Karen Bauer - IR Mark Goldstein - President and CEO Andy Lampereur - EVP and CFO.

Jeff Hammond - KeyBanc Capital Markets Charles Brady - BMO Capital Markets Scott Graham - Jefferies Ann Duignan - JP Morgan Rob Wertheimer - Vertical Research Partners Allison Poliniak - Wells Fargo Securities, LLC Ajay Kejriwal - FBR Jamie Sullivan - RBC Capital Markets James Kawai - SunTrust Robinson Humphrey Stanley Elliot - Stifel Nicolaus Joe Grabowski - Robert W.

Baird & Company, Inc. Daniel Holland - Morningstar.

Ladies and gentlemen, thank you for standing by and welcome to the Actuant Corporation’s Second Quarter Earnings Conference Call. During the presentation all participants will be in a listen only mode. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, March 19, 2014.

It is now my pleasure to turn the conference over to Karen Bauer, Communications and Investor Relations leader. Please go ahead, Ms. Bauer..

Mark Goldstein, Actuant’s Chief Executive Officer and Andy Lampereur, Chief Financial Officer. Our earnings release and the slide presentation for today's call are available in the Investors section of our website.

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 a 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 drill 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 Mark.

Thank you, Karen, and thanks for joining us on our second quarter earnings call. As you know, this is my first quarterly earnings call as CEO and I’m looking forward to working with each of you in this new role. I’m excited about our vision, our strategies, and the many opportunities that lie ahead for Actuant and our shareholders.

Turning now to the second quarter. We delivered consolidated Actuant results that were generally in line with our expectations for sales and earnings excluding the impact of a higher than expected effective tax rate. Our core growth was solid, coming in at 4%.

Notably the energy segment showed strong sequential improvement from negative 1% last quarter to positive 11% this quarter. Second quarter EPS was $0.30, within our guidance range but $0.02 lower than expected due to the higher taxes.

We had a penny benefit for second quarter stock buybacks, but this was more than offset by the combination of unfavorable segment mix and facility movement efficiencies. I will talk later on the call about the additional actions we plan to take to combat the effect of the current economic environment.

As you read in the release this morning, 1 million shares outstanding on our current buyback authorization for approximately $94 million. The Board authorized an additional 7 million share purchase program this week so we can continue to return capital to our shareholders. We'll also get into this in more detail later on the call.

And with that overview I’ll turn the call over to Andy..

Thank you, Mark, and good morning, everyone. I'll provide a few summary level comments on our second quarter financial results and then provide more color later. Sales for the quarter of $328 million were up 9% from a year ago, and just a hair beneath or $330 million to $340 million sales guidance.

Our $0.30 a share of EPS from continuing operations was within guidance, despite a higher effective tax rate than what we had forecasted and built into our guidance for the quarter. Our second quarter operating income, pre-tax earnings and EBITDA were all higher than a year ago.

Assuming the same effective tax rate as the second quarter of last year our current year earnings per share would have been $0.06 a share higher and EPS would have increased year-over-year. Here on Slide 5, I wanted to quickly review the discounted operations section of this quarter’s income statement.

We completed the divestiture of the Electrical segment in December and recognized the resulting gain. The gain in related sale costs as well as electrical segment results for the stub period are included in the $19 million in income in discontinued operations.

There were approximately $243 million of net proceeds from the divestiture in the second quarter, which were used to fund share buybacks and reduce net debt. We will have tax payments and other disbursements related to the electrical divestiture during the balance of the year with the full year net proceeds of $225 million still a good test estimate.

Decoupling activities related to the divestiture, such as splitting IT, payroll and strategic sourcing functions, as well as shared facilities are on track and will be completed by our fourth fiscal quarter. Now back to continuing operations on Slide 6 with a discussion on sales.

Second quarter sales were approximately 9% above last year in total with 4% core growth and 5% from net M&A activity. We were pleased with the rebound in the energy segment, which posted 11% core sales growth on a year-over-year basis.

Engineered solutions was up -- had 7% core growth in the quarter following a big European truck buy benefit in their first quarter. The industrial segment had a 5% year-over-year of core sales decline on a tough comp and tepid demand.

Following soft demand in December and January, our consolidated sales improved as the quarter progressed in line with weather patterns. Turning to Slide 7, operating profit increased approximately $2 million on a year-over-year basis while the corresponding margin declined 40 basis points.

Unfavorable sales mix and manufacturing variances, the later tied to several facility moves underway weighed on year-over-year margins. From a mix standpoint, the addition of Viking with its higher fixed cost structure hurt energy segment margins year-over-year while lower sales from industrial, which is our highest margin segment were headwinds.

During the quarter, Enerpac opened a new U.S. facility in transition manufacturing from the old to the new plant. This resulted in duplicate overhead for part of the quarter which was also the case with the consolidation of two engineered solutions facilities into existing low cost country plants.

Despite these costs and the related inefficiencies we were successful in improving margins in two of our three segments in the quarter. In summary margins were okay but not great. Now let’s dig down one layer and discuss sales, profits and margins by segment, starting first with the industrial segment on Slide 8.

