Comments of
Alfred M. Rankin, Jr.
Chairman, President and Chief Executive Officer
Annual Meeting of Stockholders
May 10, 2000
This morning I will summarize some of the key messages contained in my
letter in the 1999 NACCO Industries annual report and provide a perspective on
NACCO's first quarter and on NACCO's outlook. I want to emphasize that some of
my comments include forward looking statements. Factors that could cause actual
results to differ from these forward looking statements are described in
Management's Discussion and Analysis on page 38 of the annual report.
Despite record revenues of $2.6 billion, 1999 earnings fell sharply to
$53.1 million, compared with $102.3 million in 1998, a year which was by a very
long margin our best ever.
Several factors affected results in each business.
At NACCO Materials Handling Group, net income declined $51.4 million.
Changes in foreign currency exchange rates, including a strengthened yen and
weakened Euro, had a highly adverse impact on pricing and costs at NMHG's
wholesale operations, where net income was down $38.2 million. In addition, our
Greenville manufacturing facilities were shut down for 11 days due to flooding
associated with Hurricane Floyd. Further, as part of our efforts to strengthen
our wholesale market position, we incurred expenses in connection with acquiring
selected retail dealerships. These acquisitions and the associated eliminations
led to losses of $15.3 million for NMHG's retail operations in 1999, with much
of this related to acquisition costs and accounting expenses, as well as
start-up, integration and investment programs.
At NACCO Housewares Group, on the other hand, net income increased by
$6.0 million to a record $21.2 million despite expenses related to transferring
manufacturing to Mexico, the phase-in of a new distribution center and expenses
associated with developing products for the new Wal-Mart/General Electric brand
program.
At North American Coal, 1999 income decreased $3.8 million, reflecting
lower royalty payments, decreased lignite tons sold, due largely to several
customer power plant outages, increased costs at our San Miguel mine, and a $1.2
million charge required by a new accounting pronouncement to write off mine
start-up costs previously capitalized.
While many of these same factors continued to affect our businesses in
the first quarter of 2000, we have begun to see a positive upward trend,
especially compared with the fourth quarter of 1999 at NMHG and the first
quarter of 1999 at NACCO Housewares Group.
On the NMHG wholesale side, first quarter results improved by $2.2 million
over the fourth quarter of 1999. Our cost reduction programs continue to yield
significant tangible benefits. These programs in manufacturing include our Value
Improvement and Demand Flow Technology programs as well as our low-cost Mexican
component manufacturing plant, which is being expanded this year. We are also
developing new purchasing and component commonality programs, which we expect to
help reduce material and manufacturing costs in future years.
We are also dedicating more resources at NMHG to new product
development as part of our program to bring new products to market more quickly.
For example, in 1999 NMHG successfully introduced new 3.5 to 5.5 ton Yale(R) and
Hyster(R) counterbalanced lift trucks featuring improved performance, ergonomics
and ease of service. We also introduced new warehouse trucks, including reach
trucks and order pickers.
Looking forward, at the wholesale business we anticipate continued
strong demand worldwide for lift trucks -- indeed, stronger than in 1999 -- and
improved product mix in 2000. We are hopeful that our cost reduction strategies,
coupled with a first quarter 3 percent price increase in the Americas, a portion
of which appears to be holding at the retail level, will help mitigate the
impact of foreign currency valuation on profitability. However, currency
continues to remain a major issue this year with the Euro currently at a deep
low of 89 cents per Euro and the yen currently at a strong 109 to the dollar.
Our hedging programs are designed to mitigate short-term currency
fluctuations that affect purchased material costs, but not to offset the longer
term dramatic currency fluctuations that occurred in 1999. We are not assuming
currencies will improve. Rather, we are redoubling our cost reduction efforts.
On NMHG's retail side, we feel strongly that our strategy of acquiring
selected dealerships will have significant long-term benefits, especially for
increased volume on the wholesale side of the business. These acquisitions
should help improve market share in countries where we have a lower market
share, such as in Germany or France, and where either Hyster or Yale
individually have a lower market share, such as Yale in Holland and the UK.
