NACCO Industries Inc (NC) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2009 NACCO Industries Earnings Conference Call. My name is Christa, and I'll be your conference operator for today.

At this time, all participants' lines are muted, but we will conduct a question-and-answer session towards the end of this call. (Operator instructions.)

I would now like to turn the call over to Ms. Christina Kmetko. Please proceed, ma'am.

Thank you. Good morning, everyone, and thank you for joining us today. Yesterday, a press release was distributed outlining NACCO's results for the second quarter ended June 30, 2009. If anyone has not received a copy of this earnings release or would like a copy of the 10-Q, please give me a call, and I will send you this information. You may also obtain copies of these items on our Web site at nacco.com.

Our conference call today will be hosted by Al Rankin, Chairman and President and Chief Executive Officer of NACCO Industries. Also in attendance representing NACCO Industries is Ken Schilling, Vice President and Controller. Al will provide and overview of the quarter, and then open up the call to your questions.

Before we begin, I would like to remind 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 was set forth in our earnings release and in our 10-Q.

I will now turn the call over to Al Rankin. Al?

Good morning.

Consolidated net income for the second quarter of 2009 was $1.6 million or $0.19 a share on revenues of [$545 million] (company corrected after the call). That compares with the previous year's second quarter, which had earnings of $2.3 million, $0.28 a share, on revenues of $948 million. The steep revenue decline in the second quarter was primarily the result of lower volumes at NACCO Materials Handling Group due to a drop, a significant drop obviously, in global market demand.

For the six months, NACCO reported a net loss of $7.5 million or $0.90 a share on $1.1 billion in revenues.

I'll now turn to a discussion of the results in the individual subsidiaries, and I'll provide an outlook for each subsidiary company, as well. NACCO Materials Handling Group reported a net loss of $1.3 million on revenues of $342 million compared with the year-before's second quarter in which net income was $3.2 million on revenues of $742 million. The revenue decrease of 54% in the second quarter compared to the previous year's second quarter was primarily a result of a decrease in units and parts volume in all geographic regions due to the economic downturn in each of these markets.

Worldwide shipments in the second quarter declined 59% to 9,700 units from shipments of approximately 23,400 units in the second quarter of 2008. Parts sales also declined in the second quarter of 2009, and the worldwide backlog in units was approximately 12,300 units at June 30, [2009] compared with 12,800 at March 31 and 28,400 at June 30, [2008] (company clarified after the call).

The $4.5 million decrease in reported results in the second quarter compared with the second quarter of 2008 was primarily attributable to a decline in gross profit of $50.3 million, which was partially offset by a $19 million pre-tax favorable currency movement, reduced workforce levels, lower employee related and other selling, general and administrative expenses totaling a little bit over $22 million, all of which is a result of cost containment actions that were implemented in late 2008 and early 2009.

As you would expect, the gross profit decline was mainly the result of significantly reduced unit and parts volumes, and there was some shift in mix to sales of lower-margin units and an increase in manufacturing costs as less fixed costs were absorbed due to lower production volumes. These unfavorable items were partially offset by price increases implemented in prior periods, which resulted in benefits of a little over $13 million pre-tax, reduced warranty costs, lower inventory carrying costs and decreases in material costs totaling $6 million pre-tax.

The wholesale NACCO Materials Handling Group business expects continued significant declines on a year-on-year basis in the second half of 2009 for all lift truck markets.

Global market levels for units do, however, appear to have stabilized, but obviously those have stabilized at current extremely low levels. Parts volumes also appear to be stabilizing around current levels. They've been declining in the earlier part of the year, we think in June that they began to show indications of leveling off.

The Wholesale business is not anticipating a market upturn of any significance during 2009. And as a result, the Company expects significantly lower unit bookings and shipment levels and a reduction in parts sales in the remainder of the year in comparison with the second half of last year, although parts sales are expected to pick up slightly in the second half of 2009 compared with the first half.

The Wholesale business took a number of steps in late 2008 and the first quarter of 2009 to respond to the market outlook. These steps included capital expenditure restraints, planned plant downtime, reductions in force, restrictions on spending and travel, suspension of incentive compensation and profit sharing, wage freezes and salary and benefit reductions, all of which are expected to continue to reduce expenses in the remainder of this year. The business is closely monitoring its operations and will make further adjustments if those are necessary.

We're also keeping a close eye on commodity costs and other supply chain drivers to ensure that we get timely implementation of reductions in pricing because material costs, especially steel, fuel and freight, have moderated.

The business's warehouse truck and big truck product development programs and its important new Electric Rider Lift Truck program are progressing as planned. The new Electric Rider Lift Truck program is expected to bring a full line of newly designed products to the market. And during the second quarter of 2009, NMHG introduced two series, the one to two-ton three and four-wheel electric trucks in Europe and the two to three-ton four-wheel electric trucks in the Americas, all of which have been very well received. And the Company expects to introduce two additional series in the second half of 2009.