Industrial reported 5% overall in core sales declines in the second quarter reflecting tough comps in integrated solutions from a year ago as well as sluggish North American industrial tool demand. We discussed the IS comp headwinds on our last quarter call and that continued into the second quarter.

Quoting activity for IS projects remains high but project sponsors continue to be slow in pulling the trigger on awarding starting these projects. On the base Enerpac industrial tool front, demand was soft in the quarter especially in North America where weather conditions in our U.S. plant were disruptive.

Europe was positive on a core IT sales basis in the quarter and Asia was okay excluding mining markets. Despite the seasonal -- sequential seasonal slowdown, lower second quarter sales on a year-over-year basis and facility related headwinds, margins increased due to aggressive cost management and favorable segment sales mix.

We exited the quarter at a much better sales and order pace than in December and January and are optimistic that the worst is behind us. Moving on now to the Energy segment on Slide 9. Overall segment sales increased over 30% as a result of 11% core growth and the benefit of the Viking acquisition.

Both Cortland and Hydratight reported improved shipments on a year-over-year basis and they have booked several large orders that bode well for the future. Energy segment operating margins were a big focus on our first quarter earnings call.

We predicted that second quarter margins would be roughly similar to those that we reported in the first quarter, despite the normal seasonal drop sequentially. Actually second quarter operating profit margin increased sequentially this year by 70 basis points compared to a seasonal 500 basis point decline from the first to second quarter a year ago.

While our year-over-year second quarter….. .

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Ladies and gentlemen please stand by, the conference will resume shortly. Please remain on the line. We thank you for your patience. And once again, please continue to stand by. Ladies and gentlemen, thank you for a patience, your conference will now resume..

Sorry about the interruption. I will start over on the Energy segment. I am on slide 9. Overall the segment sales increased over 30% as a result of 11% core growth and the benefit of the Viking acquisition. Both Cortland and Hydratight reported improved shipments and put several large orders during the quarter that boarded well for the future.

Energy segment operating margins were a big focus in our first quarter earnings call. We predicted that second quarter margins would be roughly similar to those in the first quarter despite the normal seasonal drop.

Our actual second quarter operating profit margin increased sequentially this year by 70 basis points, compared to a normal seasonal decline. Last year was a 500 basis point decline from first to second quarters.

While our second quarter margins did decline year-over-year by 300 basis points, almost all of this was attributable to the Viking mix with a combined Hydratight and Cortland results and margins in line with last year.

We still have work to do on the margin front in energy going forward, but we had a big move this quarter and we're optimistic things will continue to improve. Before moving onto engineered solutions a few words about Viking SeaTech.

Last quarter we commented that Viking had some mobilizations, moved to the right “the project sponsors were dragging their feet on.” Viking’s revenues in the second quarter will roughly in line with the first quarter and had better margins.

During the quarter Viking mobilized the multi-year Wheatstone job and booked another $9 million order that will mobilize early in the fourth quarter. While we're not where we'd like to be, we are seeing progress. Moving on now to slide 10, I'll cover Engineered Solutions, which was again a strong performer in the quarter.

Total segment sales increased 6% consisting of 7% core and 1% divestiture headwind. We again saw solid core growth in global truck, RV and agriculture while global mining and off-highway equipment markets continue to be challenging. Operating profit margins for the segment increased 50 basis points year-over-year on volume.

This took place despite headwinds from multiple facility moves. We expect continued growth in this segment in future quarters, albeit at more modest levels as we clear the benefit of the European truck pre-buy. So that’s it from my comments this morning on the P&L. Now I'll provide some color on our cash flow and capitalization.

Our second quarter cash flow from operations was down on account of a working capital build in the higher capital expenditures. A portion of the working capital build reflected the core sales growth in the build of inventory safety stock for the various facility moves we discussed.

It was an eventful quarter with the completion of the electrical divestiture. We spent about $94 million of those proceeds on stock buybacks and used the rest to retire borrowings on our revolver and add to our cash balances.

Our quarter ended net debt-to-EBITDA ratio was 0.9 times and we had $150 million cash on the balance sheet and our entire $600 million revolver undrawn. Our balance sheet has never been in better shape and we're well-positioned to deploy funds in acquisitions and additional share buybacks, which Mark will review shortly.

That’s it from my portion of prepared comments today. I’ll turn the call back over to Mark..

Thanks, Andy. Despite economic conditions, I was encouraged by some of the commercial wins and developments in the quarter. Pointing you to Slide 12, I want to first cover some recent events to give you an idea of how we are commercializing growth and innovation and capitalizing on macro growth themes.

We presented some of our key new products and technologies at the recent CONEXPO Trade Show, which is the major construction show that takes place in Las Vegas once every three years.

Enerpac changed it up a bit this year at the show and moved from a traditional in-door booth to an area outside the convention center in order to showcase some of the big projects and actually demonstrates some of the technology it has to offer with our integrated solutions business.

