NACCO Industries Inc (NC) 2002 Q1 法說會逐字稿

Good morning. My name is and I will be your conference facilitator today. At this time, I would like to welcome everyone to the NACCO Industries First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After your speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad and questions will be taken in the order that they are received. If you would like to withdraw your question, press the pound key. Thank you. Mr. , you may begin your conference.

Thank you and I would like to thank everyone for joining us today. Yesterday, a press release was distributed, outlining NACCO Industries' results for the first quarter ended March 31, 2002. If anyone has not received a copy of the release, please call FRB Weber Shandwick, area code 312-266-7800 and my associate, Karen will provide you with another copy. Joining us today from the management of NACCO Industries, we have Al Rankin, Chairman, President and Chief Executive Officer, Ken Schilling, Vice President and Controller, and Ira Gamm, Manager of Investor Relations. Management will provide an overview of the quarter and then we will open the call to your questions. Before we begin, I would like to remind the participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. Additional information regarding these risks and uncertainties were set forth in yesterday's press release. At this point, I would like to turn the call over to Mr. Rankin. Al?

Thank you. Good morning to all of you. I would like to begin with an overview of the release, which was sent out last night and then turn to questions. First quarter profit for the company was $6.3 million dollars or $0.77 a share compared to $13.1 million or $1.60 per share in the same period last year. Sales declined substantially, $140 million roughly or close to 20 percent, which reflects the downturn in the markets, some of the markets that we serve. However, I think that the real story is not the decline in comparison to the first quarter, but rather, the fairly strong, the return to profitability after two quarters of very significant losses. We had... and that was despite weak volumes in two major units, NACCO Materials Handling Group and Hamilton Beach Proctor-Silex. First quarter profit was $6.3 million versus losses of $27.5 million and $27.7 million in the third and fourth quarters of last year. Our volume in the first quarter, sales volume was pretty flat in comparison with those two quarters, so it is a substantial return to profitability from very difficult third and fourth quarters, which we were adjusting to the lower levels of volume last year.

Some summary comments on the outlook first and then I will turn to the individual businesses. In a February call, our last conference call, I believe that I said that I felt better about the situation and the results that we were then reporting, which were for the fourth quarter of last year. I think the first quarter is confirmation of the impact of the cost reduction and restructuring programs at both NACCO Materials Handling Group and Hamilton Beach Proctor-Silex. The positioning of KCI, Kitchen Collection in its markets and solid results at North American Coal Corporation, which has now benefited from the achievement of commercial operations at the Power Plant, which it serves, with the implication of solid future shipments for the Red Hills Mine. We think that the programs that we have put in place will have an increasing impact in future quarters and further if the markets strengthen and the prospects look increasingly encouraging for both consumer markets and, as the year goes along, for capital goods markets. I think the company is extremely well positioned for an upturn. As you know, the individual results of our businesses and the outlooks vary significantly from one to another, so I will go through each separately, reviewing the first quarter results and 2002 outlook.

First, the Coal Company. North American Coal's net income in the first quarter was $6.4 million. We had an unusually high $9.2 million in the first quarter of 2001. That period included benefit from an arbitration award at the Sam Mine, in Texas, but the lower net income also reflected readjustments in the stream of earnings from our Red Hills Mine. It increased interest expense since interest costs were expensed in 2002 and capitalized as mine development in the first quarter of 2001 and we had reduced contractual liquidated damages at that mine, but that was offset by increased coal production, as the power plant started to operate.

