Cooper Industries Plc Q2 2010 Earnings Call Transcript

Cooper Industries plc (CBE)

Q2 2010 Earnings Call Transcript

July 22, 2010 12:00 pm ET


Mark Doheny – Director, IR

Kirk Hachigian – Chairman, President and CEO

Dave Barta – SVP and CFO


Scott Davis – Morgan Stanley

Chris Glynn – Oppenheimer

Eli Lustgarten – Longbow Securities

Julian Mitchell – Credit Suisse

Shawn Severson – ThinkEquity

Ajay Kejriwal – FBR Capital Markets

Jeff Sprague – Vertical Research Partners

Rich Kwas – Wells Fargo

Anthony Kure – KeyBanc

Bob Cornell – Barclays Capital



Good day, ladies and gentlemen, and welcome to the second quarter 2010 Cooper Industries earnings conference call. My name is Theresa, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session. 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, Mr. Mark Doheny, Director of Investor Relations. Please proceed.

Mark Doheny

Thank you, operator. Welcome to the Cooper Industries’ second quarter 2010 earnings conference call. With me today is Kirk Hachigian, Chairman and Chief Executive Officer and Dave Barta, Senior Vice President and Chief Financial Officer.

We have posted a presentation on our Web site that we’ll refer to throughout this call. If you’d like to view this presentation, please go to the Investors section of our Web site

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 10-K and other recent SEC filings. In addition, comments made here may include non-GAAP financial measures. To the extent that they’ve 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 Hachigian

Thanks Mark. Good morning. We’re pleased to report today that after 18 months of declining core revenues Cooper Industries is growing again. It’s been a long and painful recession, the deepest our company has faced in over 50 years. But despite all the adversity and negative news, our 28,000 employees remain dedicated and worked extremely hard to allow our company to emerge from this crisis more competitive and better positioned than in any time in our history.

It was just a year ago we were reporting revenues down 26% and earnings down 4%, but today we’re happy to report that our core revenues are up and our margins are back to strong double-digit returns. We have the best new product pipeline than in any time in our history filled with things like LED, smart grid, and wireless communications.

We continue to add to our global footprint expanding in places like Brazil, Turkey, and continuing to invest in Korea, China, Southeast Asia and the Middle East. We have our best service rates in over 10 years. Our factories are achieving record quality and safety levels.

We continue to hire engineering and marketing and sales resources, and we maintain a balance sheet that allows us great flexibility to invest in our future, while returning profits to our shareholders.

If you’d now turn to page two of the exhibits, I’ll comment more specifically on the second quarter. Our total revenues were up 5.3%, $1.336 billion, with our core up 4.8%. In Energy & Safety Solutions we were up 1%, and 1% at the core. Electrical Products Group was up 7%, with the core up 6%, and our Tools had a terrific quarter up 19%, with the core up 17%.

We continue to improve our order rates. Our overall book-to-bill was 106% for the quarter. I’ll break it up by segments in a minute. Our operating margins were 13.7%, up 70 basis points from the first quarter, and up very nicely over last year 390 basis points. So again, just modest volume increase on the adjusted cost basis generates very strong returns.

Our Energy & Safety Solutions business had margins of 16.9%; Electrical Products Group, 14.8%; and Tools at 12.8%. Our year-to-date cash flow of $223 million was very strong, and puts us on track for our 10th consecutive year of free cash flow exceeding recurring income.

Tools Joint Venture is complete, and of course, our new CFO is on board, and so in less than a quarter, Dave has accepted the offer, moved to Houston, attended all of our strategy sessions, and now in a minutes will report on our second quarter earnings results, and I think this is a great reflection of Terry, and the organization and the quality of the team that we have in our finance organization and certainly Dave’s capability in stepping right into Terry’s role. So in summary, a solid quarter in a very weak sort of economic backdrop.

If you turn to page three, end market conditions becoming extremely difficult to predict, but let me approach the end markets a little differently on this call, trying to give you a little bit more color by commenting on the conditions relative to our expectations from the beginning in the year or our outlook meeting back in February.

The industrial MRO business was certainly stronger in the second quarter, Bussmann, Tools, B-Line, and Crouse-Hinds showing some very strong growth and momentum. Commercial was better. The market is not down as bad as we expected due to remodeling and energy efficient new products.

Utility is slow to recover, but continues to build a solid backlog, and we expect that the market will recover as the economy improves and residential was worse. Retail and housing certainly backed up in the second quarter, and now we expect the full year relatively flat versus up 3% to 6% that we had forecasted.

And so the takeaway on page three says it all, it’s a very choppy and uneven domestic market that moves quite a bit month to month. The good news is there is continued strength in the emerging markets, which is about $800 million to $900 million of exposure for Cooper.

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