The Vegas High Roller, a Ferris wheel, as only Las Vegas can build them was highlighted and visible on the Las Vegas skyline. We were involved in its construction and at one point holding in place some 750 tons of steel as additional sections were added to its radius. We also designed and produced the emergency breaking and evacuation system.

Interestingly the Ferris wheel is bigger than the London Eye, has 28 cabins that carry 40 people each and takes a half hour to make one rotation. Also highlighted was the ESET or the Enerpac Self-Erecting Tower. A photo of that is on the bottom of the second quarter highlight slide on Page 3.

This product provides an alternative to a traditional crane that can be assembled and utilized at various heights.

This type of tower, along with the standard gantry cranes, synchronous lifting systems and custom products with similar capabilities were all highlighted at the show and demonstrated the breadth of the Enerpac integrated solutions product offering.

We believe we made a big impact with this outdoor booth which generated leads for many potential customers who are not aware of our heavy-lift capabilities.

In addition, our Maxima Tech business had an indoor booth at the show which highlighted the safety and control features available in their custom design displays and controllers for big equipment in the construction space. Next, I want to review capital allocation as you see here on Slide 13.

As you read in today’s press release, we were more aggressive this past quarter with the stock buybacks, repurchasing the remaining 2.6 million shares under our prior buyback authorization.

We want to continue to do what we have been doing over the past three years, deploying capital and acquisitions and returning capital to shareholders via opportunistic buybacks. Our continued robust cash flow generation and current strong balance sheet, gave the Board confidence to approve another 7 million share authorization.

Share buybacks are the preferred way for Actuant to return capital to shareholders because of the flexibility they provide to turn on and off, should a sizable acquisition take place. But let me be very clear, this does that mean that we have changed our priorities for capital allocation.

Growth both organically and through acquisitions continues to be the number one priority for capital deployment. Lastly, I wanted to provide an update on M&A which is quite active and spans all three segments.

The funnel contains deals of various sizes but the majority are considered tuck-in in nature and size with the quality and strategic fit of the deals very tight. We continue to maintain financial discipline in M&A.

We passed on some larger deals with pretty high valuation expectations in the quarter but there are several others in the pipeline that are financially attractive. We are optimistic that we'll complete acquisitions over the next couple of quarters. That’s a good segue into talking about the back half of fiscal 2014.

Just past the midpoint of the fiscal year, we have reported earnings for the first two quarters that were within our guidance range. Core sales growth for both quarters has been within our 3% to 5% full year target as well.

However it has taken an awful lot of cost management, stick handling and effort to deliver those results, given the current tepid economic conditions. Frankly, we and probably…..

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Ladies and gentlemen please stand by, the conference will resume shortly. Please remain on the line. We thank you for your patience. And once again, please continue to stand by. Ladies and gentlemen, thank you for a patience, your conference will now resume. Sorry about that. I'm going to start on Slide 14 under the guidance.

That’s a good segue into talking about the back half of fiscal 2014. It just passed the mid-point of the fiscal year. We have reported earnings for the first two quarters that were within our guidance range. Core sales growth for both quarters has been within our 3% to 5% full year target as well.

However it has taken an awful lot of cost management, stick handling and effort to deliver these results, given the current tepid economic conditions. Frankly we and probably you as well expected the economy to have shown more signs of life than it has.

This has led to us to double down on some of our quiet restructuring actions in order to better position the Company to deliver on our financial commitments. Examples include consolidating a few more facilities than originally planned, accelerating ERP system implementations in conversions, as well as other actions to increase cost savings.

One of the ultimate goals of these self-help actions is to reduce cost in some areas so that savings can be reinvested in more customer facing activities.

These actions create short term headwinds as we recognize the costs and incur the potential disruptions associated with them just as we experienced in the second quarter but will create long term growth and are the right thing to do. One of the things that has changed from our original guidance is growth by segment.

As you can see here on Slide 15 we are now forecasting more core growth from the energy segment and less from the industrial segment. This is simply reflection of what we saw in the first half versus prior expectations.

Engineered Solutions will continue to be the highest core growth segment now at 7% to 8% for the year compared to our prior 6% to 8% assumption. We have lowered our outlook for industrial from 3% to 5% core growth to zero to negative 2% based on the weak first half.

And finally, we’ve increased the Energy segment outlook from 1% to 3% core to 3% to 5% core growth. In total, no change to our consolidated 3% to 5% core growth expectation, just movement within the segments which does put a little more pressure on margins due to less favorable sales mix.

Despite these factors, our overall guidance ranges for the full year are not changing. Given our year to date results, the anticipated shift in mix and the cost for the additional actions previously discussed however, we think it is more likely that we will be at the lower end of our $2 to $2.10 EPS range.

We are comfortable we will be within our sales range and we have a high confidence level of delivering the targeted $190 million of free cash flow for the year. Our third quarter outlook includes sales in the $370 million to $380 million range and EPS between $0.60 and $0.65 a share.

As has been the case all year long, our effective tax rate will be lumpy in the back half of the year and in the third quarter in particular we are expecting an effective tax rate in the low teens.