In addition, we had decreased lignite sales at our Red River Mine, in Louisiana and our sales were extremely high in the first quarter of 2001 and they are at basically a contract, base contract levels in 2002. The outlook at North American Coal is for good lignite deliveries in 2002. We expect to exceed the 31.4 million tons that we sold in 2001 and the main driver, of course, is the Power Plant's commencement of commercial operation. We expect lignite deliveries at the Red Hills Mine to be something on the order of 2.8 million in tons in 2002 and operating around its targeted level of 3.5 million tons annually thereafter. We expect to have normal operating revenues for the rest of 2002, which is going to significantly enhance our cash flow, but reported earnings will be somewhat lower due to additional operating expenses, as the mine operates at its full designed capacity. We also expect that the lower tonnage at the Red River Mine, in Louisiana, will continue and that I would note that excepting the Red Hills Mine, we do expect that the second quarter will see some significant normal, scheduled customer power plant outages.

Turning to the Housewares business, which includes both Hamilton Beach and Kitchen Collection, we had a net loss of $2.8 million in the first quarter of 2002. That was a modest improvement compared to the net loss of $3.1 million in the first quarter of 2001. You will remember that this business is a very seasonal business with first quarter being by far the weakest. In addition, we had reduced revenues in comparison to the previous year, of approximately $17 million. That was a result of a combination of things, but primarily due to the decision we made last year to withdraw from some selected low margin opening price point business. Also, sales to K-Mart were reduced in the first quarter, as they sorted through their procedures for going forward in bankruptcy.

We are now shipping, but in the first quarter, we were not shipping at the same rate that we had in 2001. In addition, in 2001, we introduced our True Wear Home Motor Eliminator and had a national advertising campaign to support it. This year, timing for those programs is a little bit later and so, we did not have the revenues in the first quarter. On the other hand, we had increased sales of our General Electric brand of products to Walmart. The reduced losses in the first quarter were really due to lower manufacturing costs at our Hamilton Beach Proctor-Silex Mexico plants as a result of the restructuring activities that we put in place over the course of 2001 and in addition, overall lower operating costs. Those programs really took hold and it is, I think, useful to note that the improvement in the loss was achieved despite one-time charges of $2.8 million.

Perhaps more importantly, if you excluded the $2.8 million, the first quarter would have been close to break-even and that, of course, is what we are shooting for in the first quarter, which is seasonally weak. The programs that paid off, of course, are the closure of our Juarez, Mexico facility, reduced manning and we also decreased our working capital in the first quarter of 2002, especially through a focused inventory reduction program and in total, borrowings were $27 million lower than they were in the year ago quarter. Kitchen Collection had a very good first quarter compared to the first quarter of 2001, and they benefited from improved average sales transactions, improved average in the total number of transactions improved, as well as the value of them compared to the first quarter of 2001, and we had more stores in operation.

So, the results were very encouraging at Kitchen Collection. Let us look at the Housewares Group outlook. We think that the markets for Hamilton Beach are likely to improve over the next three quarters. The company is also looking to shift mix to the higher margin products, which should benefit the company increasingly during the year and in the first quarter, importantly, Hamilton Beach completed its program of reducing its operating costs and substantially completed the program of reducing and consolidating its Mexican manufacturing capability and we believe that over the next three quarters, as we continue to improve manufacturing efficiencies and reduce the overhead costs and continue with some additional out-sourcing to China, plus the new products in the pipeline, that those programs will all have increasing benefit. At the same time, we are going to keep strong, the strong inventory reduction program in place and that in combination with tightly controlled capital spending, we believe will lead to significantly improved cash flow in 2002, compared to last year. Kitchen Collection, again expects the trends of the first quarter to continue through the rest of the year. We think that the additional consumer spending at outlet malls and we will be opening additional Kitchen Collection Hand Gadgets in more stores.

Turning to the NACCO Materials Handling Group wholesale business, that business returned to profitability in the first quarter of 2002, reporting net income of $5.6 million on pretty low shipment volumes, just under 15,000. That compared to the net income in the year ago quarter of $12.4 million, but that was on a very strong volume of 21,000 units. The revenues in the first quarter declined from $442 million to $327 million, but more importantly, they were up a bit from the third and fourth quarters, where we were at $314 million or so. At the same time, the backlog began to increase and the shipments were just up moderately. That, of course, as the profit results were a big swing from the losses of close to $20 million in the third quarter and $12 million in the fourth quarter of last year.

