Dresser-Rand's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Dresser-Rand Group Inc. (DRC)

Q2 2012 Earnings Conference Call

August 03, 2012 9:00 AM ET


Blaise Derrico - Director, IR

Vincent Volpe - President and CEO

Mark Baldwin - EVP and CFO


Robin Shoemaker – Citigroup

Jeff Spittel – Global Hunter

Tom Curran - Wells Fargo

Rhett Carter - Tudor, Pickering, Holt & Co.

Jon Donnel - Howard Weil

Joe Gibney – Capital One

John Moore –C.L. King & Associates

Robert Connors – Stifel Nicolaus



Good morning, ladies and gentlemen, and welcome to Dresser-Rand’s Second Quarter 2012 Earnings Conference Call. My name is Shannon, and I will be your coordinator for today’s call. At this time, all participants are in a listen-only-mode. We will be facilitating a question-and-answer session towards the end of this conference call. (Operator instructions). As a reminder, this conference call is being recorded for replay purposes. After Dresser-Rand’s comments today, I will instruct you on the procedures for asking your questions.

I will now turn the conference over to Blaise Derrico, Director of Investor Relations. Please proceed, Sir.

Blaise E. Derrico

Shannon, thank you, and good morning to all. This call is open to the public; it’s being webcast simultaneously at www.dresser-rand.com and will be temporarily archived for replay. A copy of the news release we issued yesterday is available on our website, as of the slides we will use today during our presentation. We will let you know when to adapt the slides as we deliver our prepared remarks

Please turn to Slide number 2. The statements made during this conference call that are not historical facts may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. In addition, this conference call contains time-sensitive information that reflects management's best judgment only as of the date of the live call. Management's statements may also include non-GAAP financial measures. For reconciliation of these measures, refer to our earnings news release or the conference slides available on our website.

Dresser-Rand does not undertake any ongoing obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect the financial performance related to forward-looking statements can be found in Dresser-Rand's periodic filings with the SEC.

With that, I'll now turn the call over to Vince Volpe, our President and CEO.

Vincent R. Volpe Jr.

Thank you, Blaise. Thank you for joining us today, and welcome to Dresser-Rand's earnings conference call. I'll start with a few opening comments, and Mark Baldwin, our Chief Financial Officer, will follow me with a detailed discussion of our second quarter results.

Please turn to Slide 3. Our second quarter of 2012 financial results were good and reflect higher year-over-year volumes as a result of the continual recovery in our markets. Operating income of $73 million was slightly above the mid-point of our guidance range. The stronger U.S. dollar was a bit of a headwind, especially against the Euro, which dominates our non-U.S. dollar dominated revenues. We estimate that our second quarter 2012 operating income would have been approximately $3 million higher had there not been a change in exchange rates as compared to the rates in effect at the time of the first quarter 2012 earnings conference call in early May.

As previously guided, we’ve also started to see improved operating margins in the second quarter and expect this to continue with the increase in volume over the balance of the year. Against the backdrop of improving margins however, it should be noted the relative strengthening of the U.S. dollar based on current exchange rates is expected to have an overall adverse translational effect on 2012 operating income of approximately $15 million compared to rates used in the guidance we provided at the time of our first quarter 2012 earnings release and conference call. While we anticipate the impact of this change to be visible to our full year results, we continue to expect earnings to fall within the previous full year guidance range of $360 million to $420 million or be at lower within that range.

Please turn to Slide 4. Bookings of approximately $346 million and $392 million for new units and aftermarket parts and services respectively were strong and add to the solid level of bookings in the first quarter. With oil prices at present levels, we believe investment in energy infrastructure will continue. We have a line of sight through a number of potential major orders throughout the energy value chain. As a result, we are reiterating our guidance of record bookings for both new units and aftermarket parts and services in the range of $1.7 billion to $1.9 billion and $1.4 billion to $1.6 billion respectively. It should also be noted that the total backlog at approximately $2.8 billion is also at a record level, as is the new units backlog scheduled for shipment in 2013 of approximately $1.1 billion.

Please turn to Slide 5. Aftermarket activity continues to recover as demonstrated by another solid bookings quarter in most geographical markets. The Middle East and Latin America are especially strong. Aftermarket bookings of $392 million for the second quarter were 22% higher than the corresponding period in 2011. Excluding Guascor bookings, which were included for only two months in last year’s second quarter, aftermarket bookings on an apples-to-apples basis were up approximately 16%. We’ve established a track record of growth in the aftermarket segment with a value based solution strategy focused on extending our service offerings into new areas including servicing other OEM installed equipment, developing new technologies for upgrades and increasing our penetration of high value added services into our own installed based.

Turn to the next slide please. To address potential questions about the broader economic environment, please recall that our aftermarket business is very resilient. The installed base of equipment operates under conditions not usually affected by changes in commodity prices or the ups and downs of the energy industry cycle. This means that our aftermarket business has historically and mostly insulated from changes in worldwide economic conditions, representing what we expect will continue to be a reliable source of recurring and increasing revenue in cash flow. This is a quick development of our business model as we believe it brings us inherent stability in cash flow regardless of the level of new infrastructure activity.

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