First quarter 2000 results for NMHG's retail business also indicate a
positive trend. The loss in the first quarter of 2000 was $3.0 million, compared
with $7.2 million in the 4th quarter of 1999. And, while we expect to incur
losses in 2000, with the size dependent on the number of additional acquisitions
made during the year, we also expect to reduce retail operating losses over the
coming quarters.
At Hamilton Beach Proctor-Silex, our efforts to drive unit volume
growth have been very successful. Unit volume grew 8 percent in 1999 to 39.4
million units. Volume continued to increase in the first quarter of 2000, as
well. Significantly, much of this growth has been in the higher margin "better"
and "best" product categories.
The most significant event for NACCO Housewares Group in 1999 was
Wal-Mart's selection of Hamilton Beach/Proctor-Silex as its partner in
developing and producing a new line of General Electric branded appliances to be
sold exclusively at Wal-Mart later in 2000. This exciting program has very
significant implications for future volume and profit. We will be working
closely with Wal-Mart to realize the GE brand's potential in the small electric
appliance market.
During 1999 Hamilton Beach/Proctor-Silex continued moving manufacturing
operations to Mexico. We anticipate that these relocation programs will be
fundamentally completed before the end of the year and that efficiencies in
Mexico's new operations will improve throughout the year. In 1999, we also
opened a new distribution center in Memphis to serve our customers better, and
efficiencies are improving there as well. We anticipate substantial long-term
cost savings from these programs.
At Kitchen Collection, sales and margins are continuing to grow through
a multi-faceted strategy of ongoing marketing programs, additional factory
outlet stores, an enhanced e-commerce kitchen collection web site, and new store
formats, such as the Gadgets & More(R) store recently opened at the Mall of
America in Minnesota.
At North American Coal, our five operating mines continued to deliver a
consistent stream of earnings and cash flow in 1999. Development of the new Red
Hills lignite mine near Ackerman, Mississippi, focused on building the mine's
infrastructure. We own a 25 percent interest in this mine, which is a joint
venture with Phillips Coal Company. We expect to begin mining operations in the
fourth quarter of this year, with production eventually reaching 3 million tons
annually.
North American Coal's industry leadership in both environmental
protection and on-the-job safety was recognized with 6 awards in 1999 from
various local, state and national organizations. These awards are a strong
reaffirmation of our commitment to preserving the environment and protecting the
health and safety of our employees.
We expect North American Coal's operating mines to continue generating
steady income and substantial free cash flow in 2000. Royalty income related to
the underground mining which the company left over 10 years ago will likely
continue at its current low level over future quarters. We believe there are
significant opportunities for growth through joint ventures we are developing in
India and Turkey, and while progress is slower than we might wish, we hope to
finalize at least one of these power plant/mining projects sometime this year.
In summary, we are confident the programs in place at our operating
subsidiaries will enable them to achieve improved results later this year and in
the years ahead. The Wal-Mart-GE program at NACCO Housewares Group has the
potential for significant top and bottom line growth over the next several
years. NACCO Materials Handling Group's strengthening retail dealership network
with its prospects for increased wholesale market share should lead to sound
revenue and net income growth potential. And North American Coal's prospects
this year for financial closure on at least one of three international mining
projects are very encouraging. In addition, cost reduction programs should have
a significant impact at NMHG and Housewares as the year moves forward.
In closing, I want to emphasize that the overriding goal of NACCO
Industries management and our board of directors is delivering sound earnings
returns, and thus increased market value of our shares, to our stockholders over
the long term. At the current time, small capitalization companies in industries
such as ours are dramatically out of favor in the market. Our hope is that
eventually our current and prospective multiples will be more in line with
market multiples more fully and with the underlying value of our businesses. To
encourage this development, we are continuing an active program which outlines
the company's prospects to potential investors.
At this time I want particularly to welcome Dave Hoag to our board of
directors. Dave is chairman of the Federal Reserve Bank of Cleveland and the
retired chairman and chief executive officer of The LTV Corporation.
This concludes my formal remarks. I will be happy to answer any
questions you may have.