NACCO Industries Inc (NC) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2010 NACCO Industries earnings conference call. My name is Tawanda, and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Ms. Christina Kmetko. Please proceed.

Thank you. Good afternoon, everyone, and thank you for joining us today.

Yesterday, a press release was distributed outlining NACCO's results for the fourth quarter and year ended December 31, 2010. If anyone has not received a copy of this earnings release or would like a copy of the 10-K, please call me at 440-449-9669 and I will be happy to send you the information. You may also obtain copies of these items at the NACCO website at NACCO.com.

Our conference call today will be hosted by Al Rankin, Chairman, President, and Chief Executive Officer of NACCO Industries. Also in attendance representing NACCO Industries is Ken Schilling, Vice President and Controller.

Al will provide an overview of the quarter and full year, 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 our 10-K.

In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our 2010 fourth-quarter earnings release, which is available on our website.

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

Good afternoon to all of you.

As Christy has indicated, our earnings announcement went out last evening. We announced net income of $38.4 million, or $4.59 a share, for the fourth quarter on revenues of $866 million, compared with net income in the fourth quarter of 2009 of $42.5 million, or $5.12 a share, on revenues of $687 million.

It's very important to note that the net income for the fourth quarter of 2009 included earnings from discontinued operations of $21.9 million, or $2.64 a share, that was related to the sale of certain assets of North American Coal's Red River Mining Company subsidiary. If you strip those out in the fourth quarter of 2009, earnings -- NACCO's earnings from continuing operations were $20.6 million, or $2.48 per share. And that compares to the numbers I gave you earlier of $38.4 million, or $4.59 a share.

Some top-level overview on the fourth-quarter results. NAACO Material Handling Group's net income for the fourth quarter was $13.3 million, compared with $900,000 in 2009. Hamilton Beach's net income was $11.6 million in the fourth quarter, compared with $13.1 million in the previous year. Kitchen Collection's net income was $7.2 million, compared with net income of $8.1 million in the fourth quarter of 2009, and North American Coal's fourth-quarter 2010 net income was $9.2 million, compared with income from continuing operations of $2.0 million in 2009.

And NACCO and other, which includes the parent company operations, had a net loss of $6 million for the fourth quarter of 2010, compared to $4.6 million in the previous year.

The increase in the net loss is primarily the result of $5.8 million, or $3.8 million after tax, of expenses related to litigation associated with the Company's failed 2006 Applica transaction, partially offset by an income tax benefit from the settlement of certain income tax audits.

For the full-year 2010, NACCO generated consolidated cash flow before financing activities of $57.3 million, compared to $180.1 million in the previous year, but note that that number included $41 million from the sale of assets for the Red River Mining Company.

Turning to the individual subsidiary companies for more detail, I begin with NACCO Materials Handling Group's fourth-quarter results. As I noted earlier, 2010 fourth-quarter net income of $13.3 million on revenues of $570 million, compared with $900,000 on revenues of $396 million in the previous year. Operating profit was $17.8 million, compared with operating profit of $3.5 million in the 2009 fourth quarter.

Revenues increased very substantially, 44% in the fourth quarter compared to the previous year, primarily as a result of an increase in units and parts volume in the Americas and Europe. This increase was partially offset by the sale of certain retail and rental operations in Australia and Europe during 2010 and 2009 and by favorable -- unfavorable foreign currency movements as the euro weakened against the U.S. dollar.

Worldwide new unit shipments increased to approximately 19,700 units in the fourth quarter from shipments of 15,400 units in the third quarter and shipments of 11,500 units in the fourth quarter of 2009. Both units and parts continued a recent trend by improving over the immediately preceding quarter as well as over the prior-year comparable quarter.

The backlog was approximately 23,000 units on December 31, 2010, and that compares with 24,500 at September 30 and 13,200 at December 31, 2009.

