AIMC

Altra Industrial Motion Corp. (AIMC)

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Altra Holdings, Inc. (AIMC)

Q4 2008 Earnings Call Transcript

March 5, 2009 11:00 am ET

Executives

Carl Christenson – President and CEO

Christian Storch – VP and CFO

Analysts

Steve Sanders – Stephens Inc

Jeff Hammond – KeyBanc Capital Markets

Mike Schneider – Robert W Baird & Company

Eileen Gamble [ph] – Post Advisory Group

Torin Eastburn – CJS Securities

Jordan Hollander – Jefferies & Company

Presentation

Operator

Good day and welcome to the Altra Holdings Q4 2008 and full year results conference call. (Operator instructions) please note this call is being recorded. I would now like to turn the program over to Carl Christenson, please go ahead sir.

Carl Christenson

Thank you, Tasha. Good afternoon, and welcome to our conference call to discuss Altra's fourth quarter and full year 2008 financial results. Joining me today will be Christian Storch, our CFO. To help you follow our discussion, we have posted slides on our Web site that we will be referencing during the call. Hopefully you would have already have had a chance to access them, but in case you have not I will walk you through the steps. Please go to our Web site www.altramotion.com, click on the Investor Relations on the upper right hand corner, click on Events and Presentations on the left hand side of the screen, and then click on fourth quarter 2008 results then you will see our slides. Please go to page one, and I will pause for a moment to give you time to read the Safe Harbor statement, which covers any forward-looking statements that may be occur during this call. If you are not looking at the presentation, you may refer to our forward-looking statements in our press release or the documents we filed with the SEC.

I will make some opening comments and give you our view of Altra's current business environment; Christian will then review our fourth quarter and full year 2008 financial results in detail. We will also discuss the actions we are taking in response to the slowing of global demand which started to impact our business in the fourth quarter and then we will go to Q&A.

Please go to slide 2. 2008 was a record year for Altra and we are very proud of everything our associates accomplished. We delivered record sales of $635.3 million and record recurring earnings of $1.45 per share. Recurring operating income improved by 22%. We reduced our debt by more than $30 million. We generated over $86 million of revenue from new products, developed $94 million of new business and expanded our presence geographically. In addition we made substantial improvement in the business through the integration of the acquisitions we made in prior years and realized significant productivity improvements as a result of our continued implementation of ABS lean improvements.

While net sales for the full year increased 8.7%, we experienced a significant slowdown in the fourth quarter and net sales for the fourth quarter of 2008 decreased 4% to $144.8 million from $150.9 million in the fourth quarter of 2007. Approximately 380 basis points of the sales decline in the fourth quarter were due to FX partially offset by 360 basis points attributed to price increases. Therefore on a volume basis, sales were essentially flat. We were up significantly in the first part of the quarter but a steep decline in incoming orders resulted in lower shipments in the latter part of the quarter particularly in the last two weeks of December. The volume decline was led by our custom engineered bearings business where we were essentially shut down during the end of December and early January. In addition orders from our industrial distributors were particularly weak and have remained so as a result of lower demand and inventory adjustments that they are making. In spite of the declines we experienced in the latter part of the quarter, we were still able to deliver recurring operating income of $18.2 million or 12.6% of sales, an increase of 22% compared with the fourth quarter of 2007. Recurring EPS increased 54.5% from $0.22 to $0.34.

Now please go to page 3. Now all of our businesses were negatively affected in the fourth quarter. The diversity of our end markets is helping to mitigate the rapid decline and while the vast majority of our end markets are restrained to significant downturn there are few exceptions. We are still experiencing relatively healthy incoming orders for products used in power generation, military and coal mining applications. From a shipments standpoint, our businesses that served the mining and energy markets typically had longer lead times and more significant backlogs which has resulted in the decline in shipments providing the order decline. Our shorter lead time and early cycle businesses were impacted by the decline immediately and our management team reacted swiftly and aggressively to mitigate the situation. Sales and orders in all of our geographic regions have been affected however the decline in North America and Europe has been much greater than the decline in Asia. It appears that the incoming order rate has leveled off albeit at a disappointingly low rate, we believe that there are two primary factors contributing to the depressed business levels. First, our distributors and to a lesser extent our OEM customers are continuing their inventory reduction. Secondly, the end market demand is extremely low as a result of the financial crisis which led to a lack of available credit, reduced confidence and added great uncertainty about the future. More importantly, we see no catalyst that is going to reverse this trend in the short term and the leading indicator indicates that this downturn could last for an extended period of time. Therefore, we continue to aggressively implement our downturn actions so that we can maximize our profitability and cash generation through this part of the cycle.

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