NACCO Industries, Inc. (NC) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, welcome to the Connectco Industries First Quarter Earnings Call - Apologies, ladies and gentlemen, welcome to the NACCO Industries First Quarter Earnings Call. My name is Katie, and I'll be coordinating your call today. . I will now hand you over to our host, Christina Kmetko to begin. Christina, please go ahead. Christina Kmetko: Thank you. Good morning, everyone, and welcome to our 2021 first quarter earnings call. I am Christina Kmetko and I am responsible for Investor Relations at NACCO Industries. Thank you for joining us this morning. Joining me today are J.C. Butler, President, Chief Executive Officer of both NACCO and North American Coal; and the Elizabeth Loveman, NACCO's Vice President and Controller. John Butler: Thank you, Christy, and good morning, everyone. I'm very glad to be on the call this I have a lot of good news to report. I mentioned in our year-end call that I was optimistic about our future, because I had a lot of confidence in our strategies to grow and diversify. In the first 4 months of this year, we've already delivered some very positive developments. entered into a 15-year mining services contract with a new customer at our limestone quarry in Central Florida. We'll operate a smaller dragline at this quarry until a larger dragline that will increase production capacity is relocated and commissioned. We expect deliveries to be approximately 1.5 million tons annually once mining commences with the larger dragline in 2023. North American Mining also amended a contract with an existing customer to operate an additional dragline at an existing limestone quarry in Florida. And in April, North American Mining entered into a new mining services contract with an existing customer for a greenfield sand and gravel quarry in Indiana. This customer is hopeful the quarry will operate for multiple years providing aggregates for a multi-year transportation infrastructure project near Indianapolis. We expect deliveries from this quarry to be between 600,000 and 1 million tons per year. All of these new or revised contracts are expected to be accretive to our 2021 earnings. Christina Kmetko: Thank you, J.C. I'll start with the consolidated quarter results and then provide additional detail at the segment level. On a consolidated basis, our first quarter operating profit improved 9.9% to $8.3 million, up from $7.6 million in 2020 driven by substantially higher earnings at our Coal Mining segment. This improvement was partly offset by lower earnings at our North American Mining segment and an increase in unallocated employee-related expenses. Our consolidated net income also increased significantly, up 45.3% to $9 million or $1.25 per share from $6.2 million or $0.88 per share last year. The improved operating profit as well as favorable changes in the market value of equity securities, which are reported in other income, drove the significant improvement in net income. Before I discuss the segments, I wanted to mentioned that addition - in addition to reporting consolidated EBITDA, we started reporting and discussing segment EBITDA this quarter, given the significant impact of depreciation expense in our results without providing the consolidated EBITDA and segment EBITDA would help everyone better understand the underlying results from business operations. At our Coal Mining segment, operating profit and segment EBITDA increased primarily because of substantially higher results at Mississippi Lignite Mining Company due to an increase in customer demand. This increase in demand contributed to a reduction in the cost per ton of coal and an overall increase in the profit per ton delivered. The improvement in the Coal Mining segment's operating profit was partly offset by a decrease in earnings of unconsolidated operations and higher operating expenses, primarily an increase in insurance expense partially offset by lower employee-related costs. And North American Mining's first quarter 2021 operating profit decreased from the prior year, primarily as a result of higher employee-related costs and lower earnings related to the Thacker Pass Project. Segment EBITDA also decreased but to a lesser extent than operating profit as depreciation expense increased over the prior year first quarter given more equipment being placed in service to support activities related to newer contracts. At the Minerals Management segment, operating profit and segment EBITDA generally comparable to the prior year as the increase in revenue was offset by higher employee-related expenses. Those are the significant factors affecting the first quarter results. Now let me turn to our outlook. In the Coal Mining segment, we expect 2021 coal deliveries to be comparable to 2020 based on current expectations of customer requirements. However, operating profit in 2021 is expected to decrease compared with the prior year when you exclude prior year charges of $4.6 million related to an asset impairment and inventory write-down and our voluntary separation program. The decrease in operating profit is primarily attributable to substantially lower full year earnings expected at Mississippi Lignite Mining Company and reduced earnings at the unconsolidated Coal Mining operations. A decrease in employee-related costs resulting from lower headcount primarily from our 2020 voluntary separation program is expected to be partially offset by higher insurance expense. Operator: . Our first question