NACCO Industries, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. NACCO operates in lift trucks (NMHG), small appliances (HBB), specialty retail (Kitchen Collection, or KC), and mining (NACoal). HBB and KC are seasonal, with a majority of their revenues and operating profit typically generated in the second half.
Consolidated financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $803.2 million | $745.5 million |
| Gross profit / margin | $144.6 million / 18.0% | $136.6 million / 18.3% |
| Operating profit / margin | $37.8 million / 4.7% | $35.3 million / 4.7% |
| Net income attributable to stockholders | $25.2 million | $62.8 million |
| Basic / diluted EPS | $3.01 / $3.00 | $7.51 / $7.48 |
| Operating cash flow | $2.5 million | $(8.8) million |
| Capital expenditures | $5.5 million | $6.2 million |
Revenue increased 7.7%, while operating profit rose 7.1%. Net income fell sharply because Q1 2011 included a $60 million Applica litigation settlement payment and $2.8 million of related litigation costs; the income statement reported a net $57.2 million benefit from Applica settlement and litigation items in that prior-year quarter. Q1 2012 results do not include a comparable item. Gross margin declined modestly.
Liquidity, debt and cash flows
- At March 31, cash and cash equivalents were $314.9 million, down from $338.6 million at year-end 2011. Current assets were $1,341.4 million and current liabilities were $870.5 million.
- Reported debt was approximately $338.4 million: $45.0 million of revolver borrowings, $229.9 million of current maturities, and $63.5 million of long-term debt. Cash exceeded reported debt by approximately $23.5 million.
- Operating activities provided $2.5 million; investing activities provided $15.1 million, including $20.6 million of asset-sale proceeds; financing activities used $44.3 million. Cash decreased $23.7 million after a favorable $3.0 million exchange-rate effect.
- NMHG had no borrowings on its $200 million revolving facility and $192.9 million of excess availability. Its $212.1 million term loan matures in March 2013. HBB had no borrowings on its $115 million revolver, which expires in July 2012, and had $40.0 million outstanding on its term loan. KC had $10.0 million outstanding and $17.0 million of excess availability on its $30 million facility. NACoal had $35.0 million outstanding and $113.8 million of excess availability on its $150 million facility. Subsidiaries reported covenant compliance.
Business and segment developments
| Business | Q1 revenue | Q1 operating profit (loss) | Comparison and drivers |
|---|---|---|---|
| NMHG | $629.5 million, up 7.3% | $29.8 million, versus $30.4 million | Higher truck volumes, pricing and sales mix lifted revenue; higher employee-related and other SG&A costs weighed on profit. Shipments increased to 20,079 from 19,375; backlog was approximately 22,300 units, down from 24,800 a year earlier. |
| HBB | $104.9 million, up 4.3% | $2.1 million, versus $3.3 million | Revenue benefited from product mix and pricing. Higher professional fees and unfavorable foreign currency effects reduced operating profit; net income was $1.0 million in both periods. |
| KC | $45.3 million, up 10.8% | $(4.6) million, versus $(5.4) million | New stores and improved comparable sales contributed to revenue growth and a smaller loss. KC operated 270 stores versus 239 a year earlier. |
| NACoal | $24.3 million, up 35.8% | $11.9 million, versus $9.5 million | Higher consolidated mine deliveries and royalty and other income improved results. Total coal tons sold were 7.4 million versus 7.6 million. |
Outlook, risks and unusual items
- NMHG: Management expected 2012 net income to decline from 2011, citing the absence of prior-year benefits, anticipated lower-margin sales mix, and higher marketing and employee costs. It expected modestly higher bookings, shipments and parts volume, with market conditions weakening modestly in Europe. New product launches and 2012 price increases were expected to support revenue and margins; steel and other commodity costs remained a risk.
- HBB: Management expected 2012 revenue and net income to increase, supported by new products and non-recurrence of certain 2011 costs. U.S. middle-market consumer demand remained challenged; international and commercial markets were expected to be stronger.
- KC: Management expected 2012 revenue and net income to increase, but anticipated improvements to be concentrated in Q4. Consumer confidence, unemployment, fuel prices, store performance and lease costs were risks.
- NACoal: Management expected higher 2012 net income, contingent in part on customer power-plant operating levels and increased mine deliveries. Limerock deliveries were expected to decline modestly. The Otter Creek mine permit was anticipated in mid-2012; permitting delays and development expenses were risks.
- Q1 cash flow benefited from a $20.2 million dragline sale, so reported cash generation includes a non-recurring asset-sale contribution. The remaining asset sales were expected during 2012.
- The company disclosed routine legal and regulatory claims, including product liability and environmental matters, and stated it did not expect material costs beyond recorded accruals. NMHG had $175.0 million of customer financing recourse or repurchase obligations, plus a $144.2 million guarantee of NFS debt; management said anticipated losses were not significant and it was unaware of circumstances likely to cause NFS default.
- Management expected pension contributions of approximately $7.6 million to U.S. plans and $3.5 million to non-U.S. plans in 2012. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Progress on NMHG’s March 2013 term-loan maturity and HBB’s July 2012 revolver expiry, including refinancing or renewal arrangements.
- Whether NMHG’s expected earnings decline, European market weakness, and material-cost pressures develop as forecast.
- Whether HBB and KC achieve the forecast second-half seasonal sales and profit improvements.
- How much full-year cash flow depends on asset disposals versus recurring operating cash generation.
- Developments in customer financing guarantees, coal mine permitting, and other disclosed operating and regulatory risks.