Industrial products and services manufacturer Actuant (NYSE:ATU) will report second-quarter 2007 financial results on Thursday, March 22.

What analysts say:

  • Buy, sell, or waffle? There are nine analysts covering Actuant; four say buy while five say hold.
  • Revenues. Interesting, really, since revenues are forecast to grow 18% from last year, to $327 million.
  • Earnings. Profits are expected to rise 11% at this Motley Fool Hidden Gems recommendation, to $0.70 per share.

What management says:
Actuant is an acquisitive little company, having bought up about 20 businesses over the past few years. Those businesses have been jacking up sales, but profit margins have been affected along the way. It also makes year-over-year comparisons a bit trickier when you have to continuously account for new businesses being brought into the mix.

Certain parts of its business experienced exceptionally strong growth last quarter that shouldn't be expected this time around. For example, actuation systems for trucks were boosted by customer purchases hoping to beat new federal clean air regulations that went into effect this year. With the trucking industry expecting a flat to down year this year, this segment of Actuant probably won't repeat, while its European electrical systems operation has been undergoing a costly reorganization that has been hurting margins.

What management does:
This self-styled Illinois Tool Works (NYSE:ITW) wannabe derives most of its profits from its industrial segment, which continues to perform well despite the difficulties experienced in some of its other segments, and even had expanding margins last quarter. Yet one segment is not enough to carry the entire company, and Actuant is expecting an overall sales decline from last quarter, primarily due to seasonality, though sales are expected to increase from last year. Analysts have a rosier outlook than management does, though, which could lead to disappointment when results are finally released.

Margin

11/05

02/06

05/06

08/06

11/06

Gross

33.2%

33.5%

33.9%

33.7%

33.2%

Operating

12.7%

12.9%

13.2%

13.2%

13.0%

Net

7.1%

7.2%

7.5%

7.7%

7.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
With the trucking and auto businesses looking anemic, the housing industry in the midst of some serious corrections, and a growth-by-acquisition strategy that oftentimes creates more headaches than it's worth, what's to like about this tiny industrial company? Lots, actually.

The trucking industry has long-term growth prospects that are favorable because trucking remains one of the primary ways to get goods from here to there, whatever the short-term effects of regulatory policy might be. And while the American auto industry is looking a bit worn out, those lost sales are being more than offset by foreign competitors.

People aren't buying houses today? That's OK, because it means they'll work to fix up what they already own. Tool resets at Lowe's (NYSE:LOW) and Home Depot (NYSE:HD), despite their current weakness, will work towards Actuant's benefit.

Although too many acquisitions can be hard to digest, Actuant has been buying analogous companies, which makes their integration a bit easier. Where things haven't worked out well, such as in its European operations, it is reducing its size to points where it is more profitable. Not that such moves are without risk, but as markets overreact to short-term events, they create opportunities for investors to profit.

Related Foolishness:

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. Home Depot is an Inside Value selection. The Motley Fool has a disclosure policy.