Enerpac Tool Group Corp: Form 10-Q for the period ended Feb 28, 2026

Enerpac Tool Group Corp. is a premier industrial tools, services, technology, and solutions provider serving a broad and diverse set of customers and end markets for mission-critical applications in more than 100 countries. Enerpac Tool Group's businesses are global leaders in providing high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers safely and reliably tackle some of the most challenging jobs around the world. The Company was founded in 1910 and is headquartered in Milwaukee, Wisconsin. The Company has one reportable segment, the Industrial Tools & Service Segment ("IT&S"), and an Other operating segment, which does not meet the criteria to be considered a reportable segment. The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the general industrial; refining and petrochemical; industrial maintenance, repair and operations (“MRO”), machining & manufacturing; power generation, infrastructure, mining and other markets. Financial information related to the Company's reportable segment is included in Note 11, “Segment Information” in the notes to the condensed consolidated financial statements.

Our businesses provide an array of products and services across multiple markets and geographies, which results in significant diversification. The IT&S segment and the Company are well-positioned to drive shareholder value through a sustainable business strategy built on well-established brands, broad global distribution and end markets, clear focus on the core tools and services business and disciplined capital deployment.

Our Business Model

Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow, and being disciplined in the deployment of our capital. We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and an expansion in emerging markets such as Asia Pacific. In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement and 80/20, to drive productivity and lower costs, as well as optimizing our selling, general and administrative expenses through consolidation and shared service implementation. We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing. Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives. We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital. We intend to allocate the cash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A program and opportunistically returning capital to shareholders. We anticipate the compounding effect of reinvesting in our business will fuel further growth and profitable returns.

Results of Operations

The following table sets forth our results of operations (dollars in millions, except per share amounts):

(1) The summation of the individual components may not equal the total due to rounding. Period to period differences between line items included in the table may differ from the amount presented below due to rounding.

Consolidated net sales for the three months ended February 28, 2026 were $155 million, an increase of $9 million, or 6%, compared to the prior-year comparable period. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $6 million, or 4%. This resulted in an organic sales increase of approximately 2% in the quarter. Management refers to sales adjusted to exclude the impact of foreign currency changes and recent acquisitions and divestitures as "organic sales". In the three months ended February 28, 2026, product sales grew $13 million, or 11%, year-over-year, while foreign currency favorably impacted product sales by $5 million, or 4%, resulting in organic product sales growth of 6% over the prior-year quarter. Service sales were down $8 million, or 13%, year-over-year, with a favorable impact of foreign currency of $1 million, or 4%, resulting in an organic service sales decline of 17%. Gross profit as a percent of sales decreased to 46.4%, compared to 50.5% in the second quarter of fiscal 2025; the decrease in gross profit margin is due to continued pressure in our service business, primarily in the EMEA region, as well as restructuring costs. Operating profit for the second quarter of fiscal year 2026 was $25 million, a decrease of $6 million compared to the second quarter of fiscal 2025. The decrease in operating profit was mainly driven by the declines in our service business, as well as restructuring costs recorded in the current-year period.

Consolidated net sales for the first half of fiscal 2026 were $299 million, an increase of $8 million, or 3%, compared to the prior-year comparable period. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $9 million, or 3%. This resulted in flat organic sales in the first half of the year compared to the prior-year period. In the first half of fiscal 2026, product sales grew $20 million, or 9%, while foreign currency favorably impacted sales by $7 million, or 3%, resulting in organic product sales growth of 6% over the prior-year period. Service sales were down $12 million, or 19%, year-over-year, with a favorable impact of foreign currency of $2 million, or 3%, resulting in an organic service sales decline of 22%. Gross profit as a percent of sales decreased to 48.5%, compared to 50.9% in the first half of fiscal 2025; the decrease in gross profit margin is due to continued pressure in our service business, primarily in the EMEA region and higher tariff-driven costs flowing through cost of goods sold. Operating profit for the first half of fiscal year 2026 was $54 million, a decrease of $8 million compared to the first half of fiscal 2025. The decrease in operating profit was mainly driven by the declines in our service business and higher tariff-driven costs flowing through cost of goods sold, as well as restructuring costs recorded in the current-year period.

