PKOH

Park-Ohio Holdings Corp. (PKOH)

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Park-Ohio Holdings Corp. (PKOH)

Q2 2013 Earnings Conference Call

August 9, 2013 10:00 am ET

Executives

Edward Crawford - Chairman, Chief Executive Officer

W. Scott Emerick - Chief Financial Officer, Vice President, Principal Financial and Accounting Officer

Matthew Crawford - President, Chief Operating Officer

Analysts

Ajay Kejriwal - FBR Capital Markets & Co.

Steve Barger – KeyBanc Capital Markets

Matt Vittorioso - Barclays

Jay Harris - Axiom Capital

John Baum – Park-Ohio Shareholder

Presentation

Operator

Good morning, and welcome to the Park-Ohio’s Second Quarter 2013 Results Conference Call. At this time all participants are in a listen-only mode. After the presentation the Company will conduct a question-and-answer session. Today’s conference is also being recorded. If you have any objections you may disconnect at this time.

I’d now like to turn the conference over to Mr. Edward Crawford, Chairman and CEO. Please proceed, Mr. Crawford.

Edward Crawford

Good morning, ladies and gentlemen, welcome to the Park-Ohio’s second quarter 2013 operating results conference. I’d like this time to turn over the call to the President and COO of the company, Matt Crawford.

Matt Crawford

Prior to doing that let’s have Scott cover some of the Safe Harbor stuff.

W. Scott Emerick

Thanks, Matt. Good morning everyone and thanks for joining us today. If you’ve not received a copy of our earnings press release you can find it on the Investor Relations section of our corporate website at www.pkoh.com.

I want to remind everybody that certain statements we make on today’s call both during opening remarks and during the question-and-session maybe forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties maybe found in the earnings press release as well as in the Company’s 2012 10-K filed with the SEC on March 15, 2013. The Company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Additionally, the Company may discuss EBITDA. EBITDA is not a measure of performance under Generally Accepted Accounting Principles. For a reconciliation of net income to EBITDA please refer to the Company’s recent earnings release.

This time I’ll turn the call back over to Matt.

Matt Crawford

Thanks Scott. Good morning everyone. Thanks for joining us today.

Overall, results came in just a little better than we report asking for the second quarter and consistent with our long-term performance expectations through normal business cycles.

As we mentioned in May, our internal forecast did not recognize any favorable catalyst in our current economic environment and as a result, we knew we would start slow in the first half of 2013. While some of the improvements in the economic climate have slowed to materialize we are still expecting a better second half of 2013 compared to the first.

Our revenues and earnings improved year-over-year, we are especially happy to see sequential improvement in the second quarter after a very sluggish first quarter.

Now let’s look at the second quarter 2013 performance compared to the prior year. Net sales increased slightly in the second quarter to $309.4 million compared to $308.8 million in the prior year. On a sequential basis, revenues increased 9% compared to the first quarter.

Our revenues are relatively flat year-over-year due to current economic sluggishness in some of our end markets, the increase on a sequential basis is primarily attributable to volume increases in supply technology segment and some lead component segment.

The gross profit margin percentage was 18.8% which is a 70 basis point improvement when compared to the 18.1% gross profit margin in the second quarter of last year. This improvement is largely due to a change in the sales mix between the two periods.

Consolidated SG&A expense increased 13% from $29.5 million in 2012 to $33.3 million in 2013. SG&A expense has a percent of net sales were 10.8% compared to 9.6% in 2012. The increase in SG&A expense is primarily attributable to the timing of certain self-insured employee medical expenses, increases in incentive comp expense and shared base compensation expense. While we have continued to invest in some growth resources, we continue to manage our discretionary spending very closely.

Operating income was $24.8 million which is 8% of net sales and exceeded the prior operating income of $13.4 million by 85%. As a reminder, in the second quarter of 2012, we settled the significantly no matter that was unique and unprecedented both in terms of the amount of the settlement and the fact and circumstances surrounding the claim for sum of $13 million.

Since our interest expense is $6.6 million was comparable between the two periods. Let’s look to taxes. Our effective tax rate for the second quarter of 2013 was 34.1%, this was comparable to the prior year effective tax rate of 35.3%.

Net income totaled $12 million and exceeded prior net income of $4.4 million by 173%. Diluted earnings per common share were $0.98 which exceeded the prior results of $0.37 by 165%. Again, the 2012 results were impacted by the settlement charge. On a sequential basis, diluted earnings per share were 15% greater than $0.85 per diluted share reported in the first quarter.

Now, let’s look at the second quarter results, excuse me, the segment results. First, our Supply Technologies performance; Supply technologies segment revenues represent approximately 40% of the consolidated revenues during the second quarter. Revenues decreased 6% to $124 million compared to 2012. While, we did see revenue growth in the agricultural and construction markets, which was up 8%, we saw most of our other market experience demand softness related to weaker economic demand fundamentals year-over-year.

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