CMCO

Columbus McKinnon Corporation (CMCO)

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Columbus McKinnon Corp. (CMCO)

Q1 2014 Earnings Call

July 26, 2013 10:00 am ET

Executives

Timothy T. Tevens - Chief Executive Officer, President and Director

Gregory P. Rustowicz - Chief Financial Officer and Vice President of Finance

Analysts

Jason Ursaner - CJS Securities, Inc.

Christopher Schon Williams - BB&T Capital Markets, Research Division

Joseph Mondillo - Sidoti & Company, LLC

Lance F. James - RBC Global Asset Management (U.S.) Inc.

Peter Van Roden

Gregory M. Macosko - Lord, Abbett & Co. LLC

Presentation

Operator

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. And now, I would like to introduce your host for today's call, Mr. Tim Tevens, President and CEO of Columbus McKinnon.

Timothy T. Tevens

Thank you, Evan. Good morning, everyone, and welcome to our conference call to review the results of our first quarter of fiscal 2014. With me here today is Greg Rustowicz, our VP of Finance and CFO.

Please note that we have included the summary slides for the quarter for your review. They can be found at our website at cmworks.com/investors. And hopefully, that'll be helpful to you in following this call today.

We do have a Safe Harbor statement on Page 2 of those slides, and we want to remind you that the press release accompanying the slides in this 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.

Let me get to Page 3 and remind you of our long-term objectives, which include growing to be $1 billion business with about 1/3 of our revenue in developing markets, and about 2/3 of our revenue in developed markets, along with the $200 million to $300 million acquisition target.

We'd like to operate in the 12% to 14% operating margin range and have a strong working capital level and a very strong overall balance sheet.

We continue to focus resources and energy on acquiring companies that add strategic position in our marketplace, our product breadth and help us grow around the world to achieve these results.

Page 4 provides the highlights of the first quarter, and let me just pause there and go through it with you just for a moment. Our gross margins expanded nicely, up 270 basis points to 31.3%, and our operating profits were up 130 basis points to 9.7%, driven by productivity gains and pricing.

Our revenue was down 9.2%. Now this was negatively affected by a divestiture, as well as some volume.

Emerging markets, revenue increased to 18.6% in the quarter, as compared to last year's same quarter, and now represents 10.4% of our overall sales.

The U.S. revenue, excluding the divestiture, was down $3.4 million or 3.8%, but up, compared to last year, if you exclude some large, heavy OEM crane business that we had last year that was very positive in last year's quarter.

Sales outside the U.S. were down 9.8%. The bulk of which was volume-related. And in Europe, it continues -- Europe continues to be weak, but we're beginning to see some positive signs in quoting and order activity in that part of the world.

We should also note that we made a small acquisition in Austria this past quarter. Now this has been a long-standing channel partner of ours and does allow us to extending our lifting system capability into this region, as well as other markets around the world.

The adjusted earnings per share was down $0.02 per diluted share, but we should also consider a large and unusual transaction that occurred in last year's quarter, which represented about $0.06 per share. This was a brokered crane that we sold in South Africa, and you may recall that we reported that last year.

At this point, we have $110.4 million of cash on our balance sheet. It's less than our fiscal '13 Q4 amount, and this lower amount of cash was driven by the acquisition in Austria that I just mentioned, as well as an increase in inventory in the quarter to support some large engineered orders we've recently booked.

Our global bookings in the quarter were down in the similar range to our revenues. We have seen some bright spots, industrial distribution, material handling specialists and the entertainment industry, are some of that we've noted. This was offset by the crane builder channel and the government channel that we sell into. Some special hoist that serves specific markets, such as oil & gas, also seem to be doing well.

Asia Pacific and Latin America, which are small in size for us today, continue to do very well and grow rapidly. This, of course, is driven by our strategic investments in these markets over the last several years.

Page 5 summarizes our first quarter revenues. Overall, the revenues were $138.9 million on a year-over-year comparable basis. Revenues were negatively impacted by that divestiture that we had last summer. And on volume, most of the lower volume is in Europe and from lower business activity in the heavy OEM market that we service with our crane business.

The revenue was down in the U.S. as well, the bulk of it coming from that divestiture, as well as less business in the heavy OEM marketplace that I just mentioned. And in Europe, the revenue was negatively impacted by lower economic activity in Western Europe. However, as I mentioned previously, we've begun to see some positive signs in quotations and order activity for large engineered projects.

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