We are laser focused on delivering fiscal 2014 results in line with our commitments and we’ll continue to identify self-help actions that will provide long term value to shareholders. That wraps up our prepared remarks. So, Kim, please open up the line for questions..

Thank you. (Operator Instructions) Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead..

So just want to zero in on Viking one can you give us a sense of how you’re thinking about the second half because I think it was going to be back half weighted? And Andy, I think you made some kind of encouraging comments but on the same side may be saying it was not where you wanted it and maybe within the context of all that, it seems like we’re hearing more negative news on kind of offshore oil and gas and just how does that all play into how you’re thinking about Viking?.

All right. Andy, why don’t I just cover some high level stuff and then you can follow up after me. But as you know Jeff, we’ve got a fairly fixed cost structure with Viking and in addition we’ve got a $5 million retention agreement expense for this year. So we’re working against that.

And in the first six months, we talked a little bit about the deferral of some larger jobs, mainly that Wheatstone job that we’re seeing come through right now as well as a new $9 million job for Gorgon that we’re very excited about. So we feel comfortable that that revenue is going to be coming in.

In the meantime we’ve been looking at the cost side of things as well to make sure that we’ve got a good balance there. We’re reprioritizing the growth initiatives that the team had. We’ve seen improved core conversion in general.

We’re executing some consolidations that came out of the integration action items in Norway and we just executed on a sourcing savings using AGFS to purchase some chain which is helping on the margin piece and certainly leveraging assets between Norway and the UK. So there's a lot of things that we’re working on.

We’re not assuming that the volume is going to come in to the initial projection. So we’re working on the cost side as well.

So with that Andy why don’t you fill in some of the details?.

Yes, from a revenue standpoint second quarter as I mentioned it was pretty similar to the first quarter. We’re going to see a little bit of step up in Q3.

In our outlook we have a pretty nice ramp from Q3 to Q4 on sales as this second job that we won really kicks in the fourth quarter here adding about $1 million a month to revenue and high margins with it. So when we were on last quarter’s call I think we were looking at $95 million to $100 million of total revenue for this business.

We’ve ratcheted that back to $85 million to $90 million in the current outlook. So as one of the factors, when we look at our guidance for the balance of the year or so, there is a pretty healthy ramp in the fourth quarter in it and with it margins. So that’s kind of implicit what’s in our guidance.

I would say one other comment and Mark and I were talking about this before the call. We certainly have been reading a lot of newspaper about bad news or not greatest news on our offshore demand and spend and what not.

Yet we've had some really nice orders in the last 90 days in the Cortland business which does a lot offshore as well or all offshore on it. So it’s a bit of a mix bag. One thing we’ve learned about the energy segment here is it’s clearly is lumpy. I mean it can turn on a dime like you saw this past quarter, went from minus 1% core to plus 11% here.

So it’s just lumpy or not as predictable as the rest of our businesses..

Good color and then just. Is there a way you can quantify what all this disruption and maybe the weather cost you this quarter on the plant moves.

And what’s your -- can you quantify kind of the additional restructuring and the impact into the back half?.

On the Enerpac side of things, on the industrial side of things, with the Columbus move it’s really hard to quantify that Jeff. But just to put it in perspective, we ramped up for the move in Columbus. We had some fill rate disruptions that probably dropped our fill rate from the mid-90s down to the high 70s for a period of time.

They are back up into the low 90s right now. So we’ve had a good recovery there.

It’s really hard to determine what the loss was there and the reason is because due to the cycle time reduction that we’ve had over the years with that product line in Enerpac, a lot of our distributors order on demand and if we don’t have it stock, they may go somewhere else and so we just don’t have visibility to that level of detail on it.

From a weather standpoint, what we can tell you is just what we’re hearing from our distributors. I think the main impact of the weather is with our Enerpac business distributors, just had less days during the course of January and February to do the business they needed to do. I think much of that will come back in the second half.

And so that’s what we’re seeing from that perspective. The restricting piece, when we look at the back half of the year, I'm looking at $4 million to $5 million of cross sells there for restructuring. The first half was not that high. It was probably about $2 million. So we definitely have a step up to your expectations here.

This will just be run through our results. It is included in our outlook for the year. So that’s one of the reasons why we’re kind of staring people down toward the lower end of our guidance range is because of this and the change in mix, where our Enerpac core sales are -- the expectations is more modest than what we had previously..

Our next question comes from the line of Charlie Brady with BMO Capital Markets. Please go ahead..

With respect to the energy business you commented, Hydratight was up pretty strongly in North America and Asia. I wonder if you could just provide a little more detail on kind of what that strength and where that strength is coming from a little more specifically.

And I guess I'm surprised to hear that there was no weather impact on the energy business particularly in North America.

So is that something that’s on the come, or is just completely unaffected by that?.

So let me give you a little color on the Hydratight side. If you look at the Hydratight business, we were up about 4% in that business for the quarter. It was primarily North America and APAC. That’s where the increase was. We’ve got some nuclear (Ph) business that came back strong in the quarter; our maintenance, standard maintenance picked up.