NMHG's fourth-quarter net income increased significantly compared with the fourth quarter of the previous year, primarily due to higher sales volumes for both units and parts and lower manufacturing variances as a result of higher production levels in 2010. This improvement in net income was partially offset by an increase in employee-related expenses due to the restoration of compensation and benefits which were reduced in 2009, to increased material costs, and to unfavorable foreign currency movements as the euro weakened against the U.S. dollar.

For the full-year 2010, NACCO Materials Handling Group had income of $32.4 million on revenues of $1.8 billion, compared with a loss of $43 million on revenues of $1.5 billion in the previous year. And for the full year, NMHG had a positive cash flow of $39 million, compared to $122 million in the previous year.

As you look forward, NMHG expects global market levels for units and parts to continue to improve in all markets in 2011, particularly in the Americas, with more significant growth in the second half of the year. As a result of that, the Company expects increased bookings in 2011, and unit shipment levels and parts volumes are also expected to continue to improve.

Over the past two years, as you know from previous discussions, NMHG has taken very strong actions to respond to depressed market conditions. Those included reductions in force, a plant closure in Italy, capital expenditure constraints, plant shutdowns, restrictions on travel and spending, and suspension of incentive compensation and profit-sharing programs, wage freezes, and salary and benefit reductions. As of the fourth quarter of 2010, all compensation and most benefits had been restored, and there will be full restoration of benefits at the beginning of the first quarter of 2011.

Further, with market demand at improved levels, during the fourth quarter, NACCO Materials Handling Group increased its plant workforce by adding workers and shifts for certain manufacturing operations to meet expected ongoing demand and to reduce lead times.

We do expect that material costs, particularly steel, will continue to increase in 2011, and as a result, price increases on selected models were announced during the second and fourth quarters of 2010, which, in combination with additional increases in 2011, are expected over time to offset the effect of increased commodity costs.

The new electric truck program and warehouse internal combustion engine and big truck product development programs are all progressing as planned. These are very important products coming to market, and all of these new products are expected to help improve revenues and enhance operating margins. And in the context of these new product introductions, the Company is going to continue to focus on enhancing its distribution effectiveness and capitalizing on these product capabilities to gain additional market share.

Overall, net income is expected to increase in 2011 compared with 2010. However, it's important to note that the significant profit improvement from increased volume is expected to be partially offset by increased employee-related costs in 2011, and those are very substantive; the absence of currency contracts, which favorably affected 2010 in a significant way; and by higher effective tax rates, especially in the first half of 2011.

Cash flow before financing activities for the full year is expected to be higher than 2010.

Longer term, NMHG will continue to focus on improving margins on new lift truck units, especially in its internal combustion engine business, as a result of new products which have been or are expected to be introduced. In addition, NMHG has an objective of gaining market share through these new products, which meet a broad range of market applications cost-effectively and through enhancements of its dealer operations.

Turning to Hamilton Beach, the Company reported net income of $11.6 million for the fourth quarter on revenues of $176 million, and that compared with net income of $13.1 million in the previous year on revenues that were essentially the same. The net income decline in the fourth quarter of 2010 compared with the previous year was primarily due to a reduction in gross profit as a result of lower product margins in the fourth quarter, compared with the very favorable product margins achieved in 2009, as well as increased transportation costs in the fourth quarter of 2010.

For the full year, Hamilton Beach had net income of $24.4 million on revenues of $516 million, compared with $26.1 million on revenues of $497 million.

As you look forward, the small kitchen appliance market has largely recovered. Nonetheless, although consumer confidence and other key indicators have improved compared with 2009, mass-market consumers continue to be cautious as a result of financial concerns, which, together with high unemployment rates, are expected to result in this segment of the U.S. consumer market remaining soft.

International markets and consumer -- and commercial product markets experienced a stronger recovery in 2010, and the momentum seen in these markets is expected to continue in 2011.

The Company continues to focus on strengthening its market position through product innovation, promotions, increased placements, and branding programs, together with appropriate levels of advertising for the Company's key product lines. In 2011, Hamilton Beach expects to launch the Scoop, a single-serve coffeemaker in a new Durathon iron product line.

