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

Charles Brady - BMO Capital Markets Mig Dobre - Robert W. Baird Allison Poliniak - Wells Fargo Securities Jeff Hammond - Keybanc Capital Markets Ajay Kejriwal - FBR Capital Markets Matt McConnell - Citigroup Jamie Sullivan - RBC Capital Markets Scott Graham - Jefferies & Co.

Ladies and gentlemen, thank you for standing by. Welcome to the Actuant Corporation’s Third Quarter Earnings Conference Call. During the presentation all participants will be in a listen only mode. Afterwards, we will conduct a question-and-answer session.

[Operator Instructions] As a reminder, this conference is being recorded on Wednesday, June 18, 2014. It is now my pleasure to turn the conference over to Karen Bauer, Communications and Investor Relations leader. Please go ahead, Ms. Bauer..

Great. Good morning, and welcome to Actuant's third quarter fiscal 2014 earnings conference call. On the call with me today are 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 Investor 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 that 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 today in order to keep the call to an hour. Thank you in advance for following this practice. And with that, I'll turn the call over to Mark..

Thank you, Karen, and thanks for joining us on our third quarter earnings call. We've quite a bit to cover today, so let's begin. First, I would like to welcome Roger Roundhouse to the Executive team at Actuant. He is currently leading the Engineered Solutions segment with Bill Blackmore's announced retirement at the end of the fiscal year.

Roger brings extensive experience from General Cable and has already brought a new perspective on a number of aspects of the business. I want to thank Bill for his many accomplishments and contributions to our success over his 13 years of service and wish him good health and much happiness in retirement. Now for the quarterly highlights.

We delivered consolidated Actuant results in line with our sales and earnings guidance and core growth was solid at 3%. We also completed a number of capital allocation and portfolio management actions including the acquisition of Hayes Industries, which I will review later on the call.

Additionally, we completed a sale leaseback of Viking mooring equipment freeing up $41 million of capital for future deployment and divested the Viking SeaTech manpower product line as well as our RV business, the latter after quarter end. We also bought back 2.2 million shares of Actuant stock returning $74 million to shareholders.

We'll discuss each of these on today's call, but the takeaway is that we are positioning the portfolio for the long term and actively managing the capital you’ve entrusted to us. We'll also cover our updated fiscal 2014 guidance at the end of the call, which we lowered as you saw in this morning's press release.

With that summary, 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 third quarter financial results and then provide additional color and discussion later. Sales for the quarter of $378 million were up 10% from a year ago and in the upper half of our $370 million to $380 million guidance range.

We reported diluted earnings per share of $0.70 a share for the quarter, compared to our guidance of $0.60 to $0.65 a share and $0.62 a share last year. Third quarter earnings per share included a $0.07 a share benefit from tax planning that was not included in our guidance. So we were in the middle of our guidance range excluding this.

Part of our growth was attributable to higher sales. Our consolidated sales increased 10% year-over-year with 5% from acquisitions, 2% from currency tailwinds and 3% of core growth. Both the Engineered Solutions and Energy segments posted 5% core growth in the third quarter while Industrial was down 2%.

This was in line with our expectations of a slight consolidated moderation from the 4% core growth quarter in the second quarter. I'll provide more color on results by segment later in the call.

Turning now to Slide six, our operating profit increased approximately $2 million on a year-over-year basis, while the operating profit margin declined approximately 110 basis points.

Similar to last quarter, we continue to face margin headwinds from unfavorable mix, with our most profitable segment being industrial, reporting a modest core sales decline and the other two segments posting mid-single-digit core growth.

Additionally, the inclusion of Viking SeaTech creates a margin mix headwind as operating profit margins would have been almost even with the prior year, excluding this acquisition. Third quarter results also included restructuring and facility related cost that were a short term headwind, but will provide future cost savings.

Turning now to segment level results and starting with our Industrial segment. We had sales decline 1% on a year-over-year basis overall with a 1% benefit from foreign currency rate changes and a 2% core sales decline. This compares to a 5% year-over-year core sales decline in the second quarter. So we saw some meaningful improvement sequentially.

Consistent with prior quarters, the primary year-over-year headwind in industrial is the big year of the Integrated Solutions part of Enerpac had in fiscal 2013 with several large projects. The 2% industrial tool product line core sales growth in the quarter is the best we've seen this year with growth in all geographic regions.

Despite the tepid global macro environment, we were happy with the excellent job the industrial management team continued to do in controlling cost in the third quarter.

While it did benefit slightly from favorable sales mix, the 200 basis point year-over-year operating profit margin expansion in the most recent quarter was great performance for the segment.

The fill rate challenges that we discussed at length last quarter related to its relocation to a new manufacturing plant those have been corrected and are behind it. Moving on now to the Energy segment on Slide eight; overall segment sales increased over 25% year-over-year.

