SPXC - Earnings call transcript Q2 2019

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Q2 2019 SPX Corporation earnings conference call. [Operator instructions] And as a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, vice president of investor relations and communications, Mr. Paul Clegg.

You may begin.

Paul Clegg

good and Laura, you, afternoon, everyone. Thank joining for us. Thanks are With and president our the Scott today me call Gene and our financial Lowe, chief on Sproule, officer. chief executive officer; containing today release A was second-quarter close. issued press after our market results

to you earnings of can well presentation, spx.com. our live of website webcast as and along results remarks. website in available our You the slide the during in with encourage on disclosures Xth. and a as of presentation this to at release slide the call and to discussion A link Investor the GAAP release press replay webcast will our follow find our prepared review August of until our a this Relations I section be

of subject presentation forward-looking our are provisions. portions to Harbor comments and and a As Safe reminder,

our the also note Please factors risk recent filings. SEC most in

on largely results. today focus comments adjusted Our financial will

in GAAP You to today's can their to find respective figures detailed of appendix the adjusted measures reconciliations presentation.

combines our category, segment from results. which adjusted the other Our our results is all and structure heat South operations an of reporting excluded into African transfer

report and to per also requirements Consistent associated these and expense, to true-up excludes onetime how that pension of so. and as our at such discontinued is costs earnings with time the as do intent Our with established items, amortization we accounting our operations adjusted they guidance meet entities non-service share investment valuation acquisitions.

third XXth, be quarter. Finally, will August investors in at the On IDEAS we will conference the Chicago. meeting during with present we Midwest

Research's York call will with we in the will over I participate Industrials Research Buckingham Conference Global September Vertical Partners turn to XXth, in and On we in New that, Connecticut, Gene. City. in Conference will September Xth, And Industrials participate on

Gene Lowe

Thanks everyone. joining afternoon, Good Paul. us. Thanks, for

segment today, call conditions and end-market results, going performances, on On a overall you into update Q&A. we'll before with our brief the provide

growth, and free adjusted growth, cash again quarter, operating significant revenue the For generation. flow we profit achieved margin expansion,

have active. remains for been of the to the and opportunities first acquisitions strong. continues smoothly in half year go very integration our of of execution overall results Our The pipeline our

Our our growth strong and performance the provides to capacity inorganic our delivering and targets. executing on on condition plans us financial continue organic

we quarter, customers an claims South GE, settled in the that Africa between our one on material projects of all us. the During with secured agreement

customer in While first-half $X.XX. in to other there from of strength liability. to is $X.XX this results, range XXXX work our into winding our demand solid range of half of step agreement claims exposure an increasing do his to with forward full-year $X.XX on Based more important of Scott the prior parties, this section. the our the the to settle visibility more our year, will back we adjusted down operational detail legacy to our are in $X.XX for performance and this EPS a address to is guidance in

Turning for QX an to $XXX to quarter. million increased with adjusted and $X.XX, compared our the Revenue year was of results XX% the increase prior X.X% EPS XXXX. from

the measurement revenue, segments margin expansion. detection our Our key and growth, were drivers engineered and and solutions of

the progress and made growth on always, inorganic organic As our we and framework our value the on briefly during touch creation I'll quarter initiatives.

compelling and new Customer heating feedback we million solution our which drive cooling these year, strong XXXX named organic segment product had in a applications. In million a market NC cooling and addressable Leader first been around that have boiler initiatives, larger is interest through growth traction, now BTUs. larger received we tower, little line HVAC to continues platform, X very our the XXX,XXX Everest gain for XX X orders our new our size HVAC for range. presence steel, faster-growing product expands sizes, heat like BTU remains of new stainless This boilers from line platform, where In our ago. our million just to range Environmental high-efficiency months of we our has and to continue rejection X which is positive to opportunities

In for innovative LED including Vanguard as products, lighting part section, lighting technologies demand see solution, acquisition. as our and Sabik continue our installations, we Flash, our acquired strong communication airport to measurement the detection well of which as our a ground high-intensity we

condensers. Turning to purchase well with to Refrigeration, completed produce In of we July, the a partnered SGS company know our robust most closely have we recent acquisition. and of line a evaporative

excited are team. to We our join have them

full-year XXXX by a SGS of million. acquisition the approximately basis, revenue would've our On increased $XX

refrigeration expands While small, we industrial see market this our favorable transaction is into product growth line that where addressable extension opportunities. solutions an important

