CMCO

Columbus McKinnon Corporation (CMCO)

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Columbus McKinnon (CMCO)

Q4 2013 Earnings Call

May 23, 2013 10:00 am ET

Executives

Timothy T. Tevens - Chief Executive Officer, President and Director

Gregory P. Rustowicz - Chief Financial Officer and Vice President of Finance

Analysts

Aaron M. Reeves - BB&T Capital Markets, Research Division

Jason Ursaner - CJS Securities, Inc.

James Bank - Sidoti & Company, LLC

Joseph Mondillo - Sidoti & Company, LLC

Presentation

Operator

Welcome, and thank you, all, for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I'll turn the meeting over to your host, Mr. Tim Tevens. Sir, you may begin.

Timothy T. Tevens

Thank you, Marilyn. And welcome, everyone to the Columbus McKinnon Conference Call to review the results of our fourth quarter and full fiscal year 2013. With me here today is Greg Rustowicz, our VP of Finance and CFO. Please note that we have included some summary slides for the quarter and for the year for your review, and they can be found at our website, cmworks.com/investors. Hopefully, this will help you follow our earnings call comments. We do want to remind you that this -- that the press release and the accompanying slides in this conference call may contain some forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. These statements contain known and unknown risks and other factors that could cause the actual results to vary. You should, in fact, read the periodic reports that the Columbus McKinnon files with the SEC to be sure you understand the risks.

So if you have the slides in front of you, I'm going to start actually on Page 3, and remind you of our long term objectives, including to grow to a $1 billion business with about 1/3 of our revenue in developing markets and 2/3 in developed markets. This, along with the $200 million to $300 million or so in acquisitions, and we expect to be in the 12% to 14% operating margin range, with a strong working capital level and an overall balance sheet.

We continue to focus resources and energy on acquiring companies that strategically add market presence and product breadth to help us grow around the world and achieve these results.

Page 4 provides some highlights of the fourth quarter . As you can see on this slide, our revenue was down 9.4%. This was negatively affected by 2 major things. Number one is, the divestiture that we did last summer, that's about 4.6%. We actually had 3 fewer shipping days in this quarter compared to last year, that was about 3.5%, and volume was down 2.8%, and most of that being from Europe. The U.S. revenue actually excluding the divestiture in these 3 fewer shipping days was up. Sales outside the U.S. were down 14.1%, the bulk of this was volume-related, about $7.6 million out of a $9.7 million shrink, and up $3.2 million with fewer shipping days.

Europe continues to be weak at this point in time, but our emerging growth does continue to be strong albeit from a smaller base. Our global bookings were down about 5% to 6% compared to a very strong prior year fourth quarter. Some bright spots that we looked at in the quarter were material handling specialists and the entertainment industry. We have found that special hoists that serves specific markets such as oil and gas and entertainment seem to be going quite well. Europe seems to have bottomed in the fall early winter of last year, and now we're just beginning to see some positive trends in their order rates. Asia Pacific and Latin America are small and certainly continue to grow rapidly, and this, of course, is driven by strategic investments in those markets as opposed to economic, just general economic activity.

Our margins expanded nicely in the quarter, gross margins improved 290 basis points over last year, up to 30.6% and our operating margins improved to 10%, up 150 basis points. Overall the operating leverage in the quarter was very strong, for the year, was very strong at 73.5%. Of course, our lowest sales growth given the divestiture, as well as some very good productivity in cost control, drove this very large leverage.

EPS of $2.64 for the quarter is up from $0.46 last year, of course there's just some weird things going on in the quarter that affect that. We did reverse the deferred tax asset valuation allowance in the quarter, Greg will touch on that in a little bit more detail in a moment. If you exclude that reversal and normalizing the business to a 38% tax rate, our EPS would have been $0.37 in this quarter, and that compares to $0.30 in the last year's fourth quarter.

We also generated some pretty good cash flow from operations at $16.1 million for the quarter and $42.4 million for the year.

Page 5 summarizes full year fiscal '13. And overall, our revenues were up modestly arguably flat. This was negatively impacted by that divestiture that I mentioned and foreign currency translation. Emerging markets grew nicely at 13%, excluding the effects of currency. Our margins were very strong. Gross margins improved to 29.2% or up 260 basis points from the prior year. Operating margin improved to 9.1%, up 150 basis points as compared to the prior year. And as I mentioned earlier, our operating leverage was 173.5% for the whole year.

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