NACCO Industries Inc (NC) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter 4 2012 NACCO Industries earnings conference call. My name is Sharon and I'm your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions). As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to 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 fourth quarter and year ended December 31, 2012. If you have not received a copy of this earnings release and would like a copy of the 10-K, you may obtain copies of these items on our 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 are Mark Barrus, NACCO's new Vice President and Controller; and J.C. Butler, Senior Vice President Finance, Treasurer and Chief Administrative Officer. Al will provide an 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. In addition, certain amounts discussed during the call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our 2012 fourth-quarter earnings release, which is available on the website. I will now turn the call over to Al Rankin.

Good morning to all of you. NACCO Industries had income from continuing operations of $23.7 million or $2.81 per share, and revenues of $318 million for the fourth quarter of 2012. That compared with income from continuing operations of $29.9 million or $3.56 per share and revenues of $274 million for the fourth quarter of the previous year.

As you know, NACCO spun off its materials handling subsidiary in September of 2012, and as a result the attached statements -- financial statements that are attached to the release that are related to 2012 and 2011 financial information have been reclassified to reflect the materials handling operating results as discontinued operations.

A couple of highlights -- North American Coal's fourth-quarter net income declined to $8.3 million from $11.9 million in 2011, but it is important to note that fourth-quarter income before taxes increased to $13.3 million from $13.2 million. So it's all in the tax provision, which I will discuss in more detail later.

Hamilton Beach's net income increased to $12.7 million from $12 million a year earlier in the fourth quarter and Kitchen Collection's fourth-quarter net income declined to $4.1 million from $7.6 million the year before.

Importantly, NACCO and other, which includes the parent company operations, there was a loss of $4.4 million for the fourth quarter of 2012. That is significantly higher than the loss of $2.3 million a year earlier. And the increase in net loss was primarily the result of an increase of $2 million after-tax related to an asset retirement obligation for water treatment at the Company's non-operating subsidiary, Bellaire Corporation.

For the full year 2012, the Company reported income from its continuing operations of $42.2 million or $5.02 a share, and that compared with -- with revenues of $873 million -- that compared with income for the previous year of $79.5 million and revenues of $790 million.

If you exclude from the 2011 numbers, the Applica settlement and the corresponding litigation costs, the adjusted income from continuing operations was $42.3 million or $5.03 a share for the year ended December 31, 2011. So with that perspective in mind, the results were essentially the same as 2012.

Consolidated EBITDA for the year was $81.9 million in that compared with $79.9 million in 2011.

Cash flow before financing activities from continuing operations was $10.7 million. That compared with $83.8 million the year before. That included, of course, the after-tax proceeds of $39 million for the settlement of the Applica litigation and a significant decrease still after excluding the $39 million from the cash flow before financing is primarily the result of the acquisition of Reed Minerals for approximately $69.3 million.

There were, however, other transactions related to draglines, both sale and purchase. We purchased two draglines for $26.8 million and sold two for $31.2 million and we collected a long-term note related to the prior sale of a dragline of $14.4 million.

The Company's cash position at the end of 2012 was strong, $140 million, and that is after paying a special dividend of $3.50 a share and a regular quarterly dividend of $0.25 a share in December, which -- and the special dividend in the quarterly -- used $31 million of cash. Debt increased to $178 million from $148 million, and that was the result of the Reed acquisition.

A little more detail about North American Coal. Net income, as I have indicated, was $8.3 million. Revenue was $50.9 million. That compared with $11.9 million in the previous year and $23.5 million of sales volume.

Fourth-quarter income before taxes, as I indicated, was essentially comparable between the two years, $13.3 million versus $13.2 million. And I mentioned earlier, on August 31, North American Coal, in an important acquisition for the Company, acquired the Reed Minerals business and coal mining operation in Alabama, which produces steam and metallurgical coal. Reed was a contributor of $21.6 million of revenue and $1 million of net income in the fourth quarter.