We really hadn’t heard of much disruptions through the Energy side of the business, Charlie. Most of that discussion was on the industrial side. But I'm sure there was some impact on it. We just hadn’t been able to quantify that piece of it.

The other piece that drove some of this on the Hydratight side was our technician utilization which was up substantially in the course of the quarter and that rose to about mid-80s which is very strong, especially relative to the first quarter..

That’s helpful. And just so I understand going from back half of the year, Andy you just talked about some more restructuring.

So do we still get a little more disruption from any kind of plant movements or is that essentially behind us?.

Good question, Charlie. With regard to the industrial segment that’s done we are having that facility. All the lines have been moved, I think we are sweeping off the old plant probably this week. Within engineered solutions, there is some more to go. We have got the final line move coming out of our Creston plant.

There is one line I believe that needs to move yet out of the Lancaster as well and then we have got another plant in Malaysia that is going to be coming down at the end of the quarter.

So, I would expect it to be less than what you saw this past quarter in terms of the impact because we are further along at it and there are fewer people on the closing side, if you will, the plants that are going down. But it will probably impact us a little bit more than any segment..

Okay. Just one more then on the full year tax rate, I know you talked about….

Charlie, you are going for a third?.

Tax rate for the full year and I am done..

Because of the mix shift, looking at about 20% so this is also a headwind relative to our prior guidance. We were down into the teens there and mix worked against us more in U.S. which is our highest tax rate unfortunately country..

Our next question comes from the line of Scott Graham with Jefferies. Please go ahead..

Hey, so I was hoping you can give us a little bit of preferential on this fourth quarter which if my numbers are correct, it seems like that’s going to need to be to get the low end of guidance $0.60 a share-ish quarter and we have much higher tax rate.

I am just sort of wondering kind of what are some of the things that you think flipped decisively in the fourth quarter versus the third quarter that’s going to get you there. .

The biggest single item would be energy as far as Viking cranking up in the fourth quarter with the….

Both Whitestone and Gordon..

Both of them coming inline. The second piece would be industrial; our assumption for core sales in the base IT business is higher in the fourth quarter than in the third quarter as well. Energy looks pretty good right now in the base Cortland and Hydratight business. We have got a very healthy backlog there.

We picked up several orders, big orders this past quarter for some longer term type stuff that we are excited about. So, that’s one of the big changes you look at sequentially from Q3 to Q4..

Would you also expect that the plant moves that you are involved in right now does that start to have a payback in the fourth quarter, not the third?.

Definitely, I mean I should have called that out, out of that $5 million second half probably 4 of that is Q3. So, it’s heavily slanted towards Q3..

Okay. Very good..

We see some benefits earlier quite restructuring in the fourth quarter, correct..

Our next question comes from the line of Ann Duignan with JP Morgan. Please go ahead. .

Hi, guys. I think most of questions have already been answered after all those.

So, just looking at your Enerpac, the new products that you introduced at ConExpo, can you talk about who your competition would be for that product, would it be Demag or regular crane guys?.

It’s everything from Rexroth to some of the major contractors to Versabar; I mean there is just a lot of folks that are in there.

But really when you look at the gantry and the strand jack market, a piece of that is doing what a crane will typically do in a similar application or where there is low headroom or just an area where you just cannot get that from a cost standpoint or from a structural standpoint get a crane in there, yes dormant land as well.

There is a number of folks in that space that we deal with..

So, you wouldn’t be competing with a crane on given application.

These are for separate applications?.

No, you could be, Ann, you could be, yes. It really depends on the environment that you are in, what the lift encompasses, space that you have I mean it all depends. And in some cases, we work very closely with the crane guys for a total solution Mammoet is a good example. We do a lot of work with them and they are obviously a major crane manufacturer.

.

Okay, that’s helpful. Thank you.

And then just a quick follow-up on the European truck, can you just talk about what you are seeing right now over there the pre-buy is done, what is the impact on your business and what are the OEMs telling you going forward?.

Yes, let’s say we were pleasantly surprised in the quarter..

Ladies and gentlemen, please standby the conference will resume shortly please remain on the line. We thank you for your patience. And once again please continue to standby. Ladies and gentlemen, thank you for your patience, your conference will now resume..

Okay, I’ll tackle that question again Ann had asked regarding European truck demand and pre-buy.

We knew we’d have some of the benefits from the pre-buy given December is within our second quarter here but we were surprised that order pace kept on reasonably well for January and February so it did not fall off like a rock like we expected it to it’s actually held in there pretty well so I would say the general tone relative to where we were at this time three months ago is slightly positive as it relates to European truck so that’s slightly more positive..

And no concern that we yet have to see the step function drop?.

No, based on the production schedules that we have relative to our expectations, we’re good. Certainly, the revenue growth will slow down relative to the prior two quarters but it’s not negative news to what we had built into the original forecast it’s actually held in better than what we had expected.

And we’re still hearing that the build is going to be flat to plus five during the course of that the calendar year. So, things seem to be hanging in there little better than we expected through the first two quarters..