This included 5% core growth, favorable currency and the benefit of last August Viking SeaTech acquisition. Both Cortland and Hydratight reported improved volume in the quarter and activity is pretty steady overall.

Third quarter energy segment operating profit margins were down 400 basis points year-over-year, but all but 80 basis points of that was due to unfavorable Viking acquisition mix. Sequentially, energy segment operating profit margins were up nearly 700 basis points, which is in line with the discussions that we had on last quarter's earning call.

On the Viking front, we're seeing good success with new orders and projects in the Asian region, most notably in Singapore and Australia to the point where we'll be adding new equipment in that region in the second half of this calendar year.

However, we're seeing just the opposite right now in the North Sea over the last several months including certain drill ships that are coming off of hire and being sent to repair yards, which hurts our fourth quarter revenues and margins.

Given the size and weight of mooring anchors and chains, repositioning this equipment from the North Sea down to Australia is often cost prohibitive, so we're seeing low rental fleet utilization in the North Sea, which hurts margins. Nonetheless, we're encouraged by contract wins overall. At Viking, we expect to see a much better year ahead.

Rounding out our segment discussions, I'll finish up with Engineered Solutions here on Slide nine. Total segment sales increased 7% consisting of 5% core growth and 2% benefit from currency. Our strongest end markets within the segment remain heavy duty truck and agriculture.

We feel we've seen the bottom and are modestly moving up in the other end markets in this segment, including construction equipment, mining and convertible top.

Seasonally however, we expect to see the typical slowdown sequentially from the third to fourth quarter as European and Chinese truck OEMs typically scale back production levels during the summer months.

On the margin front, third quarter Engineered Solutions' operating profit margins were flat with the prior year as we continue to incur inefficiencies in cost as a result of restructuring and facility relocations this fiscal year.

During the quarter, we completed the closure of our former Malaysian and Creston, Iowa facilities and continue to transfer manufacturing for certain product lines from other plants into Mexico and Turkey. These plants moves are a good segue for my next topic.

I am going to spend a few minutes to describe actions we've been working on this year to streamline, standardize and simplify our businesses. I can divide such actions into three different categories with the first being portfolio management and acquisitions.

This includes a recent acquisition of Hayes Industries, the sale of the Viking manpower product line in early May and this week's announcement of the sale of the RV business. Mark will provide additional detail on each of these transactions in a few minutes.

The second category of self-help actions is standardization simplification facilitated by investments and common ERP systems and joint facilities. During this quarter, we completed a multiyear rollout of Oracle to all 30 of Hydratight sites worldwide, which followed an implementation at Power-Packer Europe earlier in the year.

Similarly, we just opened a new facility in Perth, Australia that will house Cortland, Hydratight and Viking businesses, which previously each occupied their own facility. Finally, we've been busy taking advantage of opportunities to rationalize facilities to leverage cost.

On a fiscal year-to-date basis, we pulled several manufacturing and warehouse operations and we consolidated them into larger shared facilities elsewhere within Actuant. This includes a Canadian warehouse, a Malaysian manufacturing plant, Hong Kong sourcing office and Iowa plant that were all closed this quarter.

Actuant has been busy in a number of these self-help initiatives during 2014 and in some cases they've weighed on our operating margins and results. However, it's important to understand that on a year-to-date basis, our operating profit margins are actually up year-over-year, excluding the acquisitions despite the short term cost of these actions.

We remain convinced that these investments will provide solid returns in the future. Now wrapping up our financial review today, today, I'll provide some color on our [audio gap] utilization. We generated $51 million of third quarter free cash flow, a little bit less than anticipated because of a build in working capital.

We'll work hard to reduce the working capital levels by fiscal yearend, but regardless, we expect to finish with full year free cash flow -- free cash flow [audio gap] and net income again this year.

During the third quarter, we continue to opportunistically buyback Actuant's stock, completing the purchase of approximately 2.2 million additional shares for $74 million. On a fiscal year-to-date basis, we've deployed over $180 million of capital to repurchase $5.2 million shares.

Given our balance sheet optionality and continued strong cash flow, we won't hesitate to continue to opportunistically buy back shares. It's a good way to return capital to shareholders. We also completed the sale and leaseback of approximately $41 million of Viking's mooring rental fleet in late May, converting hard assets into cash.

This has long been part of the strategy and increases the ROIC on the Viking transaction by reducing the capital invested in this business. Proceeds will be used for general purposes, which could include possible additional stock buybacks or acquisitions.

Our quarter-end net debt leverage is about one times and we have plenty of liquidity for future operating and capital deployment needs between the cash on our balance sheet and our untapped $600 million bank revolver. That's it for my prepared remarks today. I'll turn the call back over to Mark..