comes from Andrew Kuhn from Focused Compounding Capital Management. Andrew Kuhn: Great quarter. So first question, long-term, do you - be more involved in aggregates, and I'm curious if they can increase in federal infrastructure spending would have any effect and whether owners of quarries would be interested in your contract mining services? John Butler: I mean that's kind of the - that is historically the core part of that business. North American Mining has been in existence really since 1995 focused on mining limerock, limestone in Florida for aggregates producers and a lot of their - a lot of that product goes into infrastructure. I mean, it also goes into cement plants that are used for all sorts of other products. But the aggregates industry overall is - it's kind of an infrastructure type of industry. There is a lot of research publicly available about where aggregates go. So North American Mining is focused on mining all sorts of things that are not coal, aggregates is a key part of it. And yeah, we expect to do a lot more of that in the future. Now we also - we're going to be mining lithium, there are a lots of other things that we can mine as well but aggregates, certainly are a sweet spot for us. We think we've got a lot to bring to the table with the aggregates producers across the country. As far as infrastructure spending, yeah, I mean, it took - it really determines dexterity of aggregates consumption quite a bit, because as we all know, right? You build highways, you build roads and that leads to more commercial development or real estate development, which takes more aggregates as well. So I think it all feeds into the industry overall, and I think it's positive. I think more infrastructure spending is a positive factor for that industry. Andrew Kuhn: Got it. Can you talk about inflation protection, like are your contracts indexed to general price levels to wages to fuel costs, I mean, I'm curious if you think meaningful higher inflation would have a noticeable impact on NACCO's financial results? John Butler: Well, so at our management fee contracts, which is where a majority of our income comes from in our coal segment, all of those fees are tied to some sort of measurement of inflation, whether it's GDP or some CPI metrics, all of those fee levels are tied to inflation. When you look at the Red Hills Mine at MLMC, that is a fixed price contract, but these things that make up that fixed price are all tied to a basket of indices that are all in one shape or another related to inflation. It's really kind of more so the components as opposed to a single aggregate index like CPI, it's more a component-based comp formula. North American Mining has got a combination of contracts, some are management fee similarly structured. They also have some fixed price agreements that are similarly structured as well. Mitigation Resources and Minerals Management, those have completely different business models that aren't tied to any kind of inflation index, but inflation certainly affects those businesses as well from a cost and revenue standpoint. Did I answer your question? Andrew Kuhn: No, no, it does. Yes, I was wondering if you could help shareholders understand how much do decreases in total tons demanded by customer decrease your profit per ton at that mine? So for example, if a customer decides to operate a plant seasonally or to operate at a lower average dispatch level, does that change the per ton profitability of that mine in a big way? John Butler: I mean, we don't disclose the individual fee levels at any of the mines. I think you can sort of look in general - I think you're talking about the Coal segment, so I'll describe that. We don't disclose the individual fee levels, I think you can look at that segment in total and kind of get an idea what it is on average. Some of the contracts do have tiers in them, where lower levels of production and deliveries have a higher fee and at a higher level, it's a lower fee. And I think that is good as I can do for you on the management fee mines. At Red Hills, we do - MLMC, sorry, we do run - everything there runs through a stockpile, we sell coal off the stockpile. The more - obviously, the more volume that we produce, it reduces our costs, which reduces the costs in our inventory, which improves our profit, you saw that in the first quarter. That is really lot for regular manufacturing business, where you kind of factor at a higher level in the - with lower average costs. Andrew Kuhn: Got it. And then, what criteria does management look at for when Mitigation Resources of America will become its own reporting segment? I'm just curious, I mean, is there like a hard set percentage of revenue hurdle that gets you to your level of revenue, operating profit, breakeven? I'm just kind of curious how management thinks about that. And then, I'll also hop back in the queue. John Butler: Okay. I'm going to give you my take and then, I'm going to hand it over to Liz to give you a more technical analysis. The business right now is really - it's a very young business in a - in the development stage, it's growing really nicely. We've got a terrific team developing that business and they seem to have carved out a pretty attractive niche in that industry that we think is going to be pretty successful. It right now is too small to have its results be anything that's really meaningful to the understanding of our business, which is why it's tucked inside unconsolidated. I would anticipate though, at