Enpro Industries (NPO)

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EnPro Industries, Inc. (NPO)

Q2 2010 Earnings Conference Call

August 5, 2010 10:00 AM ET

Executives

Don Washington – Director, IR

Steve Macadam – President and CEO

Bill Dries – SVP and CFO

Analysts

Todd Vencil – Davenport & Company

Joe Mondillo – Sidoti & Company

Gary Farber – CL King & Associates

Presentation

Operator

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries second quarter earnings release teleconference. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to your moderator, Mr. Don Washington.

Don Washington

Good morning, everyone and welcome to EnPro Industries quarterly earnings conference call. In just a moment, Steve Macadam, our President and CEO and Bill Dries, our Senior Vice President and CFO will review the quarter and then we’ll open the lines for questions.

As you probably are aware, there are slides accompanying our call on our website, which you can access through our home page.

Before Steve and Bill make their remarks, I’d like to remind you that you may hear statements during the course of this call that express the belief, expectation or intention as well as those that are not historical fact.

These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties are referenced in the Safe Harbor statement included in our press release and are described in more detail along with other risks and uncertainties in our filings with the SEC, including our Form 10-K for the year ended December 31, 2009 and our Form 10-Q for the quarter ended March 31, 2010.

We do not undertake to update any forward-looking statements made on this conference call or reflect any change in management’s expectations or any change in the assumptions or circumstances on which such statements are based.

In addition, EnPro owns a number of direct and indirect subsidiaries and from time-to-time we may refer collectively to EnPro and one or more of our subsidiaries as we; or to the business asset, debts, or affairs of EnPro or its subsidiary as ours. These in similar references are for convenience only and should not be construed to change the fact that EnPro and each subsidiary is an independent entity with separate management operations, obligations and affairs. The call is also being webcast on our website and a replay will also be available on our website.

As usual we’ll conclude the call with a question-and-answer session. If your questions aren’t answered on the call or if you have any follow-up questions, you can contact me at 704-731-1527 and now I’ll turn the call over to Steve.

Steve Macadam

Thanks Don and good morning to everyone and thanks for taking the time to dial in this morning. The second quarter of 2010 was a very positive period for EnPro. First, the process of permanently resolving all asbestos claims against Garlock Sealing Technologies got underway on June 5. The ultimate result will be the establishment and funding of a trust to resolve all current and future claims against GST.

When this is accomplished, we expect GST to emerge free of any liability for asbestos claims. Obviously, resolving these claims should have very positive implications for EnPro’s future and our perception in the financial markets.

In the meantime, the expenses and cash flows GST has historically incurred to defend and resolve asbestos litigation came to a stop on June 5. As of that date, all pending and future asbestos claims against GST can be only pursued only in the bankruptcy court.

We expect GST to incur a cost of administration in the case but those costs will be much, much lower than GST’s historical defense cost. In addition, the court has issued an order preventing asbestos claimants from proceeding against any other EnPro subsidiary.

In addition to the asbestos claims resolution process we got strong financial results to talk about. All of our operations recorded healthy increases in sales as our markets continue to recover from the 2009 recession.

Compared to a year ago, sales were up by 22% or about $45 million and this is even without including $12 million of third party sales that GST after it was deconsolidated, beginning June 5, 2010.

Our segment profit margins in the second quarter exceeded 15% for the second consecutive quarter and improved by more than 5 percentage points over the second quarter of last year even after last year is adjusted to eliminate the $5 million of restructuring charges that we incurred.

Our earnings for asbestos related expenses and other selected items almost doubled to $18 million or $0.87 a share and again this is after the deconsolidation of GST, which earned an additional $1.4 million between the filing date and the end of the quarter.

Just as we reported in the first quarter, the costs we took out of our business last year and our ongoing enterprise excellence initiatives were important contributors to the improvement in our profitability. These efforts combined with the volume increases from stronger markets lead to improve profits and margins across the board.

We believe the improvements we’ve seen in our markets will be sustained for the rest of the year and that our results will reflect these benefits.

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