Q3 Fiscal Year 2015 Earnings Conference Call

Transcription

1 NASDAQ: CMCO Q3 Fiscal Year 2015 Earnings Conference Call January 29, 2015 Timothy T. Tevens President & Chief Executive Officer Gregory P. Rustowicz Vice President - Finance & Chief Financial Officer 2015 by Columbus McKinnon Corp.

2 Safe Harbor Statement These slides contain (and the accompanying oral discussion will contain) forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company s customers and suppliers, competitor responses to the Company s products and services, the overall market acceptance of such products and services, the integration of acquisitions and other factors disclosed in the Company s periodic reports filed with the Securities and Exchange Commission. Consequently such forward looking statements should be regarded as the Company s current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 2

3 Long-Term Objectives Growth Sales: $1 billion Achieve 1/3 of sales in developing markets and 2/3 in developed markets Efficiency & Productivity Operating margin: 12% - 14% Working capital/sales: 17% Financial Flexibility Debt to total capitalization: 30% Flex to 50% for acquisitions Organic growth (trend line): - U.S. & Western Europe at GDP+ - Emerging markets at double digits Acquisitions: $200 - $300 million Inventory turns: 6x DSO: < 50 days Global Resources in Place to Execute Plan New products: 20% of sales 3

4 Q3 FY15 Highlights Strong U.S. sales help to mitigate negative impact of FX; Net sales were $140.8 million U.S. sales increased 5.4% (+$4.3 million) on acquisition and higher volume Gross margin improved 120 bps to 30.8% Seventeenth consecutive quarter of year-over-year margin improvement Pricing, productivity gains, and acquisition drove margin expansion Operating income increased $1.5 million, or 13.6%; margin increased 130 basis points to 9.0% Generated $17.1 million of cash from operations in the quarter Acquired Stahlhammer Bommern (STB), large-capacity hook manufacturer Issued call on Notes, established new financing facility; FY16 cash interest savings of $7.6 million (equivalent to $0.27 EPS improvement in FY16) 4

5 Focus on Profitable Growth New product development Focused on providing solutions to evolving safety and lifting specification requirements for our end users ~24% of annual sales were new products developed in last three years Backlog up on new projects Recent Rail & Road project order wins reflected in growing backlog Chinese facility expansion and product localization completed Increased China manufacturing footprint by ~40% to serve rapid growth in APAC Localized product maintains brand quality while cost competitive Recently completed hoist manufacturing facility in Hangzhou China Operational Excellence initiatives Lean initiatives help to offset cost increases, improve customer service In-Stock Guarantee: Now offered on 280 different SKUs 5

6 Accretive STB Acquisition Acquired Stahlhammer Bommern GmbH (STB) for $25.8 million cash and assumed ~$6.2 million of net debt on December 30, 2014 Potential $3.7 million earn-out if profit target achieved 100 year old, leading manufacturer of heavy-load hooks, rigging tools & engineered components STB Large Capacity Single Hooks Primarily serving Europe & Asia; opportunity to extend reach using CMCO global sales network Deepens exposure to key end markets: Oil & Gas, Mining, Construction, Heavy Equipment Expands lifting hook capacity to 2,000 tons & increases variety of eye, shank and ramshorn lifting hook offerings CMCO global sales force will market/sell Estimated CY 2014 revenue: $17.8 million, ~16% operating margin STB Large Capacity Ramshorn Hook 6

7 Sales Impacted by Currency $145.1 Q3 FY14 Sales ($ in millions) $140.8 Q3 FY15 Sales decreased 3.0% or $4.3 million Foreign currency translation $ (4.3) (3.0) % Volume $ (2.7) (1.9) % Fewer shipping days $ (2.4) (1.6) % Pricing $ % Acquisition $ % U.S. sales up 5.4% to $83.3 million Volume represented $1.8 million (+2.3%) Acquisition contributed $3.6 million Sales outside U.S. down 12.9% to $57.5 million Emerging markets slowed EMEA down 13% on FX and economic downturn Average sales per day holding steady $2.35 million per day compared with $2.38 million in prior year s third quarter 7