some point in the future it's going to be big enough that it can turn into its own segment. And we'll obviously be providing more reporting information on that. When that happens, I mean, it's hard to tell. I would say that the earlier conversation we had about infrastructure also relates to that business, because anytime there's highway construction or any kind of commercial development, it can - depending on what part of the country you're in and what the local topography is like, it can affect the demand for mitigation credits and so that can be good for that business as well. But with that more general statement, I'll hand it over to Liz. Elizabeth Loveman: We do evaluate our segments that leaped annually and more often things change, but we look at revenue, operating profit, total assets from a GAAP perspective and so - and how management views the business and how we want to - so when it reaches a level where it's material, we would reconsider how do we want to tell the story in our MD&A disclosures related to changing of any segment's reporting Andrew Kuhn: Got it. Cool. Great quarter. And thank you for the color that you provided in the annual report. If shareholders haven't read it yet, I encourage you to read it. John Butler: Thanks for your questions, and thanks for the endorsement of the annual report and investor presentation. Operator: . Christina Kmetko: It appears we don't have any further questions. Is that correct, Katie? Operator: I can confirm, we currently have no questions. Christina Kmetko: Okay, thank you again very - thank you for joining us today. If you do have any follow-up questions, my information is available on the press release, please reach out. Have a wonderful day. Operator: If you have missed any part of this call or would like to hear it again, a recording will be ready shortly. To access the telephone replay, please call 1-929-458-6194 followed by the access code 160053. Thank you for joining today's call and have a lovely day.
NACCO Industries Q1 2024 Earnings: Strong Performance and Strategic Growth
NACCO Industries, Inc. (NYSE:NC) Earnings Conference Call Highlights
NACCO Industries, Inc. (NYSE:NC) recently held its first quarter 2024 earnings conference call, a significant event that brought together key company figures and notable investment analysts to discuss the company's latest financial performance and future outlook. The conference, detailed in a transcript by Seeking Alpha, was an opportunity for investors and analysts to gain insights directly from the company's leadership, including President and CEO J.C. Butler, Jr., and Senior Vice President and Controller Elizabeth Loveman. The participation of investment figures like Doug Weiss and John Huber underscored the keen interest in NACCO Industries' operational and financial health as of the first quarter of 2024.
During this call, NACCO Industries reported a remarkable increase in its consolidated operating profit, which soared by 162% to $4.8 million compared to the same period last year. This significant growth in operating profit, alongside a 28% increase in income before taxes, highlights the company's strong operational performance and financial management. However, it's important to note that despite these positive developments, the company experienced a slight decrease in consolidated net income, which fell to $4.6 million, or $0.61 per share. This decrease was attributed to a higher income tax expense and lower other income, indicating some challenges amidst the overall positive performance.
The company's financial strength was further demonstrated by its robust balance sheet, with consolidated cash standing at $61.8 million and a manageable total debt of $49.9 million. The availability of $100.4 million under its $150 million revolving credit facility provides NACCO Industries with significant financial flexibility to pursue growth opportunities and manage its operations effectively. Additionally, the company's commitment to shareholder value was evident through the repurchase of approximately 128,000 shares for $4.3 million under an existing share repurchase program.
Segment-wise, NACCO Industries reported varied performances across its business units. The North American Mining segment, in particular, showcased impressive growth with a 19% increase in revenues and a substantial 184% improvement in operating profit. This growth was driven by favorable pricing, delivery mix, and improved margins at limestone quarries. On the other hand, the Coal Mining segment faced challenges due to decreased revenues from fewer tons delivered, primarily at the Mississippi Lignite Mining Company. Despite these challenges, the company remains optimistic about modest increases in coal deliveries in 2024, driven by expected improvements in operations.
Looking ahead, NACCO Industries is positioning itself for long-term growth by focusing on transforming into a broad-based natural resources company. The company's optimistic outlook for 2024, expecting significant improvements in net income and adjusted EBITDA, reflects confidence in its strategic direction and operational capabilities. This optimism is grounded in anticipated profitability increases in the Coal Mining segment and contributions from North American Mining's growth and profit improvement initiatives. As NACCO Industries continues to navigate the complexities of the natural resources industry, its strategic focus and operational improvements set a positive tone for its future performance.