Our next question comes from the line of Rob Wertheimer with Vertical Research Partners. Please go ahead..

Good morning.

Let’s see just a quick follow up on Europe truck I mean do you expect the last quarter to start to see a headwind from the last year’s pre-buy or I don’t know if you builds schedules extend out that far, if you have any glimmerings of that yet?.

Not based upon the timing of our quarters we [indiscernible] until..

Yes, it is probably our first quarter of this year when we saw any kind of benefit from the pre-buy coming through so certainly the growth our expectation is that growth in the fourth quarter will be less than we saw in the first two quarters of our fiscal year but I’ve no downside outside to what our prior guidance was..

Yes, we will anniversary that till the first quarter of next year..

I don’t know if there is a little bit loading, but that’s perfect. Thank you.

And then just to go back to industrial integrated solutions I don’t know I mean what exactly drove it downturn is any of the push out through delays feel like they can come back soon and I don’t know if you can just give us a little bit more anecdotal or story color on what happened there?.

One thing to consider Rob is we had major IS projects go off to completion over the last several quarters that was the Novarka which is a Chernobyl the High Roller that we talked about in the call and then Bay Bridge so we have three major IS projects that have come off and so if you look at the funnel of activity now I’d say it’s extremely robust, I think that a good funnel, it is taking longer to make decisions and come through to a completion through that funnel.

A lot of the focus has been on some of the I’d say meat-and-potatoes integrated solutions which is the gantries and strand jack and sync lift systems that are between 50 and 200,000 and so that’s been the focus of the team but we do have a good funnel of activity going on.

We’re starting to see some of those come down which will ship later in the year. .

And just to provide a little color on the mix year, when you’re looking at the 5% down this past quarter industrial, the based IT which is the most profitable part of this segment where most people associated with Enerpac. Our core was down less than 4%.

What you’re seeing is that as Mark said is the integrated solutions coming off much more significantly down about 10% in the first half of this year and given the timing of the big project last year, I expected to be up those IS projects to be up 15% in the back half of the year on year-over-year basis.

But expect the IT portion of it to come back because that we’re seeking better order patterns right now and no disruption from weather and in the facility move. .

Our next question comes from the line of Allison Poliniak with Wells Fargo Please go ahead. .

Just going back to the energy, it sounds like we are expecting, obviously, sequential improvement in margins. How should we be thinking about that? It sounds like we could get a nice lift in Q4 with Viking coming back. .

You are correct, as we should get the buying should build between third quarter and fourth quarter. Viking should be coming on stronger through the third quarter so that’s what we’ve got in our estimates as that built as the rest of the year progresses... .

Okay. And then, as well, just turning to the industrial side. IS, it sounds like things are slow to kick in there.

Should we assume this sort of mix as we move through the back half of the year at this point in terms of margins?.

Pretty much aligned that be ahead of it or headwinds from IS than we saw in the first half. .

Our next question comes from the line of Ajay Kejriwal with FBR. Please go ahead. .

So just following up on the energy margins question a little bit, historically you have had a very nice pickup in the second half -- 19%, 20% margins. And I know you've talked about a couple things here -- Viking is in the mix. Just maybe some color on how to think about second-half margins in energy..

Sure. So when I look at fiscal ’12, the uplift from quarter two to quarter three was about 350 basis points. We saw actually over 600 basis point lift in fiscal ’13 from that movement -- I’m talking EBITDA margins here and we’re expecting somewhere in between those two from the lift from quarter two to quarter three of this year.

So, pretty similar seasonal pattern coming off the bottom in Q2 to Q3 and of course the big driver there is Hydratight and the service technicians in particular coming through. So, I would expect to see a similar trend to what we’ve seen in each of over the last couple of years..

In terms of the operating margins, is it like 700 or 800 basis points that we saw last year, sequential improvement third-quarter over 2Q?.

I don’t have that much built in OP margin, that much of lift last year that was like you said 700, 800 basis points, I don’t have as much as last year’s we open up the OP line. It’s not that high at the EBITDA line now looking sequentially up 600 basis points or so. .

And then additional built-up ramp-up in the fourth quarter or do you flatten out?.

Definitely, yes. .

In ’13 they were flat Q3 to Q4 we have a build in margins in Q3 to Q4 this year. .

And then, Mark, maybe talk a little bit about acquisitions just in general -- maybe philosophy here, if you will, please. I know you said the pipeline is active and all. Maybe talk about how you think about offsetting the dilution from electrical. I know you have paid down some debt, but sounds like that's more opportunistic.

Just talk about the size of deals and what we should expect in the next year or so..

Sure. From a deployment of capital standpoint is I talked about in the prepared remarks? So, our main focus is obviously on M&A and core growth and this additional authorization for repurchase that we have an additional 7 million shares gives us that third level if we needed and we use that opportunistically.

Going to the M&A funnel, I think the funnel is very strong right now, we’ve got businesses that we’re are looking at in each one of the segments. There is a little bit of a line of demarcation I would tell you that for those assets that are larger than 100 million and 125 million. There are more in public auctions.