Revenues increased in the fourth quarter compared to the previous year, primarily due to the Reed acquisition and higher royalty income. There was also an increase in limerock yards at the Florida operations as well.

Income before taxes in the fourth quarter was comparable, as I have indicated, and the favorable effect of higher royalty income and income generated at the newly acquired Reed Minerals operation was mostly offset by higher employee-related and outside service costs and a decline in results at the unconsolidated mining operations, mainly from the lower contractual price adjustments in 2012 and in 2011 and fewer deliveries at those operations.

Employee-related costs increased primarily due to incentives. And although they are costly as an expense in 2012, they are paid as a result of the significant expansion of North American Coal's future business through the new Coyote Creek Mining contract and for the value of the Reed Minerals acquisition.

Net income for the fourth quarter decreased with the fourth quarter of the year earlier, as indicated, due to an increase in income tax expense. That came about as a result of a shift in the mix of taxable income toward entities with higher effective income tax rates, and also it reflected a decrease in taxable income at the unconsolidated project mines as a result -- that resulted in a lower tax benefit from depletion.

The full-year results, North American Coal had net income of $32.8 million, revenues of $132 million. That compared with $29.4 million in the year earlier and $81.8 million for the year earlier in sales.

As you look forward, North American Coal expects steady operating profits -- performance at its coal mining operations in 2013. Steam coal tons delivered in 2013 are expected to increase over 2012 at both the consolidated and the unconsolidated mining operations. That, of course, assumes that customers achieve their currently planned power plant operating levels.

Metallurgical coal sales for Reed Minerals are expected to be somewhat below the Company's initial expectations as demand for steel is down and customers are reducing inventories. Nevertheless, we feel in the long-term the volume projections that we had in mind continue to make sense.

Limerock deliveries are expected to decrease in 2013 compared to 2012 as customer requirements are expected to decline moderately.

Demery Resources Company's Five Forks Mine commenced delivering coal to its customer in 2012 and is expected to increase production in 2013 with full production in 2015 or 2016. Royalty income is expected to be lower in 2013 compared to 2012.

Unconsolidated mines currently in development are expected to continue to generate modest income in 2013. The four mines in development are not expected to be at full production for several years. Liberty Fuels is eventually expected to produce approximately 4.5 million tons of lignite annually for the Mississippi Power Company's new Ratcliffe power plant that is currently being built in Mississippi. That project is on track for initial coal deliveries in mid-2014, and in February of this year the mining permit needed to commence mining operations at the Caddo Creek Resources Company's project in Texas was issued and Caddo Creek expects to mine approximately 650,000 tons of coal annually and initial deliveries are expected in early 2014.

In January 2013, the mining permit needed to commence mining operations at the Camino Real Fuels project in Texas was issued. That operation expects initial deliveries in the third quarter of 2014 and expects to mine approximately 2.7 million tons of coal annually when in full production.

In addition, in October of 2012, North American Coal's subsidiary, Coyote Creek Mining Company, entered into a new agreement with the co-owners of the Coyote Station generation plant to develop a lignite mine in Mercer County, North Dakota. Coyote Creek Mining Company expects to deliver approximately 2.5 million tons of coal annually beginning in May of 2016.

North American Coal also has new project opportunities for which it expects to continue to incur additional expenses in 2013. In particular, the company continues to move forward to obtain a permit for its Otter Creek reserve in North Dakota in preparation for the anticipated construction of a new mine. Overall, North American Coal expects net income in 2013 to decrease slightly from 2012, primarily due to the absence of pre-tax gains of approximately $7 million from asset sales during 2012.

Excluding the effects of the asset sales, operating results are expected to increase compared to 2012, primarily as a result of increased deliveries and lower operating expenses.

Cash flow before financing activities is expected to be higher than 2012, but not at the levels of 2011, due to anticipated increase in capital expenditures to bring the Reed Minerals operations to full productivity and lower costs.

