Q4 2012 Earnings Call
February 14, 2013 11:00 am ET
Deborah K. Pawlowski - Director
Richard L. Simons - Chairman, Chief Executive Officer and President
Edward J. Gaio - Chief Financial Officer and Vice President
Brian Gary Rafn - Morgan Dempsey Capital Management, LLC
Bruce C. Baughman - Franklin Advisory Services, LLC
John Eric Deysher - Bertolet Capital Trust - Pinnacle Value Fund
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Deborah K. Pawlowski
Thank you, Brenda, and good morning, everyone. We certainly appreciate your time today and your interest in Hardinge. On the call, I have Rick Simons, Chairman, President and CEO; and Ed Gaio, Vice President and CFO. Rick and Ed will provide a review of the results of the fourth quarter and full year 2012 and also give an update on the company's outlook and strategic progress.
You should have a copy of the financial results that were released this morning before the market opened and if not, you can access it at the company's website, www.hardinge.com. You will also find on our website, slides that accompany the discussion to which Rick and Ed will be referring. They're right there on the homepage next to the link for the webcast.
As you look at the slide deck then and turn to Slide 2, you will find our Safe Harbor statement. As you are aware, we may make some forward-looking statements during the formal discussion, as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ from what is stated in today's call. These risks and uncertainties and other factors are provided in the earnings release, as well as other documents filed by the company with Securities and Exchange Commission. These documents can be found on the company's website or at sec.gov.
So with that, let me turn it over to you, Rick.
Richard L. Simons
Thank you, Debbie. Good morning, everyone, and thank you for joining us today for our 2012 fourth quarter and full year financial review. This morning, we reported what we consider to be very good results for the fourth quarter, with over $90 million in revenue and significantly improved margins. We generated $18 million in cash from operations during the fourth quarter and as a result, we're able to increase our cash position by $5 million, even after the cash use in the acquisition of Usach in December. Once we've gone through the fourth quarter and full year results, I'll talk a little more about Usach.
Let me provide a brief overview of our top line results, and then Ed will provide more details on the financials for the quarter and at the end of the year. After that, I'll talk about our order rates and outlook for 2013.
Please turn to Slide 3 of the presentation. Sales were relatively comparable with the fourth quarter of 2011, although the mix was quite different. Strong sales in Europe offset the decline in the U.S., while Asia, quarter-over-quarter, was relatively flat. And despite the continued weakness in the European economy, European sales were up 32% or $8 million, driven by strong grinding machine tool sales, especially to Germany. Keep in mind, grinding machines can have a much longer lead time than our other products, sometimes as much as 12 months. So part of these sales are grinding machines reflect orders received during stronger periods over a year ago. For the full year, sales in Europe were up by $70 million or 15% and this too was primarily related to grinding machine sales of orders received in 2011 and the first half of 2012.
North American sales were down by $8 million or 24% in the quarter. This quarter was up against a tough comparison to the fourth quarter of 2011, which was unusually high at $32 million, while the average quarterly sales were -- in 2011 was $23 million. If you look across the year 2012, North America was relatively stable around $20 million, with the fourth quarter being the strongest as we met customers' year-end delivery requirements. For the full year 2012, North American sales decreased by $7 million or 7%, with our distributors managing their operations to a lower level of inventory on hand.
Sales to Asia in the quarter were down $1 million or 4% from the prior year period and for the full year, Asia sales were down $17 million or 12%. Quarterly sales throughout the year were around the $30 million to $35 million, but the full year decline in sales in that region was directly a result of the deceleration in growth China experienced throughout 2012.
This does appear to have stabilized as China had sequentially higher GDP growth during the fourth quarter. Although they always have shown positive GDP growth, the percentage of growth had declined every quarter since 2009. We believe these quarter after quarter declines in the growth rate put a damper on people's confidence in making machine tool purchases. This inflection point the fourth quarter increasing from 7.4% growth to 7.9% growth may be the beginning of a return to confidence and return to making capital expenditures. We believe the Chinese machine tool market is capable of moving from periods of stagnation to a rapid growth very quickly and with our recent footprint expansion there, we will be ready to capture a rapid surge in orders when it comes.