Gardner Denver Inc. (GDI)

Q3 2011 Earnings Call

October 21, 2011 9:30 AM ET


Barry Pennypacker – President and CEO

Michael Larsen – Vice President and CFO


Charlie Mills - Credit Suisse

James Lucas - Janney Montgomery Scott

Kevin Maczka - BB&T Capital Markets

Jeffrey Hammond - KeyBanc Capital Markets

Wendy Caplan - SunTrust Robinson Humphrey

Joshua Pokrzywinski - MKM Partners LLC

Jamie Sullivan - RBC Capital Markets

Scott Blumenthal - Emerald Advisers

Andrew Carter – RBC



Greetings and welcome to the Gardner Denver Third Quarter 2011 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Barry Pennypacker, President and CEO. Thank you, sir, you may begin.

Barry Pennypacker

Good morning everyone and welcome to Gardner Denver's third quarter 2011 earnings conference call. I'm joined this morning by Michael Larsen, Gardner Denver's Vice President and Chief Financial Officer.

Before we begin with our remarks, Michael has a few comments regarding our forward-looking statements.

Michael Larsen

Thank you, Barry, and good morning everyone. First, a reminder that all the statements made by Gardner Denver during this call other than historical facts are forward-looking statements made in reliance upon the Safe Harbor of the Private Securities Litigation Reform Act of 1995.

As a general matter, forward-looking statements are those focused upon anticipated events of trends and assumptions, expectations and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to Gardner Denver's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company.

These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements. Please refer to Gardner Denver's third quarter 2011 earnings press release issued on October 20, 2011 for further information regarding potential uncertainties and factors that could cause actual results to differ from anticipated results.

Gardner Denver does not undertake or plan to update these forward-looking statements even though the Company's situation may change. Therefore, you should not rely on these forward-looking statements as representing the Company's or its management's view as of any date subsequent to today.

As a reminder, this call is being broadcast in listen-only mode through a live webcast. This free webcast will be available for replay up to 90 days following the call through the Investor Relations page on the Gardner Denver website at, or the Thomson StreetEvents site at, and now I'd like to turn the meeting back over to Barry.

Barry Pennypacker

Thanks, Michael. Gardner Denver had an excellent third quarter, as our teams execution led to yet another quarter of records revenue, operating income, net income and diluted earnings per share. Our orders for the third quarter were $628 million, up 14% versus prior year, up 9% organically and our book-to-bill remained greater than 1, as revenues of $615 million were up 25% – 20% organically. Backlog at the end of the quarter was $669 million, up 20% versus prior year and our strong backlog positions us well for the balance of 2011, and provides us improved visibility into the first half of 2012.

Operating income for the third quarter of 2011 was $107 million, a 57% increase over last year as operating margins improved 350 basis points to 17.3%. Net income was $74 million, up 58% over last year's third quarter as diluted earnings per share increased 61% to $1.42 and $1.48 on an adjusted basis.

In addition, our cash generation was excellent as cash flow from operating activities totaled $97 million in the third quarter and our strong balance sheet enable us to repurchase $126 million of our outstanding shares and announced the agreement to acquire Robuschi for approximately $207 million.

Before I get into the capital deployment into more detail, let me give you a little more color on the organic growth and margin expansion by segment in the third quarter. Our Engineered Products Group continues to experience strong growth, with orders up 7% and revenues up 38%. Orders in this segment can be choppy on a quarterly basis and adjusted for our large order booked in the third quarter of 2010, EPG orders were up 15% versus prior year.

In EPG, the backlog tends to give you a good indication as to where the business is going and our backlog at the end of the quarter was $421 million, up 23% year-over-year. When you look at the increase in rig count and strong growth in unconventional drilling for liquids and natural gas in the shale formations in the United States, it's not surprising that our energy businesses, representing about 20% of total Gardner Denver's revenues, continued to be very strong.

Orders in our pressure pumping business essentially doubled year-over-year and the backlog in that business is three times greater than it was at this point last year. Our drilling pump business doubled revenue year-over-year and continued to grow backlog with orders for delivery through the first half of 2012.

We see no signs of weakness in our energy business and independent research reports and customer feedbacks suggest that the demand for pressure pumping horsepower and the associated aftermarket, particularly for fluid ends will remain strong at least through 2012. Our focus is on making the right investments to take full advantage of this opportunity.

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