Over the longer term, North American Coal expects to continue its efforts to develop new coal mining projects, and the company also views its acquisition of Reed Minerals as the first step in a metallurgical coal strategic initiative which includes coal exports.

Turning to Hamilton Beach, fourth-quarter net income of $12.7 million and revenues were $181 million, and that compared to $12 million and $161 million the year before. Fourth-quarter revenues increased 12% primarily due to increased unit sales of higher priced products, mainly in the US consumer retail market as a result of strong fourth-quarter promotions and placements. The increase in net income in the fourth quarter was primarily the result of increased sales volumes of higher margin products, partially offset by higher employee-related costs and a moderate increase in product costs.

For the full year, Hamilton Beach reported net income of $21.2 million, revenues of $522 million. That compared with $18.4 million and revenues of $493 million.

Looking forward, Hamilton Beach's target consumer, middle-market mass consumer, continues to struggle with financial and economic concerns. As a result, sales volumes in the middle market portion of the US small kitchen appliance market in which Hamilton Beach participates are expected to grow only moderately in 2013 compared with 2012. International and commercial product markets are expected to continue to grow reasonably in 2013 compared with 2012.

Hamilton Beach continues to focus on strengthening its North American consumer market position through product innovation, promotions, increased placements and branding programs, together with appropriate levels of advertising for the company's highly successful and very innovative product lines with particular focus on single-serve coffee products, such as The Scoop and the newer FlexBrew. Hamilton Beach expects The Scoop and the 2-Way Brewer and the Durathon Iron product line, all introduced in late 2011, as well as the FlexBrew, launched in late 2012, to continue to gain market position as broader distribution is attained over time.

The company is continuing to produce innovative products in several small appliance categories. One in particular the first quarter of this year, Hamilton Beach is launching the Hamilton Beach Breakfast Sandwich Maker, which provides an innovative and convenient way for consumers to cook breakfast sandwiches quickly at home. These products as well as other new product introductions in the pipeline for 2013 are expected to increase both revenues and operating profits.

As a result, the company is improving -- as a result of these new products in combination with the company's improving position in commercial and international markets and execution of the company's strategic initiatives, Hamilton Beach expects to increase volumes and revenues in 2013 compared with 2012 at more than the 2013 market forecast rate of increase. Overall, however, Hamilton Beach expects full-year 2013 net income to be comparable to 2012. As anticipated, increases in profit from increased revenues are forecast to be largely offset by expected increases in operating expenses to support Hamilton Beach's strategic initiatives.

Product and transportation costs are currently expected to remain comparable to 2012. However, Hamilton Beach continues to monitor commodity costs closely and it will adjust product prices and product placements as appropriate if those costs increase more than anticipated. Hamilton Beach expects 2013 cash flow to be -- before financing activities -- to be moderately lower than 2012 due to increased working capital.

Longer-term, Hamilton Beach will work to take advantage of the potential to improve return on sales through economies of scale derived from market growth, strategic partnerships and a focus on its five important strategic growth initiatives. Those are, first, enhancing its placements in North American consumer business through consumer-driven innovative products and strong sales and marketing support. Second, enhancing Internet sales by providing best in class retailer support and increasing consumer content and engagement. Third, achieving further global penetration of the global commercial market through a commitment to an enhanced global product line for chains and distributors serving the global food service and hospitality markets. Fourth, expanding internationally in the emerging Asian and Latin American markets by offering products specifically designed for those market needs and by expanding distribution channels and sales and marketing capabilities. And fifth, by entering only the best market with a strong brand or brands and broad product line.