Thanks Andy. I would like to discuss the acquisition of Hayes Industries, which you see here on Slide 12. While this was not a large acquisition, it is the type of tuck-in that Actuant has been built on over the past decade and importantly is also the first for Enerpac in a few years.

Hayes was a family-owned competitor to Precision Sure-lock, Enerpac's concrete tensioning business that was acquired back in 2006. We like this market with its connection to our infrastructure growth theme as well as its focus on productivity and sustainability.

In simple terms, pre-stress, post-tension concrete is stronger and more stable, despite utilizing less material for both elevated and slab-on-grade structures. Hayes brings us both top and bottom-line synergy potential.

These include a patented encapsulation technology that the industry is increasingly mandating as well as sourcing, footprint and lean manufacturing opportunities. This is an acquisition we have had on the radar screen for a number of years and feel we can create value for shareholders by combining it with our existing Precision Sure-Lock business.

In addition to the Hayes acquisition, in May we completed the sale of a small Viking product line that was focused on providing manpower to oil and gas customers as well as our RV product line that we communicated earlier this week.

This portfolio management helps us concentrate on tighter strategic lane ways and a four primary secular growth themes that we've identified, energy, infrastructure, food and farm productivity and natural resources and sustainability.

These transactions coupled with the self-help actions that Andy described earlier, increase the focus of our portfolio and help us become more of an operating company. We believe that we will become a more profitable and higher-growth business as we continue to evolve in this matter. Now a few comments on the M&A market today.

There is a great deal of activity taking place at Actuant with many M&A ideas being actively pursued. We had visited and researched several acquisition targets on our own as well as participated in broader auctions conducted by investment bankers. While on a fiscal year-to-date basis, we have only completed one acquisition.

The effort has been significant. We identified over diligence, the number of acquisition candidates that we found attractive, but did not complete them primarily due to valuation concerns.

However, there are still some good acquisition opportunities and values out there with Hayes Industries being a great example and we have to continue to hunt for them while exhibiting patience and discipline. Now, I would like to shift gears and talk about the other form of growth, that being organic.

I am sure each of you has heard me talk about the rationale for the operating company transformation, which partially relates to our ability to self-fund growth initiatives. I wanted to highlight a few of the recent wins that give us confidence that the cultural transformation that we started a few years back is beginning to take hold.

One of these is Enerpac's Powerlock product line. This product is another in a series of specialized lifting tools that we have recently developed for use in maintaining off highway heavy equipment. Another Enerpac example is the dozer lift, which is already in use in customer maintenance shops.

We have also won several new contracts to supply OEMs with Precision airflow solutions in the Engineered Solution segment. These wins include a large multiyear contract with European truck OEM, MAN; orders from turbo manufacturers in China as well as others. While some of these don’t ramp up until 2016, the number of recent wins is encouraging.

Many of you have heard us talk about our patented ag seeder system that we introduced last year with two key customers. We have won orders from new customers for this system including initial orders from two Brazilian OEMs in the last six months and we are actively working on a few others.

In summary, we are excited about what we are seeing relative to organic growth within the businesses and we'll continue to reinvest the majority of the underlying incremental earnings to self-fund these types of sustainable growth initiatives. The final topic I will cover today is updated guidance for fiscal 2014.

As reported in this morning’s press release, we are adjusting our guidance for a variety of factors.

Although we have generated growth on a year-over-year basis throughout fiscal 2014, we don’t see enough momentum in markets such as mining, offshore mooring and off highway equipment among others to enable us to meet our prior forecast for the fourth quarter.

We also had forecasted step changes and profit margins in the prior forecast, and while we did achieve our third quarter forecast, we did not exit the third quarter at a sufficient run rate to achieve this in the fourth quarter.

In addition, when you factor in the divestiture of the RV business and the Viking product line, as well as the acquisition of Hayes, which won’t add any profit to the fourth quarter due to purchase accounting charges, there is a need to reduce the outlook for the balance of the year.

It is important to understand that while we are reducing the outlook, it is not the result of a change to the economic outlook or market share, but rather forecasting assumptions in the prior guidance. We now expect to deliver fiscal 2014 sales of approximately $1.4 billion and EPS in the range of $1.92 to $1.97 respectively.

To be clear, this EPS guidance includes the $0.07 per share tax planning benefit. However, it excludes the expected fourth quarter gain on sale of the RV business as well as future stock buybacks and acquisitions.

Backing into our view on the fourth quarter, it results in sales guidance in the $350 million to $360 million range with EPS of $0.48 to $0.53 compared to $0.46 in the comparable prior year quarter.