That reflected the improvement programs that we put in place at the end of 2000 and in 2001, it included the completion of the closure of our Danville Plant and at the end of 2001 and we were able to eliminate the manufacturing inefficiencies that were involved in reducing our production from the high levels of the first quarter to the much lower levels of the third and fourth quarters and that had a significant effect as we came into 2002. We also had good benefit from our Initiative and our cost control programs, and we did have, of course, the benefit too, of a provision in the first quarter of about $1.9 million and there were, of course, it was benefited by the change in accounting for goodwill in the first quarter. If you look at the backlog overall, it increased to 17,800 units. That is up from the low of 14,100 at the end of the second quarter of last year. So it is an encouraging trend.

As we look to the rest of the year, we expect that the cost reduction actions that we have put in place are going to have increasing impact and very importantly, that the company overall is in a very good position to respond to the anticipated strengthening of the US economy as the year goes on in the capital goods marketed. I want to emphasize that while we have very strong, prudent cost reduction initiatives, our program for product development and the enhancement of our existing products is essentially intact. That is all going forward on the basis that we have had planned for some period of time. We think that as the year progresses, the fleet of lift trucks in the field will be increasingly utilized and that that will drive some increases in parts sales as the year progresses and I think it is important to note, too, that the we have upgraded the capabilities of our operating plants and our information systems with our capital spending over the last few years. So we are in a very good position as we go forward to have moderated capital expenditures and those, in light of our other cash generation programs, should put us in a good position for enhanced free cash flow over the course of the year.

Turning to the retail business, we had a loss of $1.3 million in the first quarter. That was after a half a million, one-time charge in the AP operations, Asia-Pacific operations, which had a moderate loss. US and European operations basically were at break-even in the first quarter. So, we have made very substantial progress toward our objective of achieving at least break-even results through the improvement programs that we have put in place and I would note that the comparison is that we had losses in retail of about $13 million in third quarter and $14 million in the fourth quarter, and so, they are much closer to our objective of being at least at break-even at this point.

In conclusion, I say that at the Coal Company, that we have had good performance with the power plant that Red Hills serves reaching commercial operation and the annualized prospects for each of our mines is good. At Housewares, the actions that we have taken had a significant impact in the first quarter and we did have some substantial, one-time expenses in that quarter. We expect to see increasing impact of our programs as the year goes on, and we see the potential for stronger markets and for stronger market position in the higher margin segments as the year progresses. So the results that are most likely in 2002 should be much more in line with our longer term objectives.

In the Materials Handling business at Wholesale, we moved from the significant losses to a small profit, despite the big volume decline. We have had good program impacts in the first quarter and the break-even of the business, of course, has been significantly reduced and we are poised for a market upturn and we are hoping and expecting better markets as the year progresses. In the Retail Materials Handling business, restructuring is largely completed. Our objective break-even; we made significant progress in the first quarter. We expect to keep a very strong focus on that program. Overall then, NACCO returned to profitability in the first quarter, despite weak markets. We are ready in all of our businesses for an upturn. We see that evolving on a quarterly basis with markets improving. We will, of course, have in addition, the seasonally improving business in Housewares. At the Coal Company, we have the outages in the second quarter and at the NACCO Materials Handling Group, the third quarter, it is our summer holiday months, so the results there are traditionally a little bit weaker in the third quarter, which means that the fourth quarter will be a key quarter for the company, as it indeed, always is. That completes my overview of the business and I now turn to questions if you have any.

Hello? Does anybody have any questions?

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At this time, I would like to remind everyone if you would like to ask a question, please press star and the number one on your telephone keypad. Please hold while we compile the Q&A roster. There are no questions at this time.

If there are no questions, I would thank all of you very much and we will look forward to our next earnings conference. Thank you very much.

This concludes today's NACCO Industries First Quarter Conference Call. You may now all disconnect.