SPX Corporation (SPW)
Q2 2010 Earnings Call
August 4, 2010 8:34 am
Ryan Taylor - Director of Investor Relations
Chris Kearney - Chairman, President and CEO
Patrick O'Leary - Chief Financial Officer
Bob Cornell – Barclays Capital
Nigel Coe - Deutsche Bank Securities
John Inch - BofA Merrill Lynch
Phil Gresh – JPMorgan
Ajay Kejriwal - FBR Capital Markets & Co
Good day ladies and gentleman, and welcome to the second quarter 2010 SPX Earnings Conference Call. My name is Ann and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. At this time all participants are in a listen-only mode. (Operator instructions). We will be facilitating a question and answer session following the presentation.
I would now like to turn the presentation over to Mr. Ryan Taylor, Director of Investor Relations. Please proceed, sir.
Thank you, Ann, and good morning every one. Thank you for joining us today. 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 invest relations section of our website spx.com. This webcast will be available until August 18 and I encourage you to follow along with the webcast as we reference the detailed information on the slides. Please note that the slide presentation also includes supplemental schedules which provide reconciliations for all non-GAAP financial measures discussed today. Our earnings press released was issued this morning and also be found on our website.
Before we continue I would like to point out that portions of our presentation and comments are forward looking and subject to Safe Harbor provisions. The updated 2010 EPS guidance we just discuss today is on an adjusted basis and from continuing operation. Please note the risk factors in our most recent SCC filings.
With that, I will turn the call over to Chris.
Thanks Ryan. Good morning everyone. Thanks for joining us on the call. Market trends in first half of 2010 progressed much as we had anticipated. We have seen improvement in many of our early cycle businesses while conditions in our mid to late cycle businesses have remained depressed. Our focus on globalization has been a significant contributor to our financial performance to the first half of this year. Growth in emerging regions has helped to mitigate continue softness in certain developed markets.
As expected weakness in the United States power transformer market weighed on our second quarter performance. Despite this headwind, our second quarter earnings per share increased over last year and we have also exceeded our guidance. This is the first time in six quarters that our earnings have increased over the prior year period.
We’re pleased with the half earnings result in the quarter, which were particularly strong in our Thermal and Test & Measurement segments. We’re encouraged by the benefits we have realized from the restructuring action taken over the past two years. These actions significantly reduced our cost base and we’re seeing the positive impact in our operating results.
Looking our consolidated results for the second quarter, we reported revenue of $1.2 billion about the same as last year, as acquisition growth offset a 2% of organic decline and a 2% headwind from currency. Entering the quarter we had anticipated a slight year-over-year benefit from currency. That did not materialize as revenue declined $18 million due to the weakening of the Euro and other currency rates during the quarter. Sales into emerging markets accounted for 26% of our total revenue, largely driven by China, where revenue increased more that 50% year-over-year. Total sales into Asia Pacific were up 37%. In the Americas revenue declined by 2%, and sales into EMEA were down 12% largely due to uncertain economic conditions in European markets.
We reported a $136 million of segment income or 11.4% of revenue on par with last year's results. This exceeded our targets primarily due to strong operating execution in our thermal and test & measurement segments. On an adjusted basis, excluding certain one time tax benefits, second quarter earnings per share increased 25% year-over-year to $1 per share. We generated $36 million of free cash flow in Q2, 11% better that the prior year.
During the quarter, we continued to see various stages of improved performance on our early cycle businesses. Sales in the vehicle service industry increased sharply both on a sequential basis and as compared to last year. In our Flow segment, book and turn demand for components stayed steady from Q1 in the food and beverage, oil and gas and general industrial markets. Demands in our key power energy markets remain soft, but we believe we’re seeing modest signs of stabilization in these markets. The timing and pace of recovery in our power market is still uncertain and we believe it will vary regionally. We saw increase in large project activity quarter to quarter, primarily driven by demand in emerging regions. Our global capabilities and leading technologies give us a competitive advantage in providing customer solution in these markets.
Our dry cooling technology which minimizes water consumption and energy usage is the preferred cooling solution in arid regions of the world. Recently, we have been selected to supply three dry cooling systems on new power stations going into Peru, Saudi Arabia and China. In China, we have also been chosen to supply crystal growers to a major solar manufacturer. In Norway we have been selected to design and manufacture a butter processing system for the region's largest diary producer.