Rounding up guidance, we are projecting free cash flow for the year at $175 million to $185 million, which will be the 14th consecutive year of free cash flow conversion of net earnings of over 100%. That wraps up my prepared remarks. So, operator, please open up the line for questions..

[Operator Instructions] Your first question comes from the line of Charlie Brady with BMO Capital Market. Your line is open..

Hi, Thanks. Good morning..

Good morning, Charlie..

Good morning, Charlie. .

Looking at for Energy for a minute, can you tell us how much Hydratight and Cortland were up and/or down in the quarter? And as a follow-up on Energy, can we just talk about the margin outlook for Energy? Does the sale leaseback have any meaningful material impact on the operating costs of that business and with what you are seeing in the North Sea and some of the mix there, how does that Energy margin run rate look out for the next couple of quarters?.

All right Charlie, I will cover the first question around Cortland and Hydratight and then I will have Andy cover the second part of your question. If I take Viking out of the equation for energy for the third quarter, Hydratight grew.

Their core sales were up about 5%, 6%, somewhere in that vicinity and Cortland was up about 3%, 4%, somewhere in that vicinity. So that’s the core growth that both of those businesses saw during the course of the quarter..

When you look at the operating profit impact or just a margin impact, Charlie, from the sale leaseback, it’s not going to have a humungous impact on the operating profit margin, but certainly it will at the EBITDA margin level because you don’t have the depreciation to add back that you do so. So operating profit is roughly in line with a slight hit.

I mean really modest 50 basis points or so within that segment. Thus it's not significant. So going forward, to answer the third part of your question regarding margins as we move out, I don’t expect a meaningful -- certainly downward trend in margins here as a result of what we are seeing out there right now.

We're seeing a lot of growth in Australia in both Hydratight and in Viking on a go-forward basis, so I think margins are looking okay in this segment on a go-forward basis..

Thanks..

Yep..

Your next question comes from the line of Mig Dobre with Robert W. Baird. Your line is open..

Yes, good morning, everyone. Just very quickly to stick with guidance here, looking at the Industrial segment, just your full-year guidance seems to imply a pretty strong sequential uptick in revenue in the fourth quarter and frankly, that's quite a bit stronger than what we have seen sequentially going back over the prior decade, if you would.

So what gives you the confidence that you are going to be able to achieve that level of growth in the fourth quarter here?.

Yeah, when we look at guidance for the fourth quarter and breaking it out, we are definitely going to be down year-over-year within the IAS portion of Enerpac in the fourth quarter, which is about 15% of the overall business, but the IT piece, which was up by a couple of points, a little over two points, 2% this past quarter, we are expecting that to improve as we move forward here and that's based on kind of the trend that we've seen in the most recent 90 days, the fact that all geographic regions within IT were up in the quarter.

So that is where it's coming from. It's coming from IT and it's just based on the momentum that we've seen over the last 60 to 90 days..

And Mig this is the first quarter that we've had all regions up in industrial for the quarter. So that was a positive for us as well..

Okay. I see.

Then I recognize that you are not providing fiscal 2015 guidance, but I am wondering how you are thinking a little longer term, do you expect positive core growth across all your segments as you look out 12 months plus and can you rank order then in terms of growth potential going forward for us?.

Yes Mig, from a guidance standpoint, we did lot of work on this relative to whether or not we should be providing 2015 guidance and so just to be clear, part of our standardization simplification and in conjunction with taking a look at what some of our peer companies were doing. We are not going to give specific guidance relative to 2015.

What I can do is give you some overarching trends that we expect from a growth standpoint from our businesses. So from an energy standpoint, we're looking at two times GDP. That's what we look at from a longer term perspective.

From an industrial standpoint, that's going to be a GDP somewhere around one, maybe a little north of that in the long term and then for Engineered Solutions it's about one, one and half times GDP. So those are the longer term trends that we see in those three segments..

I see. But the conclusion here is that it's really energy that should continue to drive core growth going forward..

I think on a go-forward basis, we are expecting growth in our segments next year. I mean just the trend is your friend right on tough comps, this year that we've had, I mean in the back half of this year. IS within Enerpac is down 25%, right.

And we anniversary that and that should make a huge difference in that business on a go-forward basis and the fact that we turned from flat last quarter to up to this quarter on a year-over-year basis within the bigger part of industrial I think sends a signal as well. And I don't think we expect anything to slow down within Engineered Solutions.

We've got good momentum with truck. We think we are off the bottom with construction equipment, with auto, with mining. So I wouldn’t expect things to -- I expect things to improve from where we are at..

And the other piece to that -- the other piece to that Mig is just around growth and innovation. We talked about adding 100 -- excuse me, adding 200 basis points to 300 basis points over time to our core organic growth. We're about 1% in fiscal 2014.