These products, as well as other new product introductions in the pipeline, are expected to affect revenues favorably. As a result, Hamilton Beach currently anticipates revenues in 2011 to increase in comparison with the previous year.

Overall, full-year 2011 net income is expected to be slightly lower than 2010, due to increased operating expenses and a higher income tax expense. Increased product and transportation costs in the first half of 2011 are expected to reduce net income in the first half, compared with the previous year.

Hamilton Beach continues to monitor commodity costs very closely, and will adjust its prices and its placement decisions as appropriate if commodity costs continue to increase, which is what we expect. Also, to increase distribution efficiencies, Hamilton Beach is moving its distribution center to a larger facility during the second quarter. The Company will incur additional expenses related to this relocation.

And overall, Hamilton Beach expects cash flow before financing activities to be higher than in 2010.

At Kitchen Collection, net income was $7.2 million in the fourth quarter on revenues of $88 million, compared with net income of $8.1 million on revenues of $85 million in 2009. Revenues increased in the fourth quarter of 2010 as a result of sales at newly-opened Kitchen Collection and Le Gourmet Chef stores. At December 31, Kitchen Collection operated 234 stores, compared with 219 stores on December 31 of the previous year. Le Gourmet Chef operated 66 stores, compared with 77 stores at the end of the previous year.

Kitchen Collection reported a decrease in fourth-quarter net income, primarily as a result of higher employee-related costs. For the full year, Kitchen Collection reported net income of $3.5 million on 320 million -- $220 million of revenue, compared with $3.9 million previous year on revenues of $214 million.

For 2010's full year, Kitchen Collection generated cash flow before financing activities of $3.6 million, compared to $4.3 million in the previous year.

Looking forward, Kitchen Collection expects the recovery to continue in 2011, although consumer spending levels are likely to continue to reflect financial concerns and high unemployment rates of Kitchen Collection's targeted consumer.

Overall, due to the opening of new Kitchen Collection stores, enhanced product offerings, and continued strength in the two store formats, Kitchen Collection expects a modest increase in revenue in 2011 compared with the previous year. Favorable sales and margin trends that occurred in the stores during 2010 are expected to continue into 2011. And in addition, the Company plans to continue to refine its promotional efforts and merchandise mix in the Le Gourmet Chef stores to further enhance sales and margins. The opening of new stores, the renegotiation of the leases, and the Company's continuing program of closing underperforming stores are all expected to help improve results in 2011.

In addition to improved distribution operations and increased efficiencies, Kitchen Collection is combining its two distribution centers into one larger facility. The Company will incur some additional expenses in the first quarter of this year when the relocation is expected to occur. The Company also anticipates increased transportation costs in 2011, but expects to offset those through pricing and other actions that are appropriate.

Overall, Kitchen Collection anticipates an increase in full-year net income and cash flow before financing activities in 2011 compared with the previous year.

Longer term, Kitchen Collection plans to focus on enhancing sales volume and profitability by strengthening its merchandise mix, store displays, and appearance and optimizing selling space. Kitchen Collection also expects to drive profitability by achieving store growth in the Kitchen Collection and Le Gourmet Chef outlet and traditional mall formats over the long term, but always while maintaining disciplined cost control.

In the near term, expansion will be focused on the Kitchen Collection format. When adequate profit prospects are demonstrated for the Le Gourmet Chef format, it is expected that the focus will shift to growth in the number of these stores. However, the closure of underperforming stores in 2011 will result in a near-term reduction in the number of Le Gourmet Chef stores.

North American Coal's net income for the fourth quarter was $9.2 million, compared with $2 million in the previous year. Income from continuing operations improved significantly compared with the fourth quarter. The improvement is primarily due to an increase in earnings of unconsolidated mines, mainly as a result of an increase in contractual price escalators and income associated with the new Liberty Mine in Mississippi.

In addition, lower costs of sales at the Mississippi Lignite Mining Company contributed to the improvement in fourth-quarter income from continuing operations.

