Cooper Industries, PLC Q1 2010 Earnings Call Transcript

Cooper Industries, PLC Q1 2010 Earnings Call Transcript
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Cooper Industries, PLC (CBE)

Q1 2010 Earnings Call

April 22, 2010 12:00 pm ET

Executives

Mark Doheny – Director of Investor Relations

Kirk S. Hachigian – Chairman of the Board, President & Chief Executive Officer

Terry A. Klebe – Chief Financial Officer & Senior Vice President

Analysts

Scott Davis – Morgan Stanley

Robert Cornell – Barclays Capital

Richard Kwas – Wells Fargo Securities, LLC.

Christopher Glynn – Oppenheimer & Co.

Jeff Sprague – Vertical Research Partners

Eli Lustgarten- Longbow Securities

Anthony Kure – Keybanc Capital Markets

Shawn Severson – ThinkEquity

Presentation

Operator

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Welcome to the first quarter 2010 Cooper Industries earnings conference call. At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your hose for today, Mark Doheny, Director of Investor Relations.

Mark Doheny

Welcome to the Cooper Industries first quarter 2010 earnings conference call. With me today is Kirk Hachigian, Chairman and Chief Executive Officer and Terry Klebe, Senior Vice President and Chief Financial Officer. We have posted a presentation on our website that we will refer to throughout this call. If you would like to view this presentation please go to the investors section of our website

www.CooperIndustries.com

.

As a reminder, comments made during this call may include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which are outside the control of the company and therefore actual results may differ materially from those anticipated by Cooper. A discussion of these factors may be found in the company’s annual report on Form 10K and other recent SEC filings.

In addition, comments made here may include non-GAAP financial measures. To the extent they have been anticipated, reconciliations of those measures to the most directly comparable GAAP measures are included in the press release and the web presentation. Now, let me turn the call over to Kirk.

Kirk S. Hachigian

We’re very pleased to report that our businesses are showing signs that the world is getting back to some level of normality. With half our businesses posting positive growth year-over-year in the first quarter. Our results demonstrate the quick and decisive actions we took over a year ago position us to have a solid 2009 and have given us the confidence to raise our guidance for the full year.

But, before we go in to the detailed results, due to our recent announcement regarding our EVP structure and the tools joint venture with Danaher we are changing our segment reporting structure. If you turn to page two of our web exhibits, as you know we’ve historically reported two segments, electrical and tools. Today, we’ll start reporting three segments. Our electrical segment will be divided in to two parts, energy and safety solutions which directly reports to me and comprises Cooper Power Systems, Cooper Crouse-Hinds and Cooper Safety. These businesses have a heavy utility and industrial focus with 50% of the sales outside the US.

The second electrical segment reports to Neil Schrimsher who was recently appointed to Executive Vice President and is called the electrical products group. This group is more focused on commercial and residential construction but will still have strong exposure to the industrial markets via Cooper Bussmann, Cooper B-Line and Cooper Wiring Devices Arrow Hart and Interconnect businesses.

Tools will continue to report as its own segment until we close our recently announced joint venture with Danaher and then it will be recorded as equity income. We realize that it will take some time for the investment community to get accustomed to these changes but we do feel they provide more transparency as we continue to build on our very strong global electrical franchise.

If you’d now turn to page three of the handout, I’ll make some specific comments regarding the first quarter results. Our revenue in the first quarter was down 2% to $1,230,000,000. Our core was down 5%. Electrical and safety solutions was down 6% with the core being down 9%. Electrical products group was down 2% with the core being down 4% and tools stepped up nicely up 16% with the core up 9% versus last year so a real nice recovery versus the difficult first half or full year they had in 2009.

Our order rates are improving. Our book-to-build was 107% for the quarter. All of the businesses were over 100% and it’s the best book-to-build we’ve had in over two years. we had a very strong operating margin in the first quarter at 13% and even up 20 basis points from the fourth quarter 2009 and up a very strong 450 basis points from the first quarter 2009. We had a strong start again on cash flow of $70 million. We expect to now have our 10

th

year where our cash flow will be greater than reoccurring income. So, a very strong performance and a very strong start to the new year.

Then lastly, with regard to the CFO selection process, we have a board shareholder meeting the first part of next week and so you should expect a public announcement for us right after the board meeting on Tuesday.

Turning to page four and market conditions, all beginning to feel a bit better. Our industrial markets are our biggest market at 39% of sales has had a strong rebound in manufacturing. Factory utilization was up to 73% in the quarter and the ISM at 59.6%, both indicating very strong industrial momentum at home and abroad. Commercial construction or 24% of our sales seems to have bottomed and we’re seeing activity in renovation, energy efficiency projects and overseas but the new domestic construction is still not expected to recover until 2011.

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