So we would expect continued growth around some of the platforms that we are introducing over the next couple of years as well..

That's great. Thanks guys..

You bet..

Your next question comes from the line of Allison Poliniak with Wells Fargo. Your line is open..

Hi guys. Good morning..

Good morning, Allison..

I just want to touch on Viking a little bit more. Obviously, it sounds like you have some nice potential in Australia and some of the other regions. Relative to your comments last quarter, how have -- the contracts you have won progressed? I know there had been delays.

Are we on track now? Are we still a little bit behind? Can you just give us sort of a reference point there?.

Yes, it really depends contract by contract. The ones that we talked about last quarter is winning that hit in the fourth quarter. I think in general they were within 30 days or so of their targeted mobilization at that point, so some of them just came in, in the last 30 days.

Actually, there are some others that we won in the current quarter that start here in June and we have some that we won that start in August. So the pace that we came -- the pace for the third quarter did not reflect the full run rate on those and our fourth quarter pace won't even reflect a full run rate, but they are coming on.

There aren’t any major delays on these things. It's generally in the 30-day to 45-day push out, which is not uncommon in this business..

And the area that we talked about in the call Allison, which you need to consider also is Australia is extremely strong right now and from a North Sea standpoint we are seeing things slow down there as it's been recently publicized around Statoil what they have been doing from a holding back on their capital in order to return more cash to their shareholders.

I see that as a short term issue. Long term we're still very excited about the mooring business, but from a short term standpoint, it's creating a shortage of volume in the North Sea, but certainly more positive in Australia..

Yeah, the other point I'll just hit -- hit here and I alluded to it in my comments, but just be a little bit blunter on it is, as Asia picks up and we had equipment down in Asia and if the North Sea slows down in particular Norway, which Mark alluded to, the incremental margins in this business are huge.

Norway and the North Sea are most profitable regions in it right now. So if the stuff is not rented, it has quite an impact from a decremental standpoint. When we talk about this thing being, if the equipment is rented, it's 80%, 70%, 80% incremental. It's just the opposite decremental.

So that's part of the headwind that we are staring at right now in the North Sea within this business. We are not seeing as much of that actually not very few signs of that within the other part of energy, within Hydratight, in Cortland, it's more within Viking in particular..

Okay, and then just a follow-on with Viking.

Can you just talk a little bit about the divestiture, the thought process behind that product line for Viking in terms of why it doesn't fit and sort of your long-term strategy there?.

Sure Allison.

When we bought the company, there were three or four growth initiatives that the team was working on and in reevaluating the strategic focus and where our growth plans were going to be down in the future, we had to prioritize some things and we really thought it was more of a distraction than anything else and it's more of a product line and for that reason, we divested it so that the folks could focus on the real growth drivers for the business..

Great. Thank you..

You're welcome..

Your next question comes from the line of Jeff Hammond with Keybanc Capital Markets. Your line is open..

Hey, good morning, guys..

Good morning, Jeff..

So I just wanted to better understand the 4Q change because I think you said, Mark, not really a macro change but you cited some headwinds. So it looks like if you adjust for the tax benefit you are kind of cutting your guidance $0.10 to $0.15.

Can you bucket how much is dilution from these divestitures? How much is Viking shortfall, just a better sense of where that shortfall is and maybe what's -- what you view as timing or one-time versus maybe just a lower trend?.

Yes, let me just give an overview and then Andy will give you the buildup. First of all, coming out of the third quarter Jeff, we just didn’t see the momentum that we had anticipated and it was more in many respects around optimistic forecast that we would have some end markets that would turn around quicker than we anticipated.

The market remains slow growth globally. It's tepid as we talked about in North America. Europe, we're starting to see some growth, but it's slow and we think we have the -- that we've seen the bottom in Asia, but we are lacking that consistent traction that you would like to see and people are more optimistic, but we just haven’t seen it.

Book-to-bill was fairly consistent through the quarter versus having a lift that we had anticipated as well and the major market issue that I talked about earlier was the Viking in the North Sea. There's a number of other factors and I'll have Andy just bucket those for you..

Sure. When I look at -- you tossed out a $0.10 to $0.15 EPS impact. So I'll just conveniently pick the midpoint of that, so it's $0.12. Now when I look at that, roughly half of that is Viking and roughly $8 million decline in revenue, part of that is the people business that we've divested and that's probably three of it -- on it.

The EPS impact from Viking is about $0.06 and again it's the combination of people not being there and the people business being the manpower business. We refer to it internally as a people business. And the second piece is the higher incremental and decremental margins within this business as I alluded to on Allison's answer earlier.

So that's roughly half of $0.06 of the impact. When you look at the other pieces, divestiture, RV, certainly the summer is a big period for RV. It's roughly $0.02 a share of that thing coming out of the business.