For the full year, North American Coal reported income of $39.6 million on revenues of $157 million, compared with income in the previous year of $30.6 million on revenues of $129.5 million. Net income in 2010 included income of $7.4 million, or $4.4 million after tax, related to the reimbursement of previously recognized costs for predevelopment activities for Mississippi Power Company. Income from continuing operations in 2009 included the receipt of lease bonus payments of $4.6 million after tax or certain -- for leasing certain oil and gas mineral rights controlled by North American Coal to a third party.

In 2010, North American Coal generated a cash flow before financing activities of $33 million, compared to $76 million in the previous year. That number, of course, includes proceeds of approximately $41 million from the sale of the assets of the Red River Mining Company and $7.1 million from the receipt of lease bonus payments.

Looking forward, North American Coal expects steady performance in its coal mining operations in 2011, provided our customers achieve currently planned power plant operating levels. However, tons delivered at the coal mines in 2011 are expected to be somewhat lower as a result of the expiration and non-renewal of the San Miguel Mine contract and lower customer requirements. Royalty income in 2011 is also expected to be lower.

Limerock deliveries are expected to be lower in 2011 as well. 2010, after -- the coal company's limerock customers in the Florida Lake Belt region required higher limerock deliveries as they rebuilt their stockpiles that had been diminished while their operations were dramatically diminished as a result of an unfavorable legal ruling that set aside their mining permits in 2009. With the completion of that build-up, 2011 requirements are expected to be lower, as market conditions in southern Florida housing and construction markets remain quite weak.

Four new unconsolidated mines, which were -- are in the development stage, are expected to generate modest income in 2011, and in addition, in early 2011, North American Coal had finalized an agreement to produce -- or to provide services to operate a refined coal processing facility through 2018. That agreement is expected to generate modest income during 2011.

North American Coal also has new project opportunities for which it expects to continue to incur additional expenses in 2011. In particular, the Company is moving forward to gain a permit for its Otter Creek Reserve in North Dakota in preparation for the expected construction of a new mine, and that permit is expected to be issued in the second half of 2011.

Overall, North American Coal expects 2011 net income to decrease compared with 2010, mainly as a result of the absence of the reimbursement of the previously expensed costs received in 2010 and reduced royalties. Cash flow for -- before financing activities in 2011 is expected to be higher than 2010, assuming mine development activities occur as currently planned.

Turning to NACCO and other, which includes the parent company operations and Bellair, fourth quarter reported a net loss of $6 million compared with $4.6 million in the previous year. That was primarily the result, as I noted earlier, of the $5.8 million, or $3.8 million after tax, of expenses related to litigation associated with the Company's failed Applica transaction, partially offset by an income tax benefit from the settlement of income tax audits.

And for the full year, NACCO and other had a net loss of $20.4 million, compared with $9 million in the previous year. Included in that 2010 net loss of $20.4 million were $18.8 million, or $12.2 million after tax, of Applica litigation expenses.

Looking forward, but already announced on February 14, the parties to the Applica litigation entered into a settlement agreement. The settlement provides, among other things, for the payment of $60 million, or $39 million after taxes, to the Company in dismissal of the lawsuit. The Company expects to incur or has incurred additional litigation costs in those first two months in the range of $2.5 million to $3 million pretax for services rendered prior to entering into the settlement agreement.

The payment was received in February, and as a result of the settlement, no further litigation costs in relation to this matter will be incurred.

That completes my remarks, and I'd be happy to turn to any questions that you may have at this time.

(Operator Instructions).

While we are waiting for questions, let me provide you with my contact information for any additional questions you might have after the conclusion of today's call. Again, you can reach me at 440-449-9669. Tawanda, are there any questions?

At this time, we currently have no questions.

Thank you, all, very much, and as Christy indicated, if there are questions later, she can try to answer those for you, and I thank you very much for participating.

Thank you again, and we appreciate your interest.

Ladies and gentlemen, a replay of this event will be available for one week starting at 5 PM Eastern time today. To access the replay, please dial toll-free 866-286-8010 or domestically 617-801-6888, and enter the replay code 92831495.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect. Good day.