Segment Results

IT&S Segment

The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including general industrial; refining and petrochemical; industrial MRO; machining & manufacturing; power generation; infrastructure; mining; and other markets. Its primary products include branded tools, cylinders, pumps, hydraulic torque wrenches, highly engineered heavy lifting technology solutions and other tools (Product product line). The segment provides maintenance and manpower services to meet customer-specific needs and rental capabilities for certain of our products (Service & Rental product line). The following table sets forth the results of operations for the IT&S segment (dollars in millions):

IT&S segment net sales for the second quarter of fiscal 2026 increased by $8 million, or 6%, compared to the second quarter of fiscal 2025. The weakening of the U.S. dollar on foreign currency rates compared to the three months ended February 28, 2025 favorably impacted sales by $6 million, or 4%. This resulted in an organic sales increase of $2 million, or 1%, in the quarter. The organic sales increase is driven by growth in our product business, offset by activity declines in our service business. Service sales were down $3 million, or 13%, year-over-year, with a favorable impact of foreign currency of $1 million, or 4%, resulting in an organic service sales decline of 17%. Product sales were up $11 million, or 10%, year-over-year, with a favorable impact of foreign currency of $5 million, or 4%, resulting in organic product sales growth of 6%. The organic sales increase was due to tariff related actions and increased demand. Operating profit for the three months ended February 28, 2026 was $32 million, compared to $39 million in the same period of the prior year. The decrease in operating profit was mainly driven by the declines in our service business, as well as restructuring costs recorded in the current-year period.

IT&S segment net sales for the first half of fiscal 2026 increased by $6 million, or 2%, compared to the first half of fiscal 2025. The weakening of the U.S. dollar on foreign currency rates compared to the six months ended February 28, 2025 favorably impacted sales by $9 million, or 3%. This resulted in an organic sales decline of $3 million, or 1%. The organic sales decrease is driven by activity declines in our service business, partially offset by growth in our product business. Service sales were down $12 million, or 19%, year-over-year, with a favorable impact of foreign currency of $2 million, or 3%, resulting in an organic service sales decline of 22%. Product sales were up $17 million, or 8%, year-over-year, with a favorable impact of foreign currency of $7 million, or 3%, resulting in organic product sales growth of 5%. The organic sales increase was due to tariff related actions and increased demand. Operating profit for the six months ended February 28, 2026 was $67 million, compared to $77 million in the same period of the prior year. The decrease in operating profit was mainly driven by the declines in our service business, higher tariff-driven costs flowing through cost of goods sold, as well as restructuring costs recorded in the current-year period.

Corporate

Corporate expenses were $8 million in both the three months ended February 28, 2026 and 2025. Corporate expenses were $18 million and $17 million for the six months ended February 28, 2026 and 2025, respectively. The increase in expense was driven by higher personnel charges and growth investments.

Financing Costs, net

Net financing costs were $2 million in both the three months ended February 28, 2026 and 2025 and $4 million and $5 million in the six months ended February 28, 2026 and 2025, respectively. Financing costs decreased due to lower debt balances and interest rates.

Income Tax Expense

The Company's global operations, acquisition activity (as applicable) and specific tax attributes provide opportunities for continuous global tax planning initiatives to maximize tax credits and deductions. Comparative earnings before income taxes, income tax expense and effective income tax rates are as follows (dollars in millions):

The Company’s earnings before income taxes include earnings from both U.S. and foreign jurisdictions. As several foreign tax rates are higher than the U.S. tax rate of 21%, the annual effective tax rate is impacted by foreign rate differentials, withholding taxes, losses in jurisdictions where no benefit can be realized, and key international provisions enacted from recent tax legislation, such as the Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income provisions.

The effective tax rate for the three months ended February 28, 2026 was 26.3%, compared to 24.5% for the comparable prior-year period. The effective tax rate in each time period was impacted by year-to-date losses and deductions in jurisdictions where no tax benefit can be realized. The higher effective tax rate for the three months ended February 28, 2026 was primarily driven by the more favorable tax impact of stock compensation in the prior period as compared to the current period. Both the current and prior-year period effective income tax rates include the impact of non-recurring items.

Cash Flows and Liquidity

At February 28, 2026, we had $99 million of cash and cash equivalents, of which $90 million was held by our foreign subsidiaries and $9 million was held domestically. The following table summarizes our cash flows provided by operating, investing and financing activities (dollars in millions):

Net cash provided by operating activities was $29 million and $16 million for the six months ended February 28, 2026 and 2025, respectively. The $13 million year-over-year variance is primarily driven by the timing of payments and increases in contract liabilities.

Net cash used in investing activities was $7 million and $39 million for the six months ended February 28, 2026 and 2025, respectively. This decreased use of cash was primarily due to the $27 million payment made for the DTA acquisition in the first quarter of fiscal 2025 and the decrease in capital expenditures in the current year after the prior year increase from the headquarter move during fiscal 2025.

Net cash used in financing activities was $75 million and $25 million for the six months ended February 28, 2026 and 2025, respectively. The $50 million increase in net cash used in financing activities for the six months ended February 28, 2026 was driven by higher share repurchases in the current-year period.

On September 9, 2022, the Company refinanced its previous senior credit facility with a $600 million senior credit facility, comprised of a $400 million revolving line of credit and a $200 million term loan, which is scheduled to mature in September 2027. The Company has the option to request up to $300 million of additional revolving commitments and/or term loans under the new facility, subject to customary conditions, including the commitment of the participating lenders. The senior credit facility contains restrictive covenants and financial covenants. See Note 6, "Debt" in the notes to the condensed consolidated financial statements for further details regarding the senior credit facility.