Revenue wise, it's pretty comparable with what Hayes brings to the table maybe in that slight reduction in revenue as a result of that swap-out, but from an EPS standpoint Hayes does nothing in the first quarter because of purchase accounting charges flowing through and that sort of stuff. So you've got to net $0.02 drag there as well.

The other pieces in here will be the momentum piece that Mark talked about and some of the business that assumed we see a little bit of a pick-up in the forecast within Engineered Solutions and to some extent as well within the IS portion of Enerpac I am coming through.

And the final -- the final piece that's kind of wrapped up into that as well is on the margin standpoint is we expected to -- we would be coming out of the third quarter a little bit higher margin and therefore starting out with a higher margin in the fourth quarter than where we are at and we just overshot. The estimate forecast was too high.

So I think those are kind of the ways to break it out. So summary about $0.06 of Viking related including the divestiture, $0.02 related to the net divestitures swap out of RV in Hayes and the other $0.03 or $0.04 tied in with additional restructuring activities and slowdown in the volume.

So slowdown again is a bad word, but lower expectations from a revenue standpoint in the fourth quarter and yes….

Okay.

So it sounds like Viking is seeing some real demand weakness in North Sea and it's kind of a drag on the margins, but if you look out and you see how you think Viking plays out and your current portfolio and some of the mix normalization, what do you think the margins structurally should look like in the Energy business longer-term?.

Certainly from where they are at now, there is we would expect them to go up in total, with that I mean Viking just a retention expense as flowing through Viking is about $0.04 to $0.05 a share in EPS or $4 million to $5 million. So I mean that alone is a 100 basis points and consolidated margins.

So there is certainly room to go up from where we are at right now. The margins when you look at -- when you look at margins collectively between Cortland and Hydratight, they're in line with last year. They are now in line. The first quarter they were definitely below. We crawled back in the second quarter. The third quarter we were pretty much.

That doesn’t mean there isn’t room for improvement because there clearly is. I mean we are disappointed that they are only even with last year. So you’ve got two different opportunities here for margins to improve in that segment..

Okay. Great. Thanks guys..

Thanks..

Your next question comes from the line of Ajay Kejriwal with FBR. Your line is open..

Thank you. Good morning..

Good morning, Ajay..

So great color on Energy, Viking expectations next quarter. Maybe a little more color on Cortland and Hydratight.

How should we think about fourth-quarter performance? Do you think what you saw this quarter sustains on the top line?.

Yes, we do Ajay. Certainly we are seeing some good progress in the energy segment.

As you know, we made some changes earlier this year and relative to some of these things we are focused on coating funnels, conversion, we have got some wins with joint integrity that the team is working on so we feel that that momentum within Hydratight will continue as we go into the fourth quarter.

We actually had -- May was the -- was a record month for Hydratight, which was exciting from a team standpoint and from a Cortland standpoint, again, rope and cable, very strong. We've got umbilicals that have been strong as well, and so -- so we do think we'll have that momentum moving forward into the fourth quarter.

So we feel good about both businesses maintaining that trend..

Good. And then, Engineered Solutions, you called out facility relocation costs and inefficiencies.

Maybe quantify that and then how should we think about restructuring costs in the fourth quarter?.

Yes, we talked about on the last call was kind of second half restructuring some $4 million to $6 million range and I would say they are in the upper end, the upper end and that's not just the onetime cost, it's related inefficiencies and that sort of thing.

I don't think that our estimate has changed in terms of the back half of the year or it's probably in the upper end of that prior range..

And how much of that was in the third quarter?.

We probably had around $3 million may be just a hair less $2.5 million, $2 million..

Got it. Thank you..

Thanks Ajay..

Your next question comes from the line of Matt McConnell with Citi Research. Your line is open..

Thank you. Good morning..

Good morning, Matt..

If I could touch on Viking quickly. Is this about the run rate for revenue that you would expect to see out of Viking over the next few quarters? And really I am trying to balance maybe the strength in Australia versus the headwinds in the North Sea. So I think it was about $19 million in revenue.

Is that a fair expectation for the coming quarters?.

What we said in the prepared remarks was $75 million to $80 million for the year with Viking and that's the range that we'll be in for the full year..

Okay, got it.

And that reflects a drag from the lease back and the divestiture?.

Yes..

Okay. And then on cash flow, I understand that adjusting cash taxes for the Electrical sale, free cash flow conversion was about 100% but I think that's still a little bit below the normal trend.

So I thought inventory might be coming down by this quarter, but anything there that you can point towards why free cash flow was a little bit weaker than the normal seasonal trend?.