Scott turn I'll now And performance. financial to the to our call review over

Scott Sproule

I'll Gene. start the quarter. for with Thanks, our results net

primarily projects to delivering lower-than-expected results measurement due than a anticipated our rate. our expectations tax earlier detection segment, effective and in Second-quarter exceeded and

per EPS Our the quarter on and an earnings was share of GAAP XXXX. or of XX% basis, quarter for was $X.XX $X.XX, from adjusted the second increase our an

our which achieve to full-year put a in results, QX the strong with pleased are us we updated targets. Overall, position

on into going detail South update Before Africa. our I'll provide results, an on more

with As settlement we finalized GE. Gene agreement the quarter, noted, second the during

to to view an step forward projects. positive as with our While important to in the exposure winding more claims work agreement we settle this do have down we other parties,

this associated obligated projects good is is to with million are continuing this associated onetime the made feel are South flows operational $X of in with we South progress from cash In end, year reducing second-quarter approximately the is we level lowers Included associated opportunities and future From claims Overall, we with address of pursue counterparties. settlement our against progress of million. it the context to projects work the we charge by it cash to our $X the maintain loss uncertainty construction as the quarter agreement. have guarantees about Africa. the in us, a and amount projects, perspective, complete an other to the was outstanding usage the and claims expected with significant overall African of

from detection a slight increased during Revenue and a growth effect. acquisitions well solutions. as as decline $X X.X% by detection driven results. operating unfavorable and modest the both grew and engineered quarter. adjusted million approximately in segment, measurement, X% included and our Segment to now currency or organic measurement This and leverage the detection organic income growth measurement Turning our from in XX%, acquisitions

points to improved Adjusted XXX expanded total of in detection higher proportional and engineered margins revenue approximately performance due basis operating measurement our segment coming solutions. from and

also of revenue. the headwind. Now I'll by details modest for the offset walk Lower a and you Organic FX cooling experienced through revenue revenue starting with decreased segments, in results HVAC. the we heating quarter X.X% was growth moderate by

the cooling QX. product XXXX concentration year to of shipments the revenue of due As in was year on HVAC in a second quarter reminder, up primarily XX%

year, this decreased XX in million declined For by basis income points. adjusted-segment $X.X margin QX, and

impact favorable the higher successfully are in We of capturing volumes and input was cost lower inflation; cost by offset excess operating during the price however, margin quarter.

continue about we As meeting full-year stated our feel – of good pass feel previously targets. the we to the year, midpoint

While QX, XX.X%, impact full the – X a late the million. million on quarter. by QX, only to and to SGS shipping increased our and a increase projects early certain range increase a acquisition results In requirements, by $X in million increased a based for project FX they in on has We communication segment-revenue $XXX driven for resulted better-than-expected platform. revenue guidance of income segment Organically, headwind. X.X%, measurement, of and modest including shipments acquisitions does XXXX, revenue XX.X% year but delivered from our it detection $XXX customer in strong modest anticipated technologies were

XXXX. quarter a XX.X% Adjusted segment full to largely was margins approximately mix, completed of including of points. were income sales decrease basis acquisition, XX was CUES or of due a which decrease June The in the

favorable activity for revenue contribution. X.X%, approximately by from to during our execution segment technologies $X strong – In reflecting primarily revenue and million segment segment increased the business, $XXX $X.X a are our increased the margins $XXX of million visibility demand increased the especially X.X%, second into transformer our improved higher we full-year increasing basis which million our transformer in our to communication income a guidance half, and in million, performance results due to income first project XXX Given business. the quarter points engineered also to for half our margin and income segment in range solutions, platform,

Turning financial position. now to our

the approximately operations. million, year. adjusted modest our we and $XX cash We to sheet approximately $XX associated which the greater with target projects and in equivalents remains of full second than In of adjusted XXX% South excludes we usage generated Our million, cash quarter of free African cash ended the for heat quarter, flow the with continue strong. the balance transfer free-cash-flow conversion net adjusted income

which Our the for at was net end to Sabik some continues X.X leverage acquisition. of financing times short-term the QX, include

target for net XXXX, range leverage expand times, we EBITDA our As leaving deployment. half further expect end of X.X low well cash our to over positioned to and we times decline capital the us to our X.X of the of generate second

to guidance. Turning XXXX our

to share are We $X.XX of $X.XX. increasing guidance to $X.XX a to range per from our full-year $X.XX previous range our adjusted earnings of