Those are going for a higher multiple as the smaller tuck-in acquisitions that we’ve had in the past and that we continue to look at.

So I think we really - we narrowed the fairway on the tuck-ins, we’ve got some good opportunities that are out there that we feel will close over the next couple of quarters and we passed on a couple of larger deals when the valuation just got beyond where we felt comfortable..

Our next question comes from the line of Matt McConnell with Citi Research. Please go ahead..

Could you guys try to put that $2.6 million of share buybacks into context? And I know the methodology is to be opportunistic there, but the stock is still around that level of maybe a buck or two below.

So is this still an area where you feel like you can be opportunistic over the next few quarters?.

Yes, sure, definitely..

Yes, if you take a look at that first authorization. Matt if you take a look what our average price was on that I think was around $30 somewhere in that vicinity. And again this is not something that we’re looking at on a quarter-on-quarter basis. We’re looking at is from a long-term standpoint.

But, yes, we feel we can continue to be opportunistic out there and we’ll continue to do so..

Okay. Great. Thanks. And on cash flow, Andy, a little bit light in the second quarter. I know there was a lot of inventory with that related to the manufacturing adjustments you are making.

And when do you think that inventory would kind of bleed down?.

That certainly was a contributing factor to it. And you know receivables are up as well because of the core sales growth on it. We probably added about 5 million bucks of inventory related to these moods I would expect that to bleed out in this next quarter.

I am not concerned at all about hitting the 190 for the year, the $190 million of free cash flow. And we always have a relatively light first half from a cash flow standpoint and that comes on again in the second half and I expect this should be no exception to that..

Our next question comes from the line of Jamie Sullivan with RBC Capital Markets. Please go ahead..

A question on industrials -- just the change in the guidance for the year, just to make sure I'm understanding the puts and takes there.

So the biggest impacts is really integrated solutions and the timing of projects as those played out in addition to the impact of the first half results in industrial tools, thus far? Is that the right way to think about it?.

Yes, there is two different pieces. I would say, our full-year outlook for IS is probably come off about 10 million bucks for moment last part and as well as IT given the light quarter we had this past quarter, we took the expectations down there as well. So it is both areas but the bigger of the two is definitely IS..

I think the other thing to keep in mind Jamie is, through the second quarter we had sequential improvements in sales within Industrial as well combining both IT and IS. So that’s we’ve seen at over the last several months..

Okay. That's helpful. And then, second question, just on energy, maybe you can talk about what you're seeing on the pricing side given some of the mix trends that are out there in the offshore market.

How is pricing holding up? What are you seeing on that front?.

I’d say its business as usual from a pricing standpoint. I think that as things tighten up a little bit. There is a tendency to have pressure on pricing. The team is working to make sure that the margins contributed to those sales are where they need to be. I am not here in a lot of more rumbling than we normally hear around pricing..

Our next question comes from the line of James Kawai with SunTrust Robinson Humphrey. Please go ahead..

Great. Thanks for taking my question. My question is regarding the fourth-quarter ramp in energy, specifically the Viking, Wheatstone, and Gorgon projects that you won.

Can you characterize the risk relative to timing? Is it purely an execution issue at this point and under your control? Are there some sort of exogenous factors with the client that may skew the timing forward or backward there?.

From the Wheatstone perspective, we’ve already begun shipping that -- it’s mobilized and so that will continue to proceed. The Gorgon, the $9 million Gorgon order is scheduled to begin shipping into third quarter and so we’ll see that ramping up. So from our perspective right now we feel very good about those ramp ups..

Things definitely can move around though. Risk standpoint, if the customer - we’re just one of multiple parties involved in the process here. If they decide to move it all to the right is totally outside of our control, we are at their -- based on their own schedules. .

And the two examples are the ones we just talked about. Wheatstone is we talked about last quarter and this quarter pushed out; the Gorgon one got dropped in early. So, these can move around but with our visibility right now this is our best estimate. .

Great. That's helpful. And then on the Viking, it's still a little bit new to us. I just want to understand the tail to some of this business. I think it was characterized as more rental and lease, which kind of implies that there is possibly a multiyear tail to some of this.

So should we look at this as kind of a step up in the run rate off the fourth-quarter or more of kind of a lumpy revenue stream?.

It is expected to be, definitely there is no question on that. I mean that we’ve stone contractors a multiyear contract three years actually. Gorgon will span this year and over next year but it’s not going to go beyond 12 months. So, it’s a mixture of the two. .

Our next question comes from the line of the Stanley Elliot with Stifel. Please go ahead. .

Thank you. My question have been answered. .

Thank you. .

Thank you. .

Our next question comes from the line of Mircea Dobre with R W. Baird. Please go ahead. .

Joe Grabowski - Robert W. Baird & Company, Inc.:.

I guess I had a similar question at the last one, but on the several large orders in Cortland and Hydratight it sounds like the revenue from those orders are going to benefit the fourth quarter, but what's the tail on those projects? And how do the revenues kind of flow beyond fiscal year 2014?.

