SPX's CEO Discusses Q4 2011 Results - Earnings Call Transcript

SPX (SPW)

Q4 2011 Earnings Call

February 16, 2012 8:30 am ET

Executives

Ryan Taylor -

Christopher J. Kearney - Chairman, Chief Executive Officer and President

Patrick J. O'Leary - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

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

Julian Mitchell - Crédit Suisse AG, Research Division

C. Stephen Tusa - JP Morgan Chase & Co, Research Division

John G. Inch - BofA Merrill Lynch, Research Division

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 SPX Corp. Earnings Conference Call. My name is Deanna, and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would like to turn the call over to your host, Mr. Ryan Taylor, Director of Investor Relations. Please go ahead.

Ryan Taylor

Thanks, Deanna, and good morning, everyone. We appreciate you joining us on the call today. With me today is Chris Kearney, our Chairman, President and CEO of SPX; and Patrick O'Leary, our Chief Financial Officer.

Our earnings press release was issued this morning and can be found on our website, spx.com. This morning's call is also being webcast with a slide presentation, which can be accessed in the Investor Relations section of our website. The webcast will be available until March 1, and we encourage you to follow along with the webcast as we reference the detailed information on the slides. In the appendix of today's presentation, we have also provided reconciliations for all non-GAAP financial measures.

Portions of the presentation and comments are forward-looking and subject to Safe Harbor provisions, and we'd also like you to note the risk factors in our most recent SEC filings. The earnings per share numbers that we discuss this morning are on an adjusted basis, and in general, the financial data presented relates to continuing operations as of the period they are reported.

And with that, I'll turn the call over to Chris.

Christopher J. Kearney

Thanks, Ryan. Good morning, everyone. Thanks for joining us on the call. The fourth quarter was a very active period for SPX with a number of key accomplishments. Most notably, we executed several strategic actions that we believe will improve our business going forward. We're very excited about these developments. In addition to our strategic process -- progress, we've also had strong year-on-year operational performance and achieved our highest quality revenue and segment income results since Q4 2008. This performance was led by our Flow Technology segment.

I'll begin this morning with a brief overview of our recent strategic accomplishments, as well as our Q4 and full year financial results. Patrick will then provide a detailed analysis of these results.

Looking first at our strategic highlights. The acquisition of ClydeUnion and our pending sale of Service Solutions are the 2 most significant developments. The ClydeUnion acquisition, which was completed late in the fourth quarter, expands our power and energy offerings and gives us another global platform within our Flow segment. We believe the opportunities to build out Flow's power and energy business are similar to our food and beverage business, which experienced a breakout year in 2011.

Flow's food and beverage business grew 27% last year, reflecting the benefit of our acquisition strategy and our localization efforts. We continue to see very strong demand in the food and beverage market as evidenced by the $140 million of new orders we've recently announced. e&e, our newest acquisition in this space, broadens our dehydration offerings and expands our presence in the global coffee market.

During Q4, we also had 2 notable accomplishments that improved our position in late-cycle power markets. We substantially completed the construction of our large Power Transformer plant, and we are beginning production at the new facility. And we formed a joint venture with Shanghai Electric to enhance our competitive position in China and other emerging markets for some of our Thermal products. The joint venture has already received an indication for its first significant order, and we expect it to benefit this year and beyond from China's investment in power infrastructure. We're very encouraged with the progress we've made, and we plan to continue focusing on strategic actions in 2012.

Moving on to the financial results for Q4. Revenue increased 13% over last year to nearly $1.5 billion. From an organic perspective, revenue grew 11%, with all 4 segments reporting organic growth. Segment income was $177 million, up 10% over last year, and our segment margin was 11.9%. In the quarter, Flow accounted for nearly 50% of our total segment income. We're very pleased with Flow's operating results, which included 13% organic revenue growth and segment income margins greater than 15%.

Looking at earnings per share on an adjusted basis. Q4 EPS increased 58% over last year to $1.78 per share. And excluding the cash flow impact associated with the ClydeUnion acquisition, we generated $219 million of free cash flow in the quarter.

For the full year, revenue increased 12% over last year to nearly $5.5 billion. Organic revenue growth was 7%. Segment income was $580 million, up 4% over last year, and our full year segment income margin was 10.6%. Adjusted EPS increased 21% over last year to $4.38 per share. And for the full year, excluding ClydeUnion, we generated $265 million of free cash flow. On an adjusted basis, our free cash flow conversion of net income was approximately 119%.

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