XX% over reflects new of range The XX% our XXXX results. to growth approximately

the As I and measurement guidance and we for modestly HVAC our increasing revenue earlier, detection noted segments. are

margin expect XX%. approximately We continue to income adjusted of operating

appendix rate, R&D also line with have in your adjustments as other well the associated the full-year We items. specifically details models, included help additional to somewhat tax as recognized higher tax credits lower to including QX, in you below update

costs, input regarding and inflation Lastly, pricing.

year. and outlook cost recovery basis full-year headwind of from full-year the XX anticipate performing to experienced and are price last businesses feel for favorable the or where about In our summary, good we we continue We we a margin impact of points about are well.

in call a the his markets for our turn end Gene to I'll review back closing comments. Now of

Gene Lowe

Thanks, Scott.

by in of strong XXXX are a and us. the on excited see for We opportunities track we front

and end HVAC data our industrial, to Demand including institutional, products in see support driven for addition centers the For outlook. to commercial we is order by cooling our and rates continue light end various that solid market. full-year cooling, markets backlog

In new we solid to we initiatives. a traction continue get quarter, and as products HVAC heating, had on

detection appear the reminder, we demand are marine transformers project run opportunities of grow a solid from remains steady, rate has market and demand volume our and log communications utility technologies front year, customers. The for in remains nicely, currently and to products channels lighting continues see of in measurement, to the and months we our well In been warmer solutions lower and balanced typical. preseason demand and As solid. continue for our

balance activities the very I'm continue sheet organization. provide value-creating XX very significant strong the the happy benefits our with strategic and capital smoothly, to liquidity are and go allocation summary, pleased past and acquired attractive growth to for us opportunities In in we throughout and the realizing months. the have continue capacity we A our pursuing are initiatives. over we acquisitions performance Integration our company's year-to-date accomplishments with

Our has on deploy with our to significant opportunities is been platforms. years M&A pipeline many build in the and active it strategic to most capital

but predict, creation attractive remain we continue to our The growth to and return difficult Overall, double-digit transactions acquisitions profiles. will timing continue of strategic generating for strong a to shareholders. value track driving and pursue fit can be with earnings we on

the call And now, back over I'll to turn Paul.

Paul Clegg

Thanks, go Laura, are Gene. we to questions. to ready

Operator

We Thank Research. instructions] Brett you. Linzey with have first [Operator question Vertical your from

Your now line is live.

Brett Linzey

everybody. good Hey, afternoon,

Paul Clegg

Hey, Brett.

Brett Linzey

and with start detection to measurement. wanted Just

from only result that a growth. You had bit little but have more. the I pull-in compare. against pull-in flat would QX QX, had was X% boosted still thought And a a into you would've

just talk for what modeling maybe for the like about purposes. activity So QX project QX cadence the and and looks

Scott Sproule

is Hey, Brett, Scott. this

based it wanted quarter, there to and timing, so which pulled yeah. beginning our going in. we So, of customer the QX it We we was set customer earlier, had early – be like looked on

the for So, positive yes, it was quarter.

QX's as they but see transportation look reminder, you of, operate year timing organic and project that, we a differently, at second second had kind first different the weighed look as at organic Now, the communication some across segment, from perspective, for year we were you the organic transportation, kind differences the just so businesses over that technologies flattish between will you business it growth basis on in on the growth And percentages. half half. a of – look half, an we at

Brett Linzey

XX%? a expect the in had pull easy there? though that really too, some even you growth, I you And actually mean, with in comps down QX,

Scott Sproule

we QX guide guide was the orders the timing. is see is the the project the of the part is, the of But really just profile overall clearly developing. the by strength Well, mostly how QX, – – of driven increase

the to even to of to And were that. we're we a reload though portion for had So half trying able then... we in, some good pull second –

Brett Linzey

did know Okay. don't relative in of mean, guide QX, QX but how expectations? quarterly, internal to guys And you I terms up shake I your

Scott Sproule

and performed really ahead all at I then Yeah, QX the better expectations, income, or tax rate, lot was measurement. as our about. talked other businesses ahead And I expectations, said. than driven was was of as It of by predominantly our segment and of that. by a Really, detection benefit the

tax we higher finalized – return. and So tax our credits development took we XXXX research we have as

increasing expect. So there was we're then true-up amount we a there, the and

So level across this been things the couple development is of department working that years really of tied doing to over we've for that the product business qualify tax the and credits. identify to new last elevated our

So really work across the good group.