8 Improving Gross Profit and Margin Gross Profit ($ in millions) $ %* Q3 FY14 * as % of sales $ %* Q3 FY15 Gross profit increased $0.4 million on lower sales volume Acquisition Productivity Pricing net of material cost inflation Product liability Foreign currency translation Volume and mix $1.5 million $1.1 million $1.1 million $(0.7) million $(1.2) million $(1.4) million Gross profit margin expanded 120 basis points to 30.8% Seventeenth consecutive quarter of year-over-year gross margin improvement Productivity initiatives drive margin improvement Accretive acquisition 8

9 Reduced SG&A Expenses Selling Expense ($ in millions) G&A Expense ($ in millions) Selling expense increased to 12.4% of sales Acquisition added $0.3 million Additional initiatives to drive sales partially offset by favorable FX $16.2 $17.4 $15.2 $12.8 G&A decreased $2.4 million to 9.1% of sales Reflects cost discipline 11.2%* 12.4%* 10.5%* 9.1%* Prior year included $1.4 million in non-recurring costs Q3 FY14 Q3 FY15 Q3 FY14 Q3 FY15 Favorable impact of FX on G&A * as % of sales SG&A run rate expected to be ~ $30 to $32 million in Q4 9

10 Improving Operating Income and Margin Operating Income ($ in millions) Operating income increased $1.5 million, or 13.6% $11.1 $12.6 Operating margin was 9.0%, up 130 basis points 7.7%* 9.0%* Acquisition and productivity drive margin expansion Q3 FY14 Q3 FY15 SG&A flat year-over-year excluding FX impact * as % of sales Operating margin of 12% to 14% achievable with return to peak sales and continued productivity improvements 10

11 Improved Pre-tax Income & EPS Pre-tax Income ($ in millions) Pre-tax income up 35.6% to $10.2 million $7.5 $10.2 Diluted GAAP EPS increased $0.06 per share, or 18.2% to $0.39 Q3 FY14 Q3 FY15 Tax rate was 23.1% reflecting expected refinancing costs related to the call of Senior Subordinated Notes GAAP EPS (Diluted) $0.33 $0.39 At 30% tax rate, Non-GAAP adjusted diluted EPS would have been up $0.09, or 34.6%, to $0.35 Fiscal 2015 full year effective tax rate expected to fall within a 23% - 28% range Reconciliation of Adjusted Diluted EPS to GAAP Diluted EPS Q3 FY14 Q3 FY15 Q3 FY15 Q3 FY14 GAAP diluted EPS $ 0.39 $ 0.33 Adjustment to reflect 30% tax rate (0.04) (0.07) Adjusted diluted EPS $ 0.35 $

12 Creating Shareholder Value Return on Invested Capital (ROIC) (1) ROIC/WACC 10.9% 13.9% 12.7% 12.5% 1.0x 1.2x 1.3x 1.1x 4.8% 0.5x (2) (2) (2) FY11 FY12 FY13 FY14 Q3 FY15 TTM FY11 FY12 FY13 FY14 Q3 FY15 TTM WACC (3) 10.0% 11.4% 11.1% 9.9% 11.3% FY11 FY12 FY13 FY14 Q3 FY15 (1) ROIC is defined as income from operations, net of 30% tax rate, for the trailing 12 months divided by the average of debt plus equity less cash (average capital) for the trailing 13 months. (2) Average capital within the ROIC calculation for FY 2011 through FY 2013 removes the effect of the deferred tax asset valuation allowance, which was reversed in FY (3) Source: Bloomberg 12

13 Improving Working Capital Working capital as a % of sales was 19.6%* Down from 22.1% at end of second quarter fiscal % Working Capital as a Percent of TTM Sales* 21.5% 19.9% 21.7% 22.4% 22.1% 19.6% * Lower DSOs drive improvement Acquired $7.5 million of inventory with STB acquisition Inventory turns of 3.9x* will improve in Q4 with higher volumes 6/30/13 9/30/13 12/31/13 3/31/14 6/30/14 9/30/14 12/31/14 Inventory Turns* 4.5x 3.8x 3.9x 4.0x 3.8x 3.9x * 3.6x 6/30/13 9/30/13 12/31/13 3/31/14 6/30/14 9/30/14 12/31/14 * Excludes impact of STB Acquisition which closed on 12/30/