Overall, NMHG Wholesale expects to operate at a loss for the 2009 full-year. However, modest unit and parts volume improvements benefits from new product introductions, reduced material and product costs, as well as further general expense reductions relative to the previous year are anticipated in the second half of the year, which are all expected to drive an improvement in earnings in the fourth quarter following what I think we anticipate will be an extremely weak first quarter.

Cash flow before financing activities is expected to continue to improve in the second half of 2009 compared with 2008, in addition to improvements realized in the first half of 2009, primarily as a result of a reduction of working capital and lower capital expenditures.

Longer-term, the wholesale business has been reviewing ways to strengthen its Hyster and Yale dealer structure in North America and, as a result of this review, NACCO Materials Handling Group Wholesale has adjusted its previously existing policy to permit common ownership of dealers for its two brands, Hyster and Yale, in defined North American territories under very controlled conditions.

At the NMHG Retail business, there was a net loss for the second quarter of $1.8 million on revenues of $19.3 million. That compares with a net loss of $600,000 on revenues of $25.1 million. The outlook for the retail business is that we're continuing to focus on achieving the Company's strategic objective of at least breakeven sales, while we're building market position. But at these low levels of demand, it's very difficult to continue to breakeven in the very near term.

During the second quarter, we did have an increase in the loss due to the sale of certain Australian Hyster dealership assets. It was a small loss. And of course, neither the revenue nor any losses from those assets and the runoff of the additional working capital will affect the second half of the year.

As we turn to Hamilton Beach and the second quarter results, Hamilton Beach reported net income of $4.7 million in the second quarter on revenues of $107 million. That compared with a net loss of $600,000 in the second quarter of 2008 on revenues of almost $109 million. Revenues decreased primarily due to adverse foreign currency movement caused by the weakening Canadian dollar and Mexican peso, and the decline was largely offset by our strong presence at mass merchants, which drove moderately improved volumes in the second quarter.

Net income in the second quarter compared with the previous year increased primarily as a result of sales of higher priced products and lower transportation and warehousing costs, as well as cost containment actions that had been implemented in late 2008 and early 2009. Those included personnel reductions and the suspension or reduction of several employee related benefits. The improvement in net income was partially offset by higher costs of products sold in the second quarter of 2009 compared to the previous year due to higher commodity costs, which came through during the later part of 2008.

As you look forward, the global recession and other financial concerns are clearly factors creating uncertainty in a challenging retail environment. And as a result, Hamilton Beach expects revenues for the second half that are lower than the second half of 2008.

These lower volumes really required the aggressive cost containment actions that I referred to earlier, personnel reductions, spending and travel restrictions, suspension of incentive compensation and other employee related benefits, as well as wage freezes. And those actions, along with initiatives to improve pricing and product positioning and to reduce product and transportation costs in light of softening commodity costs for resins, copper, steel, aluminum and fuel are expected to help Hamilton Beach have significantly improved bottom-line results for the remainder of the year in comparison with 2008, despite somewhat lower volume.

Overall, as I've indicated, net income and cash flows before financing activities are expected to improve significantly in 2009 compared with a very weak 2008 set of results before the goodwill impairment charge. We think the improvements will be steadily improving over the third and fourth quarter as is normal with the seasonality of the business. On the other hand, if we have any further blip in the economy and the Company's markets deteriorate, clearly those prospects would change in a negative way.

Kitchen Collection reported a loss of $1.7 million on revenues of $40.6 million compared with a net loss of $3.7 million on revenues of $39.7 million in the second quarter of 2008. The lower net loss in the second quarter was primarily due to higher gross margins caused by fewer markdowns in 2009 compared with 2008, lower product and freight costs and a decrease in warehousing costs as a result of the movement of Le Gourmet Chef's warehousing from a third-party provider to a Kitchen Collection managed distribution operation, and that occurred in the third quarter of last year. It's working very well.

Uncertainty in the US economy and diminished consumer confidence are expected to continue to affect consumer traffic, outlet and traditional malls, and negatively affect retail spending for the remainder of the year. Nevertheless, Kitchen Collection expects an improved holiday selling season for its stores due to the continued strength of Kitchen Collection stores and to the expectation of significantly improved margins at Le Gourmet Chef stores, which results from the conclusion of new product enhancement and store merchandising programs and from the completion of a large product clearance program in the Le Gourmet Chef stores that significantly reduced margins in 2008.

Capital expenditure restraints and administrative cost control measures implemented in late 2008 and early 2009 are also expected to continue to improve results in the second half of 2009.

