SPX Corporation (SPW)
Q1 2010 Earnings Call
May 5, 2010 8:30 am ET
Ryan Taylor - Director, Investor Relations
Chris Kearney - Chairman, President & CEO
Patrick O'Leary - EVP & CFO
Nigel Coe - Deutsche Bank
Bob Cornell – Barclays Capital
John Inch - Merrill Lynch
Steve Tusa - JPMorgan
Jeff Sprague - Vertical Research
Scott Davis – Morgan Stanley
Previous Statements by SPW
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Welcome to the SPX Corporation first quarter 2010 results conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Ryan Taylor, Director of Investor Relations. Please go ahead, sir.
Thank you, and good morning, everyone. Thank you for joining us. With me on the call this morning are Chris Kearney, Chairman, President and CEO of SPX and Patrick O'Leary, our Chief Financial Officer.
This morning's call is being webcast with a slide presentation which can be accessed in the Investor Relations section of our website at spx.com. This webcast will be available until May 19, and I encourage you to view the webcast as we reference the detailed information on the slides. Please note that the slide presentation also includes supplemental schedules which will provide reconciliations for all non-GAAP financial measures we discuss today. Our earnings press release was issued this morning and can also be found on our website.
Before we continue, I would like to point out that portions of our presentation and our comments are forward-looking and are subject to Safe Harbor provisions. The updated 2010 guidance and targets we discuss today are on a GAAP basis from continuing operations. Please also note the risk factors in our most recent SEC filings.
With that, I will turn the call over to Chris.
Thanks, Ryan, and good morning, everyone. Thanks for joining us on the call. In the first quarter we saw positive signs that the recovery of the global economy is underway. To provide you with some context for what this means to SPX I will begin this morning with an overview of what we experienced during the quarter in our key end markets.
We continue to see various stages of improved performance in our businesses that serve early cycle markets. Broadly speaking, orders in our General Industrial businesses increased globally quarter-to-quarter. In the U.S. the recovery of the auto industry is beginning to have a positive impact on our Test and Measurement segment. Our run rate in the U.S. after market increased sequentially and year-over-year in Q1.
We are also seeing signs of improvement in orders for replacement tools at OEM dealerships. We have made good progress so far this year with the OEMs in Asia. To date in 2010 we have won awards for new OEM diagnostic platforms with Suzuki, Geely and Cherry. Additionally in our Flow segment component orders for the food and beverage market increased quarter-to-quarter driven by distributor restocking and customer driven maintenance and repairs. As you may recall, however, about 2/3 of our business is mid to late cycle and about 40% of our annual revenue is from sales into the power and energy markets. These markets continue to be impacted by the recession.
Our backlog reflects these trends. At the end of Q1 our backlog was $2.9 billion, down 6% from year-end as declines in late cycle power orders offset increased orders in our early cycle businesses. Looking at the backlog by segment Thermal backlog declined 8% organically as industry orders for power generation equipment declined globally in Q1. As we have noted in the past, quarterly changes in our Thermal backlog are highly influenced by the timing of large orders. We view the decline in our Thermal backlog as a reflection of contract award timing particularly in emerging markets as well as continued restrained spending by U.S. and European utilities.
Fundamentally the demand for power infrastructure remains strong and should increase as economic recovery continues. In the second quarter we have already been awarded a large dry cooling contract for a new gas fired power plant in South America. This contract is not reflected in Q1 backlog.
In our Flow segment the backlog increased 7% from year-end to $620 million. Sequentially orders for food and beverage components increased by double digits. In the Oil and Gas sector we saw a slight quarter-to-quarter increase in spending driven primarily by maintenance and replacement parts. Large system orders for food and beverage processing continue to be deferred in Europe and in the United States. However, in Asia Pacific we saw a nice pickup in system orders during Q1.
Power and energy orders in Asia Pacific were also strong for our Flow segment. This was highlighted by a $5 million order for dehydration equipment to be installed in a new LNG plant in Australia. Our Industrial segment ended the quarter with a backlog of $358 million, down 9% from year-end. The transformer backlog declined 19% sequentially more than offsetting the positive order trends for signal monitoring equipment and hydraulic tools.
Looking at our visibility for the remainder of the year we now have 56% of our 2010 estimated revenue either already recorded or included in our backlog. About 2/3 of our annual revenue is generated from short cycle orders and we are highly sensitive to trends in these markets particularly in our Flow and Test and Measurement segments.
Looking now at our financial results for the quarter, we reported $1.1 billion of revenue, down 6% from the prior year. Sales into Europe and North America declined offsetting more than 20% growth in the Asia Pacific region. Revenue in our U.S. based medium power transformer business declined nearly 30% organically reflecting a decrease in both volume and price from last year.