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Columbus McKinnon (CMCO)
Q3 2014 Earnings Call
January 23, 2014 10:00 am ET
Timothy T. Tevens - Chief Executive Officer, President and Director
Gregory P. Rustowicz - Chief Financial Officer and Vice President of Finance
Jason Ursaner - CJS Securities, Inc.
Christopher Schon Williams - BB&T Capital Markets, Research Division
Joseph Mondillo - Sidoti & Company, LLC
Gary Farber - CL King & Associates, Inc., Research Division
John Butler Walthausen - Walthausen & Co., LLC
Peter Van Roden
Welcome and thank you, all, for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect.
I'd now like to turn the call over to Deb Pawlowski, Investor Relations for Columbus McKinnon. Thank you, you may now begin.
Previous Statements by CMCO
» Columbus McKinnon Management Discusses Q2 2014 Results - Earnings Call Transcript
» Columbus McKinnon Corp. (CMCO) Management Discusses Q1 2014 Results - Earnings Call Transcript
» Columbus McKinnon Management Discusses Q4 2013 Results - Earnings Call Transcript
As you are aware, we may make some 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 our earnings release, as well as with other documents filed by the company with the 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. Let me move you to Page 3, if I could, to remind you for our long-term objectives including growing to be a $1 billion business with about 1/3 of our revenue in developing markets and 2/3 in developed markets. Along with a $200 million to $300 million of acquisitions, 12% to 14% operating margins and a strong working capital level and overall strong balance sheet. We continue to focus our resources and energy on acquiring companies that strategically add market presence and product breadth and help us grow around the world to achieve these results.
Page 4 provides the highlights of our third quarter in fiscal '14. Our gross margins continue to expand up nicely 100 basis points to 29.6%, compared to last year's third quarter. Year-to-date, that margin is 30.9% despite a lower revenue amount. Our revenue in the quarter was negatively impacted by lower volumes and a large heavy OEM manufacturer, larger rail and road projects that did not repeat this year that occurred last year, offset by an Austrian acquisition that we made last quarter. Having said that, our average sales per day did improve sequentially. Operating income was negatively affected by a $1.4 million, atypical acquisition expense that was recognized in the quarter, and the income was negatively affected by lower volume as well. We generated $16.2 million in cash from operations and we have begun to see stronger order levels this past quarter.
Let me just touch on sequentially -- speaking about gross margins sequentially, there's one thing that I'd like you all to realize is first of all, our third quarter is a meaningful weaker quarter generally speaking. That quarter -- the third quarter activity is impacted by typically holidays and in fact, we shut down some of our facilities over this holiday time period. In fact, we shut down, for a couple of weeks, many of our facilities, especially in the United States. When we shut down, we actually were able to ship from inventory, but we're not able to absorb costs in the third quarter that cost -- the fixed cost that are resonant in our manufacturing operations and that's why the gross margin, although the highest we have seen in the last 10 years or so, this gross margin in the third quarter -- the highest third quarter gross margin we've seen in the last 10 years. It still is lower than the second quarter because of the number of operating days -- production days, that we're unable to absorb in the quarter.
Let me move you to Page -- let me see here, 5. We remain focused on profitable growth and making investments in our business to accomplish this goal. We continue to develop new and enhanced products like the one shown on Page 5, which adds spark resistant capabilities to one of -- a lot of our hoists. This is specifically for the oil & gas industry, as well we've added variable speed drives that are for many applications in many industries.
We are on track with our Chinese manufacturing facility expansion, which increases our manufacturing capabilities and adds about 40% more operating space to allow us to manufacture more products for sale into the Asia-Pacific market. We have implemented a new program this past summer, the in-stock guarantee program, which we've talked to you about in the past. This allows us to ship key items to our customers in 3 days or less. We continue to expand this program and now have over 221 SKUs, that's up 63% from our original launch. And we are seeing the highest level of on-time deliveries to our customers into the 95% area. This is a very high level of service and our channel partners really appreciate this.