Yes, you and I both. It was my comment. I am not real pleased with our working capital performance here in the third quarter. I mean the big culprit was the increase in receivables. Actually this quarter they were up -- they were up quite a bit in the quarter.

We had $50 million sequential increase in sales from quarter to quarter which had quite an impact. But the inventory did come down at the end of the quarter just on as March I mean we clearly had built up inventory in a number of our facility related moves.

We had been concerned about a possible Longshoremen strike on the West Coast as well so we brought in that over the summer and it looks like that might not happen. We brought in some extra inventory on that as well.

So I do expect a pretty big movement here in the fourth quarter, but yes, this is not one of our finer working capital years to date so far and we definitely want to turn that around..

And Matt, just to be clear, there is three of us that are unhappy with that..

Okay. Well thank you very much. I appreciate it..

Your next question comes from the line of Jamie Sullivan with RBC. Your line is open..

Hi. Good morning..

Good morning, Jamie..

So you gave some good color on the puts and takes for Energy. In terms of the margins across the segments, are you expecting Energy to be sort of flattish with what we had in 3Q and maybe you can walk through how we should think about the other segments sequentially as well as the corporate costs throughout as well..

Yes, couple of -- a couple of comments here. First off hitting on your last question, which is corporate cost, it did spike a little bit here in the quarter. Unfortunately with bad luck, we had some poor experience in a couple of very large medical claims and we are self insured on those and we had a couple of big ones hit that came through.

So that was the entire reason for the spike in corporate expenses versus the last quarter here. When we look at margins overall for the fourth quarter, that I am predicting them to be in that similar zip code from an EBITDA margin similar zip code and 19ish give or take in the fourth quarter that we just saw going through.

Seasonally we definitely see a slowdown in Engineered Solutions in particular from Q3 to Q4 with margins and we are expecting some of that pressure as well as some of the restructuring cost that we mentioned earlier on coming through, but when I look at the other two segments here as far as expectations, I think margins are going to be generally in line with what you just saw this past quarter and relative to the prior year, I think they'll be able to generally in line as well.

We'll offset some of that headwind that we've had with the acquisition that's coming in..

Thanks, and then just a quick follow-on housekeeping item, on the tax rate, do you expect that to bump up again in the fourth quarter and what was the share count exiting 3Q?.

I believe 71 or 70.8 or something like that is what we came up in Q3, I am sorry, 71.8 from a diluted standpoint and our pace coming out was lower than that because some of the shares were bought back in May on this thing. The taxes, you are correct, jumping on that one, we definitely will see a much higher tax rate in the fourth quarter.

We are going to be squarely in the mid to upper 20's from a effective tax rate standpoint in the fourth quarter..

Great. Thanks very much..

Thank you..

Your next question comes from the line of Scott Graham with Jefferies. Your line is open..

Hey, good morning..

Good morning, Scott..

Hi Scott..

Kind of the same question on tax rate. I know you are not giving 2015 guidance, but 2014 was a sell side nightmare and trying to estimate what your taxes were going to be each quarter, Karen gave us some great help on that.

Is that going to be smoother in fiscal 2015 and kind of more toward 2020? Do you have any thoughts that you can give us on that at all?.

Nothing publicly in terms of what the rate is going to be. On this thing, I can tell you it is increasingly difficult over the last decade to come to basically with tax rates, the accounting rules just do not allow it on it. So you end up having spiky rates. We normally file our federal tax return in third quarter.

So if we have any statutes falling off for audits or that sort of stuff usually, they come through in the third quarter. That's why we tend to have a lower rate in the third quarter as we have stuff lapsing coming through. So that's a rational or the reason why we -- why you saw a low rate.

Last year in the third quarter why you saw low rate this year and this year was exacerbated by the tax planning item that we looked at. We didn't always get it done in the third quarter, that's why it wasn't in the guidance and we did it and we're able to get it in..

Understood. Let me maybe ask it this way. Let's even forget about the quarter-to-quarter vagaries. It looks like ex that item, you're going to be about 20%-ish for the full year. Last year you were at 16%; the year before that, you were at 21%.

Is there any reason to believe it will be higher than 21% in 2015?.

Yes. We will talk about that at the end of the year here once we give our guidance for next year Scott. I don't want to. I do not want to put out a number there that I have not fully vetted..

That's fine, that's fine. Could you also -- we are done now with the relocation in Industrial and we are working toward completion of some closures in ES.

Could you give us the benefits from each that you expect to accrete?.

Yes, let me -- let me just talk to that. Scott, we've got a number of activities going on now. We've got the -- we're done with the Columbus. We're still -- and we just closed Creston. We've got a alliance moving from some of our facilities into Juarez and into China. We've just closed AGS Hong Kong, opened up AGS Singapore.