Brett Linzey

Okay. solutions. my there. forecast, nice maybe Beat Good. really shifting then margins to And engineered just some

Any like It did out that is price getting snapping does call bridge. you on transformers there driving Is back Or color the better really and that's that better? look cost productivity throughout? getting performance. you're

Scott Sproule

It's predominantly better throughput in productivity transformers. and

Brett Linzey

Got it. more. And then maybe just one

base. of does I fit sort with relatively theme, SGS. it get HVACR small Regarding the sales but

the I here some need more on that of guess that the And larger just of you would think more Or of characteristic be And four asset position isn't typically think to refrigeration? you product I follow it thinking scale or the about more is, a the do in buy five that or it's three, in do that angle Am have of players. correctly? in the distant I portfolio. market differentiates? a you

Gene Lowe

condenser, SGS, is that have number a known evaporative developed Yeah, put for and them through Marley, We market. them of years. with have basically we Brett, Gene. and this that We jointly evaporative know condenser we've an

really they have channel there. So the

two we two It's two cooling The are players primary our that really with players competitors business. there. BAC market and and in Evapco are that the really HVAC compete

business. very nice to grow Their is So incremental revenue to us opportunity that million. see a $XX we actually

evaporative is revenue actually they products than through condenser their higher that our The sell channel. because

that market can't well. know opportunity that. actually obviously you think a we count for double see So But we there. nice that growth We

competitors We and market. that those think that grow well, in know and we we can win

market look that market. called largest The at cooling the I'd open-circuit portion point is and in very cooling business, if other that we're is very, you towers, that thing out our of strong

the the The the are believe fluid we're market. into really the leader – we're market. smaller We is market, we that – segment, newer in cooler relatively

at if condensers as And be used same fluid with or you changes. very close products of minimal SGS, look for evaporative coolers product the can a lot

growth that up only can segment, we against – opportunities this think good help well we but predominantly market we a but opens our us core So is adjacent know not gives two cooler. new it us think also that are which us competitors competitors, market to fluid it in coil

like really it's and we think provide for this us So to going acquisition, opportunities we some going forward.

Scott Sproule

also Brett, this profile. We add. about is think Scott. acquisition I would the

we're see after this we're of where we line different go is focused, then existing footprint a You're product nice see where Typically, right. tuck-in, in a than but we not similar a their Schonstedt leverage is little opportunistically, to acquisition, nice this, further necessarily we will profile this extension, type to that. those like channel. And bit do but targeting looked opportunities

Brett Linzey

along. the pass great. Appreciate color. Okay, I'll

Operator

you. Thank

with Karas line Your Damian UBS. of next question the from comes

now is live. line Your

Damian Karas

Hey, good evening, guys.

Gene Lowe

Hey, Damian.

Scott Sproule

Hey, Damian.

Damian Karas

augmented of most strong the I'd the Along little sounds lines, quarter. we in where a than they three different you're industrials everywhere. quarter on some just the like Things say in the bit guidance better So were heard are that's raise, this not outlook. months and just if places. it ago from congrats scenario performance about those

or there Are of maybe wondering three of a lot under signs some hood just you the seeing of any I'm segments. your Gene, you're where different moving have pieces weakness? areas pockets

Gene Lowe

Yeah.

serve, U.S. to it's always we're that the I based. I everyone we're makes end on markets our think and very you good markets. it a the probably remind But predominantly look if think sense keeping focused eyes question, at we

a a just very things But On asynchronous feel our are of detection lot markets high particularly different of in the amount government, and right below are good. to GDP, have that replacement broader go measurement. revenue, markets. XX%. by with end the driven We heating, you if And of a regulatory and lot we

about. we that business like boiler and initiatives We gain That's and product business focused the a is. channel where had – We about. we we on feel that steel think in steady. share talked that's like Cooling, VRF, is that really good stainless a initiatives position

see the Having We said we do about market. feel commercial that, good year.

commercial any slowdown out end Some the in questions our market. demand markets. about there don't in see We

the run the And level side, backlogs, our been frothier have And steady. forth. things are markets, of a light serve does actually as say, so on a side. we've well: detection centers, But log, lot from on industrial, other that in then what the healthcare, And project been, we in reminder, has healthier, than we I anticipated. see would good category and see as cooling data what our front rates