Overall, Kitchen Collection expects that increasing improvements in quarterly results for the second half of the year relative to the previous year will lead to significantly improved full-year results compared to the previous year on a comparison that's before the charges for goodwill and intangible impairment of $3.9 million from the previous year.

Cash flow before financing activities is expected to be about breakeven in 2009, which is a big improvement over the previous year.

At North American Coal, net income for the second quarter was $7.1 million on revenues of $36 million compared with net income of $6.4 million on revenues of $33 million for the previous year's second quarter. The increase in net income was primarily attributable to favorable operating results at lignite mining operations and some revenues from other mining services.

Results at the consolidated mining operations improved as a result of increased tonnage, contractual price escalation and reduced costs for diesel fuel, and results at the unconsolidated mining operations improved mainly due to increased deliveries and contractual price increases. These increases were partially offset by higher employee related expenses from developing new mining opportunities and an increase in income tax expense resulting from a shift in the mix of pre-tax income toward entities with higher income tax rates.

North American Coal's lignite mining operations have not been significantly affected by the economic downturn largely because of the long-term contracts, which North American Coal's customers have and continued stable demand for electricity from the power plants that our customers serve.

North American Coal expects improved full-year results at its lignite coal mining operations in 2009 provided that its customers continue to achieve currently planned power plant operating levels. The tons delivered by the lignite mines are expected to increase for the full year compared to the full year of 2008, but we do expect a moderate decline in the second half compared with the second half of 2008. In addition, contractual price escalation is not expected to affect second half results as favorably in 2009 as it did in the second half of 2008 because of recent declines in commodity costs.

Limerock customer projections for the third and fourth quarter deliveries continue to be down compared with the prior year for limerock mining operations within the so-called Lake Belt region of Florida. Production will be significantly reduced due to an unfavorable legal ruling that set aside our customers' permits at most of those limerock mining operations. Our customers are expected to return to production under new permits that are currently anticipated to be issued toward the end of this year or the beginning of 2010.

The Company has mitigated its exposure to these limerock operations, its financial exposure that is, by entering into new cost reimbursable management fees with the majority of its customers. And customer projections for deliveries for limerock mining operations outside the Lake Belt region continue to reflect the decline in the Southern Florida housing and construction markets.

The company did enter into a new limerock mining services contract early in this quarter, that is the third quarter, for a quarry outside the area covered by the legal ruling, which calls for deliveries of approximately a million cubic yards annually once the market improves. We expect that limerock mining to begin in the third quarter of this year.

And overall, the Coal Company expects full-year net income to improve in comparison with 2008, although results in the second half of 2009, exclusive of pending transactions, are expected to be moderately lower than the second half of 2008. Full-year cash flow before the financing activities is expected to increase due to increased cash flow from operations.

We have a number of new project opportunities that are going to incur additional expense, in some cases. In addition, the Company entered into an agreement to sell the assets of its Red River Mining Company in Louisiana to its customer for approximately $42 million in cash subject to closing adjustments. The sale of the mine, which is subject to customary closing conditions, which include regulatory approval, is expected to generate a substantial gain and enhance cash flow when the transaction is completed in late 2009.

In the second quarter of 2009, the Coal Company entered into a new contract mining services agreement to provide approximately 300,000 to 400,000 tons or lignite coal annually to a new customer with initial deliveries expected to commence in 2010, and the Company is also continuing to pursue other contract mining opportunities. We're continuing to seek permitting at our Otter Creek Reserve in North Dakota in expectation of the construction of a new mine, and the Company is working on a project with Mississippi Power to provide lignite coal to a new power plant in Mississippi.

That really concludes my comments. Obviously, we have two seasonal businesses, which in the fourth quarter will be quite strong. We expect NACCO Materials Handling Group to have an improved fourth quarter, but we're still in a period of relative seasonal weakness in our consumer goods businesses in the third quarter. And we expect, as I indicated, that NACCO Materials Handling Group will face a very difficult third quarter because of recent low levels of bookings, low parts volumes and also summer vacation periods, the shutdown periods for our plants, which take place during the course of the summer around the world. So the third quarter will be a difficult quarter for the Company.

That's my report, and I'd be happy to answer questions if anyone has questions.

(Operator instructions.)

Okay. If there are no comments, I would close by -- questions, I would close by asking Christie to make some closing comments and just note that if you do have questions that come to your minds after this call that you can call Christy and she will do her best to answer them. Christy?

Thank you for joining us today. We appreciate your interest. And if you do have additional questions, my phone number is (440) 449-9669. I'd be happy to talk to you. Thank you and have a good day.

Thank you for your participation in today's call. If you would like to listen to the replay for this call, it will be available at (617) 801-6888, as well as (888) 286-8010. The access number is 74558247 and will be available until Friday, August 13, 2009. Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a wonderful day.