We just opened up a new facility in Perth and new rental both for Hydratight in LA. So we've got a lot of moving parts around there.

One of the things that I've talked to the team about is self funding our growth initiatives and so being very aggressive on the operation excellence side of things and being able to redeploy those savings back into our best growth initiatives and so that's really what the focus is here.

We've talked strategically about improving our margins 25 basis points to 50 basis points on core in our base business over time, but essentially that's what we are doing there.

It's a little bit like operational excellence where you need to talk to people about how you're going to redeploy them as opposed to eliminate their jobs or take all the savings down to profit. We want to reinvest in our growth initiatives and that's what we are going to be doing here.

So I don't have -- it's a long story, I don't have a number for you..

Okay. So what I think I hear you saying is that you are doing these things to fund the G&I, but that G&I number was running at about 20.

Are you suggesting that that number is going up?.

Absolutely, the number is well more than 20 right now. There is no question about that. We've funded that with savings elsewhere in the business by taking cost out of the back office and putting more marketing, more engineers, more sales people feet on the street absolutely..

Okay. All right. And last question is kind of more for Mark. I know that G&I is kind of near and dear for you in particular.

Can we get to 2% next year?.

Well, probably I'll be able to give you more clarity of that in the fourth quarter earnings call, but certainly I am happy with the progress that we are making. I think we've talked earlier last call about the prioritization that's going on within the businesses.

So now really focusing on our top growth opportunities, putting our resources and our capital behind those to drive better execution there. We're starting to get some traction in high growth markets, which I am excited about in Brazil, India and China.

We've had good growth -- 20% growth year-over-year, even though we have a small base for the past three quarters, so it's great and we are beginning to get more of a sense of urgency around growth, similar we have around costs. So I won't quantify it for you, but certainly we'll talk about it on the fourth quarter call..

Okay. Thanks a lot..

Thanks..

[Operator instructions] Your next question comes from the line of Mig Dobre with Robert W. Baird. Your line is open..

Yes, thanks a lot for taking my follow-up here. Going back to the Engineered segment, can you talk a little bit your expectations for the truck market going forward? I know that both Europe and China have dealt with some solid pre-buy activity, have pretty tough comps. I am wondering how you are thinking about that.

And I guess the corollary here would be on the margin side.

If truck does switch to being a headwind rather than a tailwind at a point in time in the future, what does that mean from a margin mix standpoint?.

So the trends that we've seen -- that we look to see as we move forward is we've got larger comps with the pre-buy for the Class 8 Europe that we are going to be coming up against in the fourth -- in the fourth quarter. And in China, which has been very, very strong for the past three quarters, we're going to start seeing the same thing.

So we're coming up against stronger comps there. On the flip side even from a North American standpoint on the off highway stuff, we really are probably at the bottom there. So where we've seen the volume which is China and Europe we're going to be up against steeper comps as we go into the fourth quarter and into the beginning of fiscal 2015.

So they will be a headwind for us as we move forward..

I think overall there'll be some certainly headwind in the fourth quarter with the pre-buy anniversarying that thing, I think overall for 2015 when you look at a calendar year basis for 2015 and this is more on industry data as opposed to our own cut on it, they are expecting a reasonable year next year.

It's a reasonable mid single digit to even upper single digit growth for the industry and Europe. So we're optimistic, but obviously we wanted to learn a little bit more about that and let another three months pass here..

And what about margin for mix?.

I mean obviously it's margin if the volume hangs in there, the margin should improve from where we are at now. We've certainly been doing some restructuring and cost type stuff within all of the Engineered Solutions business. So it will help.

This is -- Engineered Solutions and truck in particular is not our highest incremental margin, our highest decremental margin business, but it's a good business..

I see. Okay. I appreciate that. And maybe if I can squeeze one last one. We've seen some divestitures as of late. I guess I am wondering what inning do you think you guys are in as far as internal portfolio management..

Yes Mig, we've -- part of our strategy when we sat down over the last six or eight months was to really work through some of these areas that weren’t linked -- some of these businesses, that weren’t linked with those four macro drivers that we've talked about and we're through -- we're through the majority of those that we've indentified and so I look at it as we have done most of the heavy lifting.

And especially with the Electrical divestiture, with the RV, with the people business, I think we're in good shape relative to the portfolio linking of the strategies and the macro drivers as we move forward..

Great. Thank you..

You're welcome..

There are no further questions at this time. I'll turn the call back over to the presenters..

Great. Well, thanks everyone for joining us on our call today. We'll be around all day for any follow-up questions you have. Just to note for your calendars, our fourth quarter call, which will have our 2015 guidance will be held on October 2nd and our annual Investor Day is October 7th. You'll see information on that soon as well. Have a great day..

Thank you..

This concludes today's conference call. You may now disconnect..