At Kitchen Collection, net income was $4.1 million on $89 million of revenue in the fourth quarter, and that compared with $7.6 million and $91 million of revenue in the year earlier. Compared with the year-earlier quarter, sales from newly opened Kitchen Collection stores were moderately higher in the fourth quarter of 2012 than the loss of sales from closing unprofitable Kitchen Collection and Le Gourmet Chef stores since December 31. Nevertheless, this improvement was more than offset by a decline in comparable store sales, primarily due to a decrease in store transactions as a result of fewer customer visits at both store formats, partially offset by improvements in the average sales transaction value. The decline in customer visits appears to be largely the result of an overall decline in traffic to outlet malls during the 2012 holiday shopping season and overall shopping patterns which were not consistent with prior years.

At the end of 2012, Kitchen Collection operated 261 stores compared with 276 at the end of the year 2011, and Le Gourmet Chef operated 51 stores compared with 61 stores.

Net income decreased in the fourth quarter compared with the year earlier, primarily as a result of reduced sales, a shift in mix to lower-margin products at Kitchen Collection and Le Gourmet Chef comparable stores and unfavorable margins from the liquidation of inventory at closed stores. Higher employee-related and outside service costs and an impairment charge of $700,000 pre-tax taken on certain leasehold improvements also contributed to the decline in net income.

For the full year, as a result of the weak fourth quarter, Kitchen Collection reported a loss of $3.1 million on revenues of $225 million. That compared with net income of $1.1 million and revenues of $221 million a year earlier.

Looking forward, as I have noted in the context of what happened in 2012 when consumer traffic to outlet mall locations declined, especially in the fourth quarter, prospects for 2013 remain uncertain but they are expected to improve over 2012 level. The middle-market consumer remains under pressure due to financial and economic concerns, and those concerns are expected to continue to dampen consumer sentiment and limit consumer spending levels for Kitchen Collection's target customers in 2013.

As a result, Kitchen Collection expects 2013 revenues to be comparable to 2012, although the company expects to have a lower number of stores through much of 2013 when compared to 2012. Overall, Kitchen Collection expects modest net income for 2013 full-year positive cash flow before financing activities compared with a net loss and essentially breakeven cash flow in 2012.

The net effect of the anticipated closing of a number of stores early in 2013 and the anticipated opening of new stores during the second half of 2013 are expected to contribute to improved results. Also, enhanced sales per store and product margins are expected as a result of improvements in store formats and layouts and further refinement of promotional offers and merchandising mix at both formats.

During 2012, Kitchen Collection reformatted many of its stores to provide a value and trend message at the front of its stores which is expected with some further adjustments to drive an increased number of customers into its locations. The company completed format changes at all of its Le Gourmet Chef stores in the first half of 2012 and completed the remodeling of a total of 82 Kitchen Collection stores in 2012. Feedback to date on the changes is really quite favorable, but reduced traffic in 2012 made it difficult to determine their longer-term impact.

In addition, these changes resulted in higher up-front costs during 2012 and the liquidation of a substantial amount of inventory, both of which are not expected to recur in 2013. And as these new formats gain traction, they are expected to improve margins and income in 2013.

That completes my overview of NACCO industries fourth-quarter results, and I would be happy to answer any questions that you may have.

(Operator instructions). We have no questions at the moment.

I think, in that case, we'd just conclude by saying that the new NACCO Industries, having spun off Hyster-Yale, we believe is well positioned for the future years and the strategic initiatives that are underway at the coal company and at Hamilton Beach which are called out in the news release really provide a guideline perspective on opportunities that we hope to achieve over the course of the next few years. And, at Kitchen Collection, we believe there is a very solid core business and that in due course, consumer sentiment and economic prospects will improve and results will turn up more significantly than we expect in 2013 itself, although we do expect better results than in 2012.

And that concludes our thoughts. We appreciate all of you being on the line. Thank you.

Thank you for joining us today. We appreciate your interest. If you do have any additional questions, please contact me. Please note my new phone number is 440-229-5130. Thanks so much.

Thank you. Ladies and gentlemen, to hear the replay of this call, which will be available within the hour, please call 617-801-6888 or 888-286-8010. The replay code will be 31851384 followed by the pound sign. Thank you. This concludes the presentation. You may now disconnect. Good day.