earnings per share $ 0.36 $ 0.40
(1) The summation of the individual components may not equal the total due to rounding. Period to period differences between line items included in the table may differ from the amount presented below due to rounding.
Consolidated net sales for the three months ended November 30, 2025 were $144 million, a decrease of $1 million, or 1%, compared to the prior-year comparable period. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $3 million, or 2%. This resulted in an organic sales decline of approximately 2% in the quarter. Management refers to sales adjusted to exclude the impact of foreign currency changes and recent acquisitions and divestitures as "organic sales". In the three months ended November 30, 2025, product sales grew $7 million, or 7%, while foreign currency favorably impacted sales by $2 million, or 2%, resulting in organic product sales growth of 5% over the prior-year quarter. Service sales were down $8 million, or 25%, year-over-year, with a favorable impact of foreign currency of $1 million, or 2%, resulting in an organic service sales decline of 26%. Gross profit as a percent of sales decreased to 50.7%, compared to 51.4% in the first quarter of fiscal 2025; the decrease in gross profit margin is due to continued pressure in our service business, primarily in the United Kingdom market, and higher tariff-driven costs flowing through cost of goods sold. Operating profit for the first quarter of fiscal year 2026 was $28 million, a decrease of $3 million compared to the first quarter of fiscal 2025. The decrease in operating profit was mainly driven by the declines in our service business, primarily in the United Kingdom market, and higher tariff-driven costs flowing through cost of goods sold.
Segment Results
IT&S Segment
The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including refinery/petrochemical; general industrial; industrial MRO; machining & manufacturing; power generation; infrastructure; mining; and other markets. Its primary products include branded tools, cylinders, pumps, hydraulic torque wrenches, highly engineered heavy lifting technology solutions and other tools (Product product line). The segment provides maintenance and manpower services to meet customer-specific needs and rental capabilities for certain of our products (Service & Rental product line). The following table sets forth the results of operations for the IT&S segment (dollars in millions):
Three Months Ended November 30,
2025 2024
Net sales $ 138 $ 140
Operating profit 36 38
Operating profit % 25.9% 27.1%
IT&S segment net sales for the first quarter of fiscal 2026 decreased by $2 million, or 2%, compared to the first quarter of fiscal 2025. The weakening of the U.S. dollar on foreign currency rates compared to three months ended November 30, 2024 favorably impacted sales by $3 million,or 2%. This resulted in an organic sales decline of $5 million, or 3%, in the quarter. The organic sales decrease is driven by activity declines in our service business, partially offset by growth in our product business. Service sales were
down $8 million, or 25%, year-over-year, with a favorable impact of foreign currency of $1 million, or 2%, resulting in an organic service sales decline of 26%. Product sales were up $6 million, or 6%, year-over-year, with a favorable impact of foreign currency of $2 million, or 2%, resulting in organic product sales growth of 4%. Operating profit for the three months ended November 30, 2025 was $36 million,compared to $38 million in the same period of the prior year. The decrease in operating profit was mainly driven by the declines in our service business, primarily in the United Kingdom market, and higher tariff-driven costs flowing through cost of goods sold.
Corporate
Corporate expenses were $9 million and $8 million for thethree months ended November 30, 2025and 2024, respectively. The increase in expense was driven by higher personnel charges and growth investments.
Financing Costs, net
Net financing costs were $2 million and $3 million in the three months ended November 30, 2025 and 2024, respectively. Financing costs decreased due to lower debt balances and interest rates.
Income Tax Expense
The Company's global operations, acquisition activity (as applicable) and specific tax attributes provide opportunities for continuous global tax planning initiatives to maximize tax credits and deductions. Comparative earnings before income taxes, income tax expense and effective income tax rates are as follows (dollars in millions):
Three Months Ended November 30,
2025 2024
Earnings before income tax expense $ 26 $ 28
Income tax expense 6 6
Effective income tax rate 25.1% 22.1%
The Company's earnings before income taxes include earnings from both U.S. and foreign jurisdictions. As several foreign tax rates are higher than the U.S. tax rate of 21%, the annual effective tax rate is impacted by foreign rate differentials, withholding taxes, losses in jurisdictions where no benefit can be realized, and key international provisions enacted from recent tax legislation, such as the Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income provisions.
The effective tax rate for the three months ended November 30, 2025 was 25.1%, compared to 22.1% for the comparable prior-year period. The effective tax rate in each time period was impacted by year-to-date losses and deductions in jurisdictions where no tax benefit can be realized. The higher effective tax rate for the three months ended November 30, 2025 was primarily driven by the more favorable tax impact of stock compensation in the prior period as compared to the current period. Both the current and prior-year period effective income tax rates include the impact of non-recurring items.
