CMCO

Columbus McKinnon Corporation (CMCO)

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Columbus McKinnon (CMCO)

Q2 2014 Earnings Call

October 24, 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

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

Jason Ursaner - CJS Securities, Inc.

Joseph Mondillo - Sidoti & Company, LLC

Peter Van Roden

Robert Franklin

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. I'll now like to go ahead and turn the call over to your host for today to Ms. Deborah Pulaski, [ph] Investor Relations for Columbus McKinnon. You may begin.

Unknown Executive

Thank you, Jose, and good morning, everyone. We certainly appreciate your time and interest today in Columbus McKinnon. On the call, we have Tim Tevens, President and CEO; and Greg Rustowicz, Vice President and CFO. Tim and Greg will review the results for the second quarter and 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, and if not, you can access that at the company's website, www.cmworks.com. Also on the website, in the Investor section, you will find the slides that will accompany the discussion that Tim and Greg will be discussing today.

If you turn, in the slide deck, to Slide #2, you'll find our Safe Harbor statement. As you are aware, we may make some of 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 was stated in today's call. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed by the company with Securities and Exchange Commission. The documents can be found on the company's website or at sec.gov.

So with that, let me turn it over to Tim to begin. Tim?

Timothy T. Tevens

Thanks, Deb. That was a refreshing change for me. I appreciate that. Let me bring you to Page 3, if I could. I'd like to remind you of our long-term objectives, which include growing to a $1 billion business with about 1/3 of our revenue in developing markets and 2/3, or so, in developed markets. Along with the $200 million to $300 million in acquisitions, a 12% to 14% operating margin and a strong working capital level and an overall balance sheet. We continue to focus resources and our energy in acquiring companies that strategically add market presence and product breadth to help us grow around the world to achieve these results.

Page 4 provides highlights of the second quarter of our fiscal '14 year. Our gross margins expanded nicely, up 300 basis points to 31.9%, and our operating profits being flat at 8.8%, driven by productivity gains and pricing. These profits are strong in spite of a soft revenue quarter as our revenue was down 5.2%, which was negatively affected by a divestiture in volume in certain portions of our business.

In emerging markets revenue continued to increase and our China sales were up nicely, 19% in the quarter, as it compared to the prior year same quarter. The U.S. revenue, excluding the divestiture, was down $4.4 million or 5.1%, but I want not make a notation here that we were up as compared to last year, if we exclude some large, heavy OEM crane business, which was a large decrease from last year, and last year was very positive, I might add.

Sales outside the U.S. were down 2.5%. The bulk of which was volume-related. Europe continues to be weak, but we'll be certainly beginning to see some increased signs in quoting and other business activity.

Our earnings per share for the quarter was $0.36 on a diluted share basis, up about $0.01 from last year's adjusted EPS. We have almost $112 million in cash on hand and our net debt to total cap ratio was 13.4%. Our global bookings in the quarter were down slightly, but up sequentially, from Q1. I might note to you that June and July were very poor bookings months this year, and it's nice to see some recovery as the quarter moved along.

We did have some bright spots in this past quarter, including general industrial distribution, our rigging business, Material Handling Specialists, and the entertainment industry. This was offset by the cranebuilder channel, some of the catalog houses, our government business and our own cranebuilders, which was down substantially. In the U.S., our hoist business is up and our rigging business, as a component business and crane business is down.

Page 5 summarizes some very interesting profitable growth activities. We launched a new ratchet lever hoist line in October. It's a great product, will certainly be more productive and safe for all of our end-user customers. We manufacture this in our Chinese facilities and we're currently expanding and localizing more of these products into China. These activities are all on-track for full completion by the end of our fiscal year '14. We do have an in-stock guarantee program that's off and running this past summer. This is in place to satisfy our customers' needs with standard products in 3-day shipments, or less, and we guarantee it. Our on-time delivery is at an all-time high of 95%, so far, in the United States. We're very pleased with our production capabilities now.

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