Gardner Denver Inc. Q4 2008 Earnings Call Transcript

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Gardner Denver Inc. (GDI)

Q4 2008 Earnings Call

February 13, 2009 9:30 am ET

Executives

Barry L. Pennypacker – President and Chief Executive Officer

Helen W. Cornell – Executive Vice President, Chief Financial Officer

Analysts

Kevin Maczka - BB&T Capital Markets

Ned Borland - Next Generation Equity Research

John Moore - Robert W. Baird

Marty Pollack - NWQ Investment Management

Ben Phillips - Lord Abbett

Joseph Mondillo - Sidoti & Co. LLC

[Unidentified Analyst] - KeyBanc Capital Markets

Presentation

Operator

Good day and welcome to the Gardner Denver fourth quarter results conference call. Today’s call is being recorded. At this time I would like to turn the call over to Barry Pennypacker, President and CEO of Gardner Denver. Please go ahead.

Barry L. Pennypacker

Thank you Kim. Good morning everyone and welcome. I’m joined this morning by Helen Cornell, Gardner Denver’s Executive Vice President and Chief Financial Officer. Before we begin our comments, though, Helen has a few words on our forward-looking statements.

Helen W. Cornell

All of the statements made by Gardner Denver during this call other than historical facts are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995. As a general matter, forward-looking statements are those focused upon anticipated events or trends and assumptions, expectations and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to Gardner Denver’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company.

These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements. Please refer to Gardner Denver’s fourth quarter 2008 earnings press release issued on February 12, 2009 for further information regarding potential uncertainties and factors that could cause actual results to differ from anticipated results. Gardner Denver does not undertake or plan to update these forward-looking statements even though the company’s situation may change. Therefore you should not rely on these forward-looking statements as representing the company or its management views as any date subsequent to today.

As a reminder, this call is being broadcast in listen-only mode through a live webcast. The free webcast will be available for replay up to 90 days following the call through the Investor Relations page on Gardner Denver’s website, www.gardnerdenver.com or on Thompson’s StreetEvents site, www.earnings.com.

And now I’d like to turn the call back to Barry.

Barry L. Pennypacker

Thank you Helen. It’s amazing how dramatically demand has changed in the last four months. We all knew that there were economic headwinds facing us in 2009 when we spoke in October but few expected the end markets to deteriorate as quickly or dramatically as we’ve experienced in the last three months of 2008.

Certainly we had indications in October. I believe I characterized it as “a light switch being turned off around the world.” But we were optimistic that this dramatic drop in demand was temporary and that we would see some leveling or improvement in 2009. In November it became clear that further deterioration was being realized in our end markets and we became taking steps to scale our business as quickly as possible. If you recall, we implemented consolidation plans in the third quarter of 2008 with the announced closure of two manufacturing facilities in the U.S. which was completed on plan and budget in the fourth quarter of 2008.

We followed these actions in December with additional profit improvement initiatives to streamline our operations, reduce overhead costs, and rationalize the company’s manufacturing footprint. We reduced our global salaried workforce by 9%, implemented a hiring freeze, and put strict controls on discretionary spending. We also accelerated our CompAir integration plan and announced the planned closure of a manufacturing facility in the UK to leverage our operations. We also began to realize our purchasing synergies by consolidating some supply dates for air compressors with that of our legacy business. But I’ll address the status of the integration in a bit more detail in just a minute.

In addition to these actions we took a number of European locations to short work time schedules in late 2008 and early 2009. Although it is more difficult to permanently reduce the workforce in Europe, the temporary reductions are relatively cost effective. In addition, it allows us to keep our trained workforce fresh and available for when markets return.

You’ll also note that our outlook for 2009 includes further restructuring expenses of $33 million. This reflects consolidation of manufacturing operations in the U.S. and Europe. We believe these initiatives will be completed in 2009 and as we enter our 2010 manufacturing capacity will be appropriate and our investment in lean will continue generating benefits in terms of manufacturing velocity.

We believe that generally manufacturing consolidations in the U.S. generate a one-year payback and those in Europe generate a two-year payback. So these efforts are expected to improve profitability in 2010.

Let me give you an example of recently accomplished activity through our lean efforts. In our Sedalia, Missouri manufacturing plant, our largest in the U.S., we manufacture blowers and compressors. Recently we have heard from our customers that our lead time was too long.

Our Gardner Denver away team immediately performed a value stream mapping exercise, a tool that’s used to identify waste in any business process, and determined that the change-over time of two critical pieces of equipment were too long. A team of five employees, four hourly and one salaried, spent four days utilizing one of the tools in our toolbox called SMED, single minute exchange of [dies] to improve the process. They were able to achieve a 60% reduction in change- over time, a 35% reduction in work in process, enabled the start of product flowing in one piece flow and achieved a 15% floor space reduction.

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