Cash Flows and Liquidity
At November 30, 2025, we had $139 million of cash and cash equivalents, of which $100 million was held by our foreign subsidiaries and $39 million was held domestically. The following table summarizes our cash flows provided by operating, investing and financing activities (dollars in millions):
Three Months Ended November 30,
2025 2024
Cash provided by operating activities $ 16 $ 9
Cash used in investing activities (4) (33)
Cash used in financing activities (23) (13)
Effect of exchange rate changes on cash (1) 1
Net decrease in cash and cash equivalents $ (13) $ (36)
Net cash provided by operating activities was $16 million and $9 million for the three months ended November 30, 2025 and 2024, respectively. The $7 million year-over-year variance is primarily driven by the timing of milestone payments on contracts where revenue is recognized over time.
Net cash used in investing activities was $4 million and $33 million for the three months ended November 30, 2025 and 2024, respectively. This decreased use of cash was primarily due to the $27 million payment made for the DTA acquisition in the first quarter of fiscal 2025.
Net cash used in financing activities was $23 million and $13 million for the three months ended November 30, 2025 and 2024, respectively. The $10 million increase in net cash used in financing activities for the three months ended November 30, 2025 was driven by higher share repurchases in the current-year period.
On September 9, 2022, the Company refinanced its previous senior credit facility with a $600 million senior credit facility, comprised of a $400 million revolving line of credit and a $200 million term loan, which is scheduled to mature in September 2027. The Company has the option to request up to $300 million of additional revolving commitments and/or term loans under the new facility, subject to customary conditions, including the commitment of the participating lenders. The senior credit facility contains restrictive covenants and financial covenants. See Note 6, "Debt"in the notes to the condensed consolidated financial statements for further details regarding the senior credit facility.
At November 30, 2025, there were no borrowings and $400 million available under the revolving line of credit facility. The Company was in compliance with all covenants under the senior credit facility at November 30, 2025.
We believe that the revolving credit line, combined with our existing cash on hand and anticipated operating cash flows, will be adequate to meet operating, debt service, acquisition and capital expenditure funding requirements for the foreseeable future.
Primary Working Capital Management
We use primary working capital as a percentage of sales (PWC %) as a key metric of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows a comparison of primary working capital (dollars in millions):
November 30, 2025 PWC% August 31, 2025 PWC%
Accounts receivable, net $ 98 17 % $ 106 16 %
Inventory, net 90 16 % 79 12 %
Accounts payable (42) (7) % (43) (6) %
Net primary working capital $ 147 25 % $ 142 21 %
Commitments and Contingencies
Given our desire to allocate cash flow and revolver availability to fund growth initiatives, we have historically leased most of our facilities and some operating equipment. We lease certain facilities, computers, equipment and vehicles under various operating lease agreements, generally over periods ranging from one to twenty years. Under most arrangements, we pay the property taxes, insurance, maintenance and expenses related to the leased property. Many of our leases include provisions that enable us to renew the leases at contractually agreed rates or, less commonly, based upon market rental rates on the date of expiration of the initial leases.
We had outstanding letters of credit of $7 millionand surety bonds of $5 millionat November 30, 2025 and $6 millionof letters of credit and $5 million of surety bonds atAugust 31, 2025, the majority of which relate to commercial contracts and self-insured workers' compensation programs.
We are also subject to certain contingencies with respect to legal proceedings and regulatory matters which are described in Note 12, "Commitments and Contingencies"in the notes to the condensed consolidated financial statements. While there can be no assurance of the ultimate outcome of these matters, the Company believes that there will be no material adverse effect on the Company's results of operations, financial position or cash flows.
Contractual Obligations
Our contractual obligations have not materially changed at November 30, 2025 from what was previously disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Contractual Obligations" in the fiscal 2025 Annual Report on Form 10-K.
Critical Accounting Estimates
Management has evaluated the accounting estimates used in the preparation of the Company's condensed consolidated financial statements and related notes and believe those estimates to be reasonable and appropriate. Certain of these accounting estimates are considered by management to be the most critical in understanding judgments involved in the preparation of our condensed consolidated financial statements and uncertainties that could impact our results of operations, financial position and cash flow. For information about more of the Company's policies, methodology and assumptions related to critical accounting policies refer to the Critical Accounting Policies in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the fiscal 2025 Annual Report on Form 10-K.
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