One of them is a three year project that will be probably $1 million dollars a quarter or so. Excuse me, $1 million dollars a month, when it starts and the other ones in there will definably stretch this year and into next year, into middle of next year on those service jobs and some product delivery that’s spread over our 12-month period. .

Yes.

Let just add some color on that Hydratight order Andy had mentioned it but the asset integrity order that we’re talking it’s a big contract, it’s a Gorgon like contract for asset integrity and so that’s going to be out there for probably a three year period, it will ramp up as Andy said to about a million dollars per month and that was a contract that was recently executed over the last several weeks.

So, that’s going to be with us for several years. .

Okay. Great. Thanks for the color. And then a quick follow-up on that -- you had a change in leadership in the energy segment after the last call. And I was just hoping to get some color about Brian's approach to the business and what he's doing to improve execution and how projects are being quoted..

Yes. It’s a great question. As many of you know, Brian has been with us for about 20 years, he was in the energy segment up till several years ago, he really took over energy and Hydratight when we first purchased the business.

So, he understands energy very, very well, he takes a much more methodical approach very process oriented and we’ve seen a lot of improvements in the areas as that we can control in a short period of time.

We talked a little bit about the technician utilization but part of that is just a quoting process, the visibility of the process and the funnel and the conversion rates part of it is technician turn over and really solidifying that team another pieces on the forecasting and estimation of pricing on these measure deals and the fair pieces is asset optimization and so he’s really taking a very process oriented approach to this and the team is really embraced it.

It’s been very helpful and getting our hands around those controllable areas. .

Our next question comes from the line of Daniel Holland with Morningstar. Please go ahead. .

Just a quick question on the industrial segment. Just thinking longer term on the margin front, right now margins are kind of up in the stratosphere where they haven't been since 2007, 2008 for the last few quarters now.

I'm trying to think of what are some of the things that you guys have done to protect the sustainability of those margins and how we can think about those going off the next few years here..

Look at margins last year within industrial and looking EBITDA margins here, the back half of the year we were 30% or north of that we actually expect to see slightly higher margins in the back half of this year in that business primarily the result of mix with less IS and more IT.

Mix in there as well some savings that are going on within the business as far as manufacturing the new products or growing new plant efficacies from that as well so I would expect this business to operate north authority I given as present mix of heavier on IT and lighter on IS. So, 30, 31, 32 type margins when we look out..

From sustainability standpoint there is a number of areas that we’re focused on first is, new product development really focusing on voice of the customer as well as vertical market approach. Mining is an area that we have been focusing on. PowerGen is another one.

The other pieces standardizing some of the IS products, the gantries and sync lifts and really improving efficiencies, productivity and enabling our total global sales force to sell those solutions versus smaller cadre of people that we’ve done in the past.

So lot of money has been invested in the frontend of this business over the past year or so and we will continue to -- goal here is not to continue to build those margins, it’s to reinvest those profits back into the business so that we can make sure that’s a sustainable model..

Our next question is a follow-up question from the line of Scott Graham with Jefferies. Please go ahead..

I just wanted to ask a little bit more about the engineered solutions business, which I'm sure you guys agree still is kind of operating at an upper single-digit margin, is really well below what we've seen in the past.

Do you expect to kind of get up and over 10% operating margin and maybe even higher than that in next fiscal year? Should that number be kind of may be more likely 12 type of number? I'm not asking you -- well I guess I am -- asking you a little bit about 2015 here, but I was just -- this margin has been depressed for a while.

You've done some things in the business on the facilities side. It just seems that that margin with any kind of top-line growth should kind of get back to what we've seen in the past.

Is there any reason to believe otherwise?.

So Scott if you take a look at what we’ve been doing with these quite restructurings which have begun over the past year. If you take a look at the focus on new products we’ve cited - add cedar platform and some of the new business that’s coming in higher margins.

The intent is to continue to move that margin in that direction and so there is nothing that would indicate anything otherwise at this stage..

Our next question is a follow-up question from the line of Jeff Hammond with KeyBanc Capital Markets. Please go head..

Maybe I missed this, but can you give us what you think the share count is going to be based on the buyback and what the ending share count was for the quarter?.

On a fully diluted basis, I think at quarter end if you look January, I think we were just a hair under 73 million including options and that sort of stuff..

So we should think of kind of 73 in the back half of the year, assuming no new buyback?.

Yes, I would even steer you up a little bit. The reason for that as it will be option exercises in the back half. There are some options that expired this fall. I think hour’s back I believe still has some out there that are probably lined up on as well.

And there is performance share later on that sort of stuff and just the pricing obviously you know how the diluted share calculation works if stock price moves around it’s going to impact the shares outstanding calculations as well..

And there are no further questions at this time. I will now turn the call back to you for closing remark..

Great. Thanks for joining our call today. I apologize for the various disruptions we had here. They were not on our end but sorry about all that getting cut off here. I’ll be around all day to answer to follow-up questions you have.

Third quarter call will be held on June 18th and we tentatively set our Investor Day for October 7th, so please mark your calendar for that. Thank you. Have a great day..

Operator:.

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