At February 28, 2026, there were no borrowings and $399 million available under the revolving line of credit facility. The Company was in compliance with all covenants under the senior credit facility at February 28, 2026.

We believe that the revolving credit line, combined with our existing cash on hand and anticipated operating cash flows, will be adequate to meet operating, debt service, acquisition and capital expenditure funding requirements for the foreseeable future.

Primary Working Capital Management

We use primary working capital as a percentage of sales (PWC %) as a key metric of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows a comparison of primary working capital (dollars in millions):

(1) The summation of the individual components may not equal the total due to rounding.

Commitments and Contingencies

Given our desire to allocate cash flow and revolver availability to fund growth initiatives, we have historically leased most of our facilities and some operating equipment. We lease certain facilities, computers, equipment and vehicles under various operating lease agreements, generally over periods ranging from one to twenty years. Under most arrangements, we pay the property taxes, insurance, maintenance and expenses related to the leased property. Many of our leases include provisions that enable us to renew the leases at contractually agreed rates or, less commonly, based upon market rental rates on the date of expiration of the initial leases.

We had outstanding letters of credit of $7 million and surety bonds of $5 million at February 28, 2026 and $6 million of letters of credit and $5 million of surety bonds at August 31, 2025, the majority of which relate to commercial contracts and self-insured workers' compensation programs.

We are also subject to certain contingencies with respect to legal proceedings and regulatory matters which are described in Note 12, "Commitments and Contingencies" in the notes to the condensed consolidated financial statements. While there can be no assurance of the ultimate outcome of these matters, the Company believes that there will be no material adverse effect on the Company's results of operations, financial position or cash flows.

Contractual Obligations

Our contractual obligations have not materially changed at February 28, 2026 from what was previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contractual Obligations” in the fiscal 2025 Annual Report on Form 10-K.

Critical Accounting Estimates

Management has evaluated the accounting estimates used in the preparation of the Company's condensed consolidated financial statements and related notes and believe those estimates to be reasonable and appropriate. Certain of these accounting estimates are considered by management to be the most critical in understanding judgments involved in the preparation of our condensed consolidated financial statements and uncertainties that could impact our results of operations, financial position and cash flow. For information about more of the Company’s policies, methodology and assumptions related to critical accounting policies refer to the Critical Accounting Policies in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the fiscal 2025 Annual Report on Form 10-K.

The diverse nature of our business activities necessitates the management of various financial and market risks, including those related to changes in interest rates, foreign currency exchange rates and commodity costs.

Interest Rate Risk: As of February 28, 2026, long-term debt consisted of no borrowing under the revolving line of credit (variable rate debt) and $188 million of term loan debt bearing interest based on SOFR (variable rate). An interest-rate swap effectively converts the SOFR-based rate of $90 million of term borrowings under our credit facility to a fixed rate. A ten percent increase in the average costs of our variable rate debt would have resulted in less than $1 million of an increase in financing costs for the three months ended February 28, 2026.

Foreign Currency Risk: We maintain operations in the U.S. and various foreign countries. Our more significant non-U.S. operations are located in Australia, the Netherlands, the United Kingdom, United Arab Emirates and China, and we have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. Under certain conditions, we enter into hedging transactions (primarily foreign currency exchange contracts) that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 8, “Derivatives” in the notes to the consolidated financial statements for further information). We do not engage in trading or other speculative activities with these transactions, as established policies require that these hedging transactions relate to specific currency exposures.

The strengthening of the U.S. dollar against most currencies can have an unfavorable impact on our results of operations and financial position as foreign denominated operating results are translated into U.S. dollars. To illustrate the potential impact of changes in foreign currency exchange rates on the translation of our results of operations, quarterly sales and operating profit were re-measured assuming a ten percent decrease in all foreign exchange rates compared with the U.S. dollar. Using this assumption, quarterly sales would have been lower by $7 million and operating profit would have been lower by $1 million for the three months ended February 28, 2026. This sensitivity analysis assumes that each exchange rate would change in the same direction relative to the U.S. dollar and excludes the potential effects that changes in foreign currency exchange rates may have on sales levels or local currency prices. Similarly, a ten percent decline in foreign currency exchange rates versus the U.S. dollar would result in a $37 million reduction to equity (accumulated other comprehensive loss) as of February 28, 2026, as a result of non-U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.

Commodity Cost Risk: We source a wide variety of materials and components from a network of global suppliers. While such materials are typically available from numerous suppliers, commodity raw materials, such as steel and plastic resin, are subject to price fluctuations, which could have a negative impact on our results. We strive to pass along such commodity price increases to customers to avoid profit margin erosion.

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). There have been no changes in our internal control over financial reporting that occurred during the quarter ended February 28, 2026 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.