Bucyrus International, Inc. (BUCY)
Q1 2010 Earnings Call Transcript
April 23, 2010 9:00 am ET
Shelley Hickman – Director, Global Communications
Tim Sullivan – President and CEO
Craig Mackus – CFO and Secretary
Seth Weber – RBC Capital Markets
Barry Bannister – Stifel Nicolaus
Robert Wertheimer – Morgan Stanley
Andy Kaplowitz – Barclays Capital
Ann Duignan – JP Morgan
Paul Bodnar – Longbow Research
Tom Brinkmann – BMO Capital Markets
Joe Mondillo – Sidoti & Company
Jason Ho [ph] – Blair Advisors
Chris Weltzer – Robert W. Baird
Schon Williams – BB&T Capital Markets
Jerry Revich – Goldman Sachs
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Good day, ladies and gentlemen, and welcome to the first quarter 2010 Bucyrus International Incorporated earnings conference call. My name is Regina and I will be your operator today. At this time, all participants are in a listen-only mode. Later we will be conducting a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Shelley Hickman, Director of Global Communications. Ms. Hickman, you may proceed.
Thank you, Regina. Good morning and thank you for joining us for Bucyrus International Incorporated first quarter 2010 earnings release teleconference. In a few moments I’ll turn the teleconference over to Mr. Tim Sullivan, President and Chief Executive Officer of Bucyrus, and Mr. Craig Mackus, Bucyrus’s Chief Financial Officer.
As we begin, I want to remind you that Bucyrus desires to apply the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain statements in this conference call are subject to factors that could cause actual results to differ from those expressed or implied by those statements.
For a further description I refer you to our filings with the SEC. Any forward-looking statements speak only as of today and there is no obligation to update these statements to reflect future events or circumstances.
Now I will turn the conference over to Tim.
Good morning, everyone, and thank you for joining us for our quarter-one 2010 call. I’m going to turn the call over to Craig to give you a highlight and summary of our financials for the first quarter. I’ll talk about some market information and then we will open up to Q&A. So Craig, if you would?
Thank you, Tim. Before we begin, I’d like to advise everyone that our financial results for the first quarter of 2010 includes the net assets and results of operations of Terex since February 19, the date of acquisition, as well as a preliminary purchase accounting adjustments and acquisition cost incurred related to the Terex acquisition. As a result, our financial results for the first quarter of 2010 are not necessarily compared to the results of the first quarter of 2009 or as of December 31, 2009 and may not be indicative of future results.
Sales for the first quarter of 2010, which include $92 million for Terex, were $608 million, an increase of $2 million compared to the first quarter of 2009. Original Equipment sales, which include $35 million for Terex, declined by $60 million or 18%, primarily due to a decrease in electric mining shovel sales and higher longwall system sales to the Czech Republic in 2009. The lower original equipment sales in 2010 was a result of the lower amount of new orders in 2009 compared with 2008.
Aftermarket parts and service sales, which include $57 million for Terex, increased by $62 million or 22%. Gross margin was 30% for the quarter of 2010 after adjusting for amortization of Terex purchase accounting adjustments compared to 28% for the first quarter of 2009. The first quarter of 2010 reflects lower gross margins in the Terex business compared with historical Bucyrus, and manufacturing absorption losses due to reduced activity.
This was offset by improved original equipment gross margins in part due to bringing subcontract work back into our manufacturing facilities. There is $33 million remaining inventory purchase accounting adjustment, $16 million will be expensed in each of the second and third quarters, with the remaining $1 million being expensed in the fourth quarter.
Operating earnings for the first quarter of 2010, which include Terex earnings of $8 million before amortization of purchase accounting adjustments, were $66 million, a decrease of $29 million compared to the first quarter of 2009. This decrease includes $14 million of amortization of purchase accounting adjustments, $11 million of expense acquisition cost related to the Terex acquisition, and the $2 million loss for the sale of assets.
Lower underground mining sales in the first quarter of 2010 negatively impacted operating earnings compared to the first quarter of 2009. Interest expense was $11 million for the first quarter of 2010 compared to $7 million for the first quarter of 2009. This increase reflects a new $1 billion secured term loan, which was used to purchase Terex.
The effective tax rate for the first quarter of 2010 was 35.6% compared to 32.5% for the first quarter of 2009. The higher rate in 2010 was primarily due to non-deductible acquisition cost related to the Terex acquisition. The effective tax rate for all of 2010 is expected to approximate 32%.
Net earnings for the first quarter of 2010 were $35 million, a decrease of $22 million from the first quarter of 2009. Fully diluted earnings per share for the first quarter of 2010 were $0.45 per share compared to $0.76 per share for the first quarter of 2009. We provide our earnings bridge in the press release to quantify the effect of Terex. Amortization of purchase accounting adjustments are expected to approximate $25 million, $17 million after-tax, in the second quarter; $23 million, $16 million after-tax in the third quarter; and $7 million, $5 million after-tax for subsequent quarters.