14 Consistently Generating Strong Cash Flow ($ in millions) Three Months Ended December 31, Nine Months Ended December 31, Net cash provided by operating activities $ 17.1 $ 16.2 $ 29.9 $ 18.0 Capital expenditures (3.8) (5.5) (11.3) (13.5) Operating free cash flow $ 13.4 $ 10.8 $ 18.5 $ 4.5 (Components may not add up to totals due to rounding) FY15 capital expenditures expected to be in range of $15 to $20 million Opportunities to invest cash in strategic acquisitions and high return projects Paid $2.4 million in dividends fiscal year-to-date 14

15 Strong Balance Sheet Financial Flexibility Supports Growth Strategy ($ in millions) Cash Total debt Shareholders equity Total capitalization Net debt at December 31, 2014 $ $ $ Credit Ratings (Corporate) S & P BB- Moody s Ba3 Debt / total capitalization 34.0% Net debt / net total capitalization* 15.3% Goal: 30%, flex to 50% for acquisitions * Net total capitalization = total capitalization minus cash (includes STB acquisition) 15

16 Refinanced Debt Called $150 million 7 7/8% Sr. Subordinated Notes due 2019 on Jan. 23, 2015 Secured new $125 million delayed-draw term loan and new $150 million revolving credit facility New term loan plus expected $25 million draw down of new revolver to finance redemption of Notes Cash interest expense savings of ~$7.6 million Contributes ~$0.27 per diluted share 1 in FY2016 More flexible capital structure Pre-payable debt Additional $25 million of liquidity at low cost Expect to record one time $8.5 million debt retirement charge, including $5.9 million call premium on Notes Pro Forma Capitalization as of December 31, /31/2014 Reported 12/31/2014 Pro Forma Cash and cash equivalents $ $ 96.6 New $150 million revolving credit facility due New $125 million delayed-draw term loan facility due Capital leases STB acquired debt Total senior debt /8% Sr. Subordinated Notes due Total debt Shareholders equity Total capitalization $ $ Debt/total capitalization 34.0% 34.7% Net debt/net total capitalization 15.3% 17.2% 1 Applies a 30% tax rate and reflects the Company s policy of a fixed interest ratio of 50% to 70% 2 Pro forma shareholders equity adjusted for $8.5 million retirement charge ($6.0 million after tax applying a 30% tax rate) 16

17 FX Tempers Growth; Expect Improved Margins Outlook Anticipating seasonally strong Q4 in U.S. and Asia. Strengthening USD creates a FX headwind for Euro and other markets Productivity and operating leverage will continue to drive margin expansion Orders improved over trailing quarter EMEA orders benefitted from large project awards Double-digit percent increases compared with prior-year and trailing quarters Eurozone capacity utilization during quarter (80.0%) may be signal for new capital investments Positive North America market Capacity utilization in December 2014 improved to highest level since April 2007 Emerging markets seeing uneven order levels APAC increase offset by lower order rate in Latin America Backlog of $85.5 million compared with $82.2 million as of September 30, 2014 Project-related backlog of $32.8 million, or 38% of total backlog, scheduled for shipment after March 31, 2015 Project-related backlog growing; was $25.0 million at September 30, 2014 and $31.1 million at December 31, 2013 Driving profitable growth New product and geographic market development STB acquisition expanded heavy-load rigging offering which will be sold globally Lean Business System and localized products in China will improve profits Vertical market focus continuing Focused on integrating STB and continuing to evaluate additional opportunities 17

18 Conference Call Playback Info Replay Number: (no pass code necessary) Telephone replay available through February 26, 2015 Webcast / PowerPoint / Replay available at Transcript, when available, at 18