NACCO Industries Inc. (NC)

Q1 2010 Earnings Call

May 6, 2010 11:00 am ET

Executives

Christina Kmetko - IR

Al Rankin - Chairman, President and CEO

Ken Schilling - Vice President and Controller

Analysts

Schon Williams - BB&T Capital Markets

James Holly - Haltheon

Presentation

Operator

Good day ladies and gentlemen and welcome to the first quarter 2010 NACCO Industries Earnings Call. My name is Regina and I will be your operator for today. At this time all participants are in listen-only mode. Later we will be conducting a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to your host for today, Ms. Christina Kmetko. Ms. Kmetko, you may begin.

Christina Kmetko

Thank you. Good morning everyone and thank you for joining us today. Yesterday, a press release was distributed outlining NACCO’s results for the first quarter ended March 31, 2010. If anyone has not received a copy of this earnings release or would like a copy of the Q, please call me at 440-449-9669 and I will be happy to send you this information. You may also obtain copies of these items on the NACCO website at nacco.com.

Our conference call today will be hosted by Al Rankin, Chairman, President, and Chief Executive Officer of NACCO Industries. Also in attendance representing NACCO Industries is Ken Schilling, Vice President and Controller.

Al will provide an overview of the quarter and full year then open up the call to your questions.

Before we begin, I would like to remind participants that this conference call may contain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. Additional information regarding these risks and uncertainties was set forth in the earnings release and in the 10-Q.

I'll now turn the call over to Mr. Rankin.

Al Rankin

Good morning. NACCO announced last evening a consolidated net income of $11.7 million or $1.40 a share for the first quarter of 2010 and that was on revenues of $558 million and compares with a net loss for the first quarter of 2009 of $9.1 million or $1.10 per share on revenues that were quite similar, $555 million.

If you look at the highlights by subsidiary, NACCO Materials Handling Group profits improved to $26.5 million, net income in 2010 was $8 million compared with a net loss of $18.5 million in previous year.

Hamilton Beach's net income was $2 million better at $3.4 million in the first quarter compared with of $1.4 million a year ago.

Kitchen Collection had an improvement of $1 million with a smaller net loss at a low seasonal first quarter of $1.8 million compared with a net loss of $2.8 million the year before.

North American Coal's net income declined $2.7 million. Net income was a very strong $8.1 million compared with $10.8 million.

NACCO and Other, which includes parent company operations have a net loss of $3.0 million compared with a $1.5 million a year ago, which is an increase of $1.5 million.

And NACCO recorded a $3.1 million interim tax provision in eliminations in the first quarter of 2010 and that compares with an actual interim tax benefit in 2009.

So now I will turn to more detailed discussion of the results of each subsidiary.

NACCO Materials Handling Group, as I indicated, had improved income of $8 million compared to $18.5 million loss in the previous year. Sales went down to $375 million from $389 million. Operating profit improve to $10.3 million from a loss of $12.6 million in the previous year.

In the first quarter of 2010, worldwide new unit shipments increased to approximately 11,100 from shipments of approximately 10,800 in the first quarter of 2009 and that was the first time in six quarters that worldwide new unit shipments had increased over the comparable quarter in the prior year.

For the third consecutive quarter, parts sales increased over the preceding quarter and were up over the prior year quarter for the first time in five quarters.

NACCO Materials Handling Group worldwide backlog, very importantly, was approximately 16,900 units at March 31; that compares with 12,800 a year ago and 13,200 at the end of 2009.

The first quarter net income increased significantly compared with the first quarter of 2009, primarily as a result of a substantial increase in operating profit and a change in the effective income tax rates. Operating profit increased $22.9 million and that was primarily due to improved gross profit, lower operating expenses, which included a $4.4 million of favorable product liability adjustment, the absence of a bad debt charge, which we recognized in the previous year, and a $1.9 million pre-tax partial reversal of a restructuring accrual.

Also it was due to releases of cumulative foreign currency translation and deferred profit, partially offset by a loss on the sale of certain Australian operations. In total, those accounted for $4.2 million swing and had an impact on the profitability of $3 million in operating profit in the first quarter of 2010.

Our gross profit improved mainly as a result of improved margins on units despite lower revenues, improved parts margins on higher sales volumes, lowering manufacturing variances due to increased plant activity and the effect of favorable foreign currency movements.

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