Cooper Industries plc (CBE)

Q3 2011 Earnings Call

October 20, 2011 12:00 pm ET


Kirk S. Hachigian - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Kyle McClure -

David A. Barta - Chief Financial Officer and Senior Vice President


Nigel Coe - Deutsche Bank AG, Research Division

Julian Mitchell - Crédit Suisse AG, Research Division

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Jeffrey Sprague - Citigroup

Adam William Uhlman - Cleveland Research Company

Terry Darling - Goldman Sachs Group Inc., Research Division

Deane M. Dray - Citigroup Inc, Research Division



Good day, ladies and gentlemen, and welcome to the Q3 2011 Cooper Industries plc Earnings Conference Call. My name is Rassenia, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today, Mr. Kyle McClure, Director of Treasury and Investor Relations of Cooper Industries. Please proceed, sir.

Kyle McClure

Thanks, operator, and good morning, everyone. Welcome to the Q3 2011 Cooper Industries Earnings 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 website that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investors section of our website at

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 they have been anticipated, reconciliations of those measures to the most directly comparable GAAP measures are included in the press release.

Now let me turn the call over to Kirk.

Kirk S. Hachigian

Thank you, Kyle. Good morning. We're very pleased today to report the best quarterly earnings per share in our company's 178-year history. While over the past several years, we've had tremendous economic volatility and uncertainty, it's a tribute to our 26,000 employees and their commitment to our long-term prosperity that allows us to make the right long-term investments while delivering record results during such difficult economic times.

In addition, from a process perspective, it is our policy to give quarterly and annual guidance. When there are macroeconomic changes; internal investments; restructuring; sales, margin and execution updates; modifications are refit that need to be communicated, we will pre-release updated estimates during the quarter as we did mid-September before the Citigroup conference in Boston. With the heightened economic volatility, it is more difficult to give accurate estimates quarter-to-quarter, but at the same time, we will not be constrained in how we run the company during our quarter because of our guidance. We focus on our long-term competitive position and long-term shareholder value, and we'll react quickly to changes in global market conditions.

If you turn to Page 2 of the web pages now, I'll summarize the third quarter. Our total revenues were up 12%, with the core up 7%. Energy & Safety Solutions was up 15%, with the core up 9%, and Electrical Products Group was up 9%, with the core up 5%, solid performance. Our third quarter earnings per share, as I said, were $0.98, up 15% from last year and is the best earnings per share on a quarterly basis since the second and the third quarters of 2008, again on slightly less revenue from those periods.

Consolidated operating margins were 14.8%, down 60 basis points from the third quarter of 2010, not a great result. The Energy & Safety Solutions operating margins came in strong at 16.7%, Electrical Products Group margins were 13.9%, down 220 basis points from last year. We laid out several of the issues on our September 15th update, and as you'd expect, Dave will have a detailed page walking you through both the segment margins year-over-year later in the presentation.

Our tools equity earnings were $16 million or $0.08 a share, in line with our guidance, and our free cash flow was strong again at $358 million year-to-date or $25 million ahead of last year, and we've laid out about $1 billion year-to-date on a variety of different activities that we'll walk you through. And again, we maintain great flexibility on the balance sheet.

All in for the third quarter, our performance was strong given the tough macroeconomic environment, with record earnings per share and continued strong cash flow.

If you turn to Page 3, the core electrical growth trends. First is that the third quarter was our sixth consecutive quarter of solid strong core growth despite 40% of the portfolio tied to construction markets that are still at very depressed levels. As you also note, looking at Q4, we come up against very difficult comps of a 14.1% core growth rate year-over-year.

If you turn to Page 4, this is a new slide that we want to describe the macroeconomic environment by geographic region first. Clearly, the U.S. is entering the late stages of the economic cycle, still growing but at a very slow rate. Unemployment remains high, federal state deficits remain an issue, and required legislative policies seem to be uncertain in the election year. Europe is at or near recession levels with negative or 0 GDP growth. China's still forecasted to grow high single digits but accelerated inflation and tough lending standards will dampen the overall growth and investment outlook.

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