Columbus McKinnon Corporation
Q1 2013 Earnings Call Transcript

Published: 8 May 2013

[Operator:]

Good morning, and welcome to the Magnetek First Quarter Fiscal Year 2013 Earnings Call. My name is Brandon, and I'll be the operator for today's call. [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Lynn Bostrom, Director of Communications. Lynn, you may begin.

[Lynn Bostrom:]

Good morning. Thank you for joining us today. I trust everyone has received Magnetek's first quarter fiscal year 2013 results. This information is available under Financial News in the Investor Relations section of our website at magnetek.com. As the operator said, this conference call is being recorded today, May 8, 2013, and is being webcast live on Magnetek's website. Throughout the call, we'll refer to slides, which are available on our website as well. Listeners are encouraged to view these materials in conjunction with the call. The webcast will be available for replay on our website following the call for at least 3 months or as long as the content remains timely. As stated on Slide 2, statements made during this conference call are intended to come within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and may be forward-looking and subject to risks. Factors that could cause actual events to differ materially from these statements are discussed in the company's press releases and periodic filings with the SEC, including our Form 10-K. Magnetek's President and Chief Executive Officer, Peter McCormick; and our Vice President and Chief Financial Officer, Marty Schwenner, will be speaking today. Mr. McCormick will provide the opening remarks.

[Peter M. McCormick:]

Thanks, Lynn, and good morning. As we indicated in our release last quarter, we did see some softening in our business in our 2013 first fiscal quarter. While our revenue was lower year-over-year, the majority of the decline was due to decreased sales of wind power inverters and products for mining applications. Last quarter, we announced our decision to no longer pursue sales opportunities in renewable energy and to focus our efforts on our core served industries. So accordingly, sales declined year-over-year in that part of our business. Near term, business conditions are also proving to be mixed. The economy is growing at a slower rate, and manufacturing activity appears to be moderating. We are seeing this reflected in the demand for our material handling products, which were sequentially a bit lower in our first quarter. While quote levels remain high near term, we have not yet booked as many large scale projects as we typically do. Our wireless radio controls, however, are proving to be a growth engine for us. This is an area in which we continue to invest. Our elevator business was also stable during the quarter, and combined with the strength of our radio controls, helped partially offset the conditions in mining and material handling. We responded to the challenges in these parts of our business with a focus on controlling our discretionary costs. Despite lower sales, our continuing operations remain profitable in our first fiscal quarter and we achieved EBITDA of more than 10% of sales. We do anticipate some improvement in our results going forward. Mid to long term, we continue to believe we have opportunities to significantly enhance shareholder value. I'll talk more about that after Marty provides the details on the quarter.

[Marty J. Schwenner:]

Thanks, Pete, and good morning. I'd like to cover our first quarter results, our second quarter outlook, and then finish today with a brief pension update, focusing on developments over the past couple of months. As we anticipated, our sales and profits were down in the first quarter of fiscal quarter 2013, both sequentially and year-over-year. Our sales by major market are provided on the slide titled Q1 Results of Continuing Operations. As you can see, the year-over-year decline in sales was due to renewable energy and mining, while the sequential decline from the fourth quarter of fiscal 2012 relates mainly to lower material handling sales. We attribute part of this to seasonality and customer spending pattern, part due to moderating manufacturing activity and part due to the lack of major projects that Pete alluded to. First quarter gross margins were a bit disappointing to us. However, we adjusted our manufacturing costs as the quarter progressed. And by the end of the quarter, we had our cost structure more in line with current volume expectations. This, together with the year-over-year sales declines in renewable energy and mining, resulted in a reduction in first quarter operating income of about $1.6 million as compared to last year. Conditions in our mining markets were challenging throughout the quarter and will likely remain soft for the next few quarters. Despite these issues, our continuing operations remained firmly profitable, with diluted earnings per share of $0.16, while first quarter adjusted EBITDA was $2.7 million or nearly 11% of sales. Given the sales decline, we would've expected our working capital to decline accordingly. However, that did not happen, mainly due to an increase in our inventory during the quarter. Several factors contributed to the higher inventory balances including

[Peter M. McCormick:]

Thanks, Marty. So as both Marty and I indicated, business conditions in our served markets remain mixed, although we do anticipate a moderate improvement in our second quarter and our second half. Our focus will continue to be on building our business in our core served industries, as well as increasing adoption of our existing technologies in new markets. I mentioned the growth potential of wireless radio control for us. This is an area in which we intend to focus our investments in new product and feature development and expand our international customer base. To that end, we recently formed partnerships to develop our channels in China and the European Union. We also continue to work toward increasing adoption of our radio controls in applications such as mobile hydraulic, which expand our customer base beyond our traditional crane and hoist. In our elevator business, our focus is on expanding our AC controls line to take advantage of the shift in this market from DC to AC controls. Finally, we are working toward broadening the application of our mining controls into hard rock and surface mining applications. If we pursue our strategies while managing our cost and effectively managing our assets, we believe we can meet our stated goal of gross margins in excess of 30% and operating profit margins of 10% or more. Magnetek has strong fundamentals and significant competitive advantages. Although our pension contributions over the next 3 years are significant, we have cash on hand and have consistently been successful at growing our business and generating cash. Assuming we meet our sales and profitability objectives as we reduce our pension liability, we expect our shareholder value to increase. Thank you for your attention. And now we'd be glad to take your questions.

[Operator:]

[Operator Instructions] And we have no questions at this time. I will now turn it back over to Lynn Bostrom for closing remarks.

[Lynn Bostrom:]

Thank you for your participation, and we look forward to you joining us on the next call.

[Operator:]

And this concludes today's conference. Thank you for joining. You may now disconnect.