Columbus McKinnon Corporation (CMCO)

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Columbus McKinnon Corp. (CMCO)

F4Q08 (Qtr End 03/31/08) Conference Call

May 22, 2008 10:00 am ET


Timothy Tevens - President and CEO

Karen Howard - VP of Finance, CFO and Treasurer

Derwin Gilbreath - COO


Amit Daryanani - RBC Capital Markets

John Haushalter - Robert W. Baird

Holden Lewis - BB&T

Ted Kundtz - Needham

Joe Giamichael - Rodman & Renshaw

James Bank - Sidoti & Company

Dori Konig - Lehman Brothers

Russ Steifer - Raymond James



Good morning and welcome to Columbus McKinnon financial year 2008 fourth quarter earnings conference call. (Operator Instructions).

I will now turn the meeting over to Mr. Timothy Tevens, President and CEO. Sir, you may begin.

Timothy Tevens

Thank you, Brenda. Good morning and welcome to the Columbus McKinnon conference call to review the results of our fourth quarter and full fiscal year of '08 results. Earlier this morning, we did issue a press release with some financials, and hopefully you have them with you. With me here today is Karen Howard, our Chief Financial Officer, Derwin Gilbreath, our Chief Operating Officer, and Joe Owen, our Vice President of our Hoist Group.

We do want to remind you that the press release and the 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 we file with the SEC to be sure you understand these risks.

The base business of Columbus McKinnon performed very well over the past quarter and for the full fiscal year, which was offset by the poor results of Univeyor. As we previously reported, we are in the process of divesting this asset. A better view of the quarter and the full fiscal year is to remove Univeyor from Columbus McKinnon and review the remaining business.

Less the Univeyor business and some tax benefits that happened in the quarter, you will clearly see that we produced about $0.74 of earnings per share in the quarter and $2.38 for the year or well above the actual reported earnings. In addition, even with Univeyor included, we generated almost $60 million in cash from operations for the year or $3.11 per diluted share. I will update you in a moment on our divestiture process.

Overall, our revenue for the fourth quarter was $168.6 million and exceeded the same quarter last year by 7.5%, with our Products segment up 6.6% and the Solutions segment up 16.8%. Fiscal year '07 revenue did include Larco, a Canadian crane builder business we divested in March of '07. Sales outside the United States grew to $60.6 million in the quarter or 16% over the same quarter last year. For the quarter, our international revenue represented 36% of our total revenue.

Contrary to what we read about the state of the global economy, we continue to experience a strong demand for our products. Gross profit was up 7.3% and income from operations decreased almost 26%, driven by the poor results at Univeyor and some additional investments we made this past quarter in new markets. Operating leverage was negative in the quarter, but up 8% for the year. If you adjust for Univeyor, the operating leverage would have been around 37% for the year and 21% for the quarter, which is clearly within our target range of 20% to 30% operating leverage for the company.

Revenue for the Products segment in the fourth quarter was up 6.6% compared to the same quarter last year and up 8.5% compared to the fiscal '08 third quarter. The increase over the same quarter last year is primarily driven from additional volume as a result of increased demand from end users, as well as some currency translation of price increase and offset by that Larco divestiture I mentioned and one fewer shipping day.

International sales in the Products segment were up 11% over last year, about 5.5% excluding currency and Larco. This is driven by a very strong PAN European and Latin American economies, and from those investments that we've made in products and markets over the last several years. Products segment gross profit was up 8.4% over the same quarter last year and the gross margin continue to be strong at 31.4%.

Operating income was down 2% in the quarter given the timing of investments in the quarter. As you may recall, these investments we are making in new geographic markets as well as increased advertising and personnel to address certain key markets here in North America. On a go-forward basis, we do expect our selling expenses to range between 11% and 12%. The operating margin was 13.8% and lower than normal because of the timing in investments in the market. At this point, we continue to be buoyed by the activity we see in the various distribution channels and at the end user level.

While we have nothing definitive to report as of yet, we are very active in searching for and having discussions with companies that represent potential acquisitions for us. Most of them fit our strategic alternatives very nicely and we will report back to you at the appropriate time.

Bookings in the Products segment continue to be strong in the quarter, and overall, we're up once again in the mid-single digit area over the same quarter last year. Backlog was up slightly compared to the third quarter. As you may recall, the cycle time on most of the items in our Products segment is a day or weeks, therefore, the backlog number represents about a month worth a shipments or so.

Solutions segment sales were up 17% from the same quarter last year and up about 10% from last quarter. This was primarily driven by some very large orders at our tire shredder division.

You now know we had some surprise negative adjustments at Univeyor this past quarter which had a negative impact on the quarter and annual results to the tune of about $0.40 in earnings per share for the quarter and $0.53 earnings per share for the full fiscal year. Most of these adjustments were for write-offs of development cost, some accounts receivable write-offs, and higher cost in projects in process.

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