Industrial products and services manufacturer Actuant (NYSE:ATU) will report third-quarter 2007 financial results on June 19.

What analysts say:

  • Buy, sell, or waffle? Not much has changed since last quarter's forecast, as four of the nine analysts covering Actuant still say buy and five still say hold.
  • Revenues. Revenues are expected to climb 16% to $366 million.
  • Earnings. Profits are also expected to rise, jumping 19% to $0.93 per share.

What management says:
In the company's second-quarter earnings release, Robert Arzbaecher, president and CEO, noted, "Consistent with our business model, acquisitions made a significant contribution to the sales growth, however, each of our four segments contributed to the 7% core growth."

What should concern investors, however, is the growing level of debt that the Motley Fool Hidden Gems recommendation is taking on to finance this growth. Net debt stands at $570 million, a 25% increase from the beginning of last quarter. It hasn't become a problem just yet, but the trend certainly bears watching.

What management does:
Actuant expects to see margin growth in the back half of the year, particularly in both the electrical and actuation systems segments. They dragged down margin performance last quarter, although the industrial segment continues to operate strongly and showed a 160-basis-point improvement last time out. Overall, the company is looking for margins to improve for the full year.

Despite weakness in certain markets -- trucking, for example -- some are seeing record sales. The RV market reached record levels this year and two of Actuant's customers are RV-maker Winnebago (NYSE:WGO) and another Hidden Gems recommendation, RV parts supplier Drew Industries (NYSE:DW). It's the improving picture of such demographics that led Actuant to raise its sales and earnings guidance for the full year.

Margin

02/06

05/06

08/06

11/06

02/07

Gross

33.5%

33.9%

33.7%

33.2%

33.0%

Operating

12.9%

13.2%

13.2%

13.0%

12.8%

Net

7.2%

7.5%

7.7%

7.7%

7.2%
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:
While sales came in higher than expectations, helped in no small way by stronger organic segment growth, it was through acquisitions and favorable currency exchange rates that the company was able to beat forecasts. Taking out those conditions, revenues grew 7% for the quarter.

Actuant has been taking on relatively cheap debt to finance its acquisitiveness. It's also had a pretty voracious appetite, devouring some 20 companies over the past few years. It has shown no sign of letting up on these plans and announced it plans to offer $250 million in new senior notes which it will use to refinance a portion of its outstanding debt. Again, with Actuant having only $25 million in the bank, investors need to watch Actuant's debt levels to ensure they don't become troublesome.

Related Foolishness:

Actuant and Drew Industries are recommendations of Motley Fool Hidden Gems. Take a 30-day free trial and see why mundane, boring industries can make for exciting investment opportunities.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.