Enpro Industries (NPO)

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EnPro Industries Inc. (NPO)

Q4 2008 Earnings Call

February 12, 2009 10:00 a.m. ET

Executives

Don Washington – Director, Investor Relations and Communications

William Dries – Chief Financial Officer and Sr. VP

Stephen Macadam – Chief Operating Officer

Richard L. Magee – Sr. VP, Sec. and Gen. Counsel

Analysts

Todd Vencil – Davenport & Company

Gary Farber – CL King

Joseph Mondillo – Sidoti & Company

Rob Young – Wm Smith & Co

Presentation

Operator

Good morning. My name is Kevin. I will be your conference operator today. At this time I would like to welcome everyone to the fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator's instructions) At this time I would like the call over to Mr. Don Washington. Mr. Washington, you may begin your conference.

Don Washington

Thank you, Kevin, and good morning, everyone. Welcome to EnPro Industry's quarterly earning conference call. This morning, Steve Macadam, our President and CEO, and Bill Dries, our Senior Vice President and CFO, will review the events of the fourth quarter and full year of 2008 and our financial results in those periods. They will also discuss the current condition of our markets and how that affects our expectations for 2009. Following their comments, we'll open the line for a question-and-answer session. In addition to Steve and Bill, Rick Magee, our general counsel, is also here to participate in that part of the call.

Before Steve and Bill make their remarks I'd like to remind you that you may hear statements during the course of this call that express the belief, expectation, or intention, as well as those that are not historical fact. These statements are forward looking and involve a number of risk and uncertainties that may cause actual events and results to differ materially from such forward looking statements. These risk and uncertainties are referenced in the safe harbor statement included in our press release and are described in more detail along with other risk and uncertainties in our filings with the SEC including the Form 10-K for the year ended December 31st, 2007, and the form 10-Q for the third quarter of 2008.

We do not undertake to update any forward looking statements made on this conference call that reflect any change in management's expectations, or any change in assumptions or circumstances of which those statements are based. This call is also being webcast on enproindustries.com and the call will be available on the website. If your questions are not answered on the call or if you have any follow-up questions, contact me after the call at 704-731-1527. And now I will turn the call over to Steve.

Stephen Macadam

Thank you, Don, and good morning, everyone. Thanks for joining us today. When we look back at 2008 and look forward to 2009, it's clear we're at a very significant juncture. For 2008 we reported record results, made a number of important accomplishments to improve our company and support our growth. But clearly in 2009 we're dealing with demand contractions in a broad segment of our markets. We expect these conditions will result in declining sales and incoming 2009.

Nevertheless, we enter the year on sound footing because of the operational improvements we've achieved over the past several years, and the current strength of our balance sheet. These factors allow us to remain focused on our long-term goals of achieving operational excellence and significant growth while exercising judicious cash management.

At the same time we're taking aggressive steps to effectively deal with the current economic environment. I'll have more to say about those steps later in the call, after Bill has given you a review of the fourth quarter, and before we open the line for your questions.

But before I turn the call over to Bill, I'll make a quick review of our results in 2008. It was our sixth consecutive year of improvement in sales and segment earnings. We got off to a very strong start in 2008 and despite sharp deceleration in demand during the fourth quarter, we recorded record results for the year.

Our sales were up 13% over 2007, organic growth was 5%. Even though our heavy-duty truck and automotive markets were under pressure throughout the year and a number of our industrial weakened sharply late in the year.

The declines in these markets were more than balanced by strong oil and gas markets, steady demand from our power generation markets, and growth in our engine business. Acquisitions contributed growth of 6%. The primary contributors were the Compressor Products International operations acquired in the third quarter of 2007, and both Kaiser engineering and Air Perfection, which we acquired in the first half of 2008.

Favorable foreign exchange rates contributed growth of about 2%. Gross margins for the year were just under 35% and almost the same as in 2007, which I think is notable given the weakening markets we encountered in the last few months of the year.

On a GAAP basis, we recorded a 33% improvement in net income and a 41% improvement in earnings per share. GAAP EPS improved to $2.54 from $1.80. About $0.11 of that improvement was a result of the share repurchases during 2008. After adjusting our results for asbestos related expenses and other selected items, income improved about 8%. On an adjusted basis, earnings per share were up 14% to $4.29 from $3.75 a share. The lower share count contributed about 22% of that improvement.

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