Columbus McKinnon Corp. (CMCO)
F3Q09 Earnings Call
January 22, 2009; 10:00 am ET
Tim Tevens - President and Chief Executive Officer
Karen Howard - Vice President of Finance; Chief Financial Officer
Jason Ursaner - CJS Securities
Ted Kundtz - Needham & Company
James Bank - Sidoti & Company
Peter Lisnic - Robert W. Baird
Joe Giamichael - Rodman & Renshaw
Holden Lewis - BB&T Capital Markets
Previous Statements by CMCO
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I would now like to introduce Mr. Tim Tevens.
Thank you, Wendy. Good morning everyone and welcome to the Columbus McKinnon conference call to review the results of our fiscal 2009 third quarter. Earlier this morning we issued a press release with corresponding financials and hopefully you have that. With me here today in our headquarters is Karen Howard, our Vice President of Finance and Chief Financial Officer.
We do want to remind you that the press release and 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 make sure you understand these risks.
Our revenue outpaced the same quarter last year by $18.9 million, almost 13% up and was clearly positively affected by Pfaff in this quarter. About $26.8 million of revenue came from Pfaff, as well as increases in other European, Asian and Latin American markets. This increase was offset by currency translation and weaknesses in many U.S. markets.
Revenues outside the United States grew to 42% of our total revenue in the quarter. This is a continuation of the execution of our strategic plan to grow in geographies dispersed around the world. Clearly, we are beginning to see slowing in these global industrial markets, most notably in the United States.
The U.S. seems to be the first market to reveal a downturn, with Europe, Latin America and Asia still growing but at a less rapid pace. This is a reminder to you that U.S. industrial capacity utilization is an important figure for our company and in December it was 70% or down 900 basis points since January 2008. This is the lowest since 1982.
A little commentary about our channels of distribution: In industrial distribution, which is the bulk of our business, as well as large industrial distributors; you may know them as the large catalog houses, are down in the quarter mid to high single digits. With crane builders, another important channel for our company, up high single digits and material handling partners are up a low single digit; about 1% in fact.
The rigging channels which provide tools for heavy lifting to manufacture and construction markets, is down in the low double-digit area. We have an entertainment business; these are hoist that help people lift speakers and lighting systems in concerts and live theater, is up a considerable amount from last year, actually almost double. The good news is that our company today, as compared to the last several recessions, our revenue is much more geographically dispersed and very broad across the entire economy.
Europe continues to grow for us, with Germany being the only country to report a decline year-over-year; by the way, this was in the mid single digit area. We have now seen a year-on-year decline in industrial production in the Euro zone for the fourth quarter of calendar 2008 and obviously this is going to impact our business on a go-forward basis.
Reports from the ProMat show in Chicago were mixed. ProMat is the largest material handling show in North America. We observed lower activity level, but there seemed to be real interest from what I call real buyers, not just tired kickers. So we were impressed with the quality of the commentary coming from the show.
The integration of Pfaff and Columbus McKinnon is proceeding apace and we are on target to actually exceed our expectations. Our companies are working well together and executing the integration plan with over 40 dedicated associates on 12 different implementation teams.
We have now identified more synergies than originally planned and our outlook remains very positive for this acquisition to produce failure for our shareholders. In fact, Pfaff just received and fulfilled an order in the quarter from the Chinese government for a high speed lifting system. This was about EUR 4 million in revenue. The transaction was for lifting technology and they are now preparing to bid on the manufacturing of the system.
From an earnings perspective, there was a number of different items that occurred in the quarter which impacted our results. Pfaff clearly produced positive results for us in the quarter. From an operating perspective, we continued to see high prices of raw materials such as steel, which impacted us negatively in the quarter by about $0.05. These prices are now moderating in our fourth quarter and are in the process of returning to a more normal level.
We also had some onetime adjustments associated with the Pfaff acquisition which impacted negatively our EPS by $0.04 and we had a restructuring charge in the quarter of $0.03. As previously mentioned we are prepared for a downturn and have implemented some measure to offset our lower demand.
Our net income from continuing operations was negatively affected by a loss in our Columbus McKinnon captive insurance company, CMIC. These assets were negatively impacted as a result of a downturn in the market to the tune of $0.12 in the quarter and a currency translation loss of $0.06, associated with an inter-company loan for the Pfaff acquisition.