And we've it's Transformers raise steady has say, and And what to very steady in been amount then every seen some A eddy. year. for I'd the detection process and solutions, the contributor there steady. we that's measurement engineered been and nice expected. is good conversions a of in about demand year

if investment look radio bit only I business, of our a would geography slowness seen So, yes, a of of a over Actually, I'd to been side people the attributed across U.K., concerns be U.S. the activities. there think flip softness our markets, to can good. pretty Brexit. lot healthier a some where Brexit. little the little that we've of seen say, But detection of area which investment all believe I there's think with would there's be in you of been we've in be or The due the lack capital bit

us, what if to our you we Scott, comments we So see have of across make? markets, front in other you good. look feel

Scott Sproule

other in and cooling I add process the process engineered only is The Yes. would side. one

opportunity, closure we're acceleration seeing bit really work less And that's related seeing little of You sluggishness are a coal plants. bit so service of there. of to the – a of an

flat. the causing current Gene real on that's said, as and compensated weighing be But by markets. current market the be to other that's U.K. But year the would year other been And

Damian Karas

And on process non-transformer the of business. the of I Okay. That's remaining business, subject part part engineered of I that helpful about the wanted the really color. solutions, guess ask you to

roughly two of, we're, think and half, kind years into I a shift. a year strategic the

You and out? you selling terms building guys give things less have – color that of update being a the some building components. give. Any where doing stand on work proper growth kind you Could are of on being increase? less an in could on progress you focusing Where maybe some supplier, Seeing more there? seen ENC-type of – and

Gene Lowe

I Sure. spot business, that you're I Yeah, about think think Damian, on.

business, our So think that is then down We of about commodity and say, is today. We the you're let's There had the $XXX market. business was a we that brought interactive down the I that And more million of, services business. the service, there and strategically it, of way neighborhood really they is components, is And really new-build projects. an growing components on think didn't then in and right, the thought projects. our area new-build return profile. we doubled there

And over in area well couple of very seen in that's components as and, growth as successful. years nice our the service. been our We've very actually past

is we you've seen dollars that percentage business margin which its a and unprofitable decline margin the each And both been in so exit revenue, margin to year market. despite the segments was strategic increasing a the of decision very made has low that its

of where improvement this basis fit we committed engineered XXX year. we've points to So today, solutions,

XX% obviously both we've going next businesses, But well. operating committed to profit, XXX that. that's EBITDA, about feel X% as another basis good maybe points and That's year. transformers, We to

would normal. there. growth strategy industrial GDP the actually, the mode, we forward more anticipate high-growth of wouldn't very seeing continuing more business it into going to a a has again, We're growth, a working normal growth say the I but enhance focus moving a on a think margins of well. results. business we mode, a with, in And So been our

Damian Karas

Okay, thanks. one. quick And one last

impacts today. about some kind Just like us, material since when once time give of Could issue the tariff it around you Could through? its abruptly impact business? kind the update final this and of how go China I of if, the remind better sort back, you could on whole that, next just how has head anticipate us it the did emerged think was you're didn't any an you thinking – tariffs

Scott Sproule

This is Yeah. Scott.

source at – it's and chain looking sales, from driven it's again, profile our our And you correct. of we low our product. is, at digit, where China you're look single cost So supply product,

tariffs does the a really significant not for had these what inactive new anticipate it been have we any impact potential tariffs. impact significant or So from that

Damian Karas

Okay. Thanks, everyone. I'll pass on. it

Gene Lowe

Thanks, Damian.

Operator

comes Buckingham. question next Robert Your from instructions] [Operator Barry you. of line Thank with

is now Your line open.

Robert Barry

good guys. Hey, evening,

Gene Lowe

Robert. Hey,

Scott Sproule

Hey, Robert.

Robert Barry

Just things to here. clarify a few

it just issue. comp in and So was HVAC That with do that that cooling declined anticipated to Is nothing sounds like right? kind weather. of

Scott Sproule

of That's the QX correct. more It's really last year. performance in elevated

Robert Barry

tax benefits we Got model – in XX%. back tax credit of the quarter? in the half it. rate all the XX% kind should second And come to that Do those

Scott Sproule

finalize The benefit the Yeah. tax return. of significant the – from was in change XXXX recognition out rate tax the our we most as

So you'll half. second get a more normalized rate in the

Robert Barry

same Got Africa-related to the that deal? post the cash I And the million. up GE any it. flow? still $XX to this expectation South think then was Is change

Scott Sproule

No No that in year. for the Yes. change. change

Robert Barry

Got just lastly. then it. And

was I about M&A being common particularly robust. think some there the pipeline theory

Just curious you're you're perspective seeing looking what at. valuation in a what from

Gene Lowe

not an been a don't inexpensive disciplined, – market. been a, when what You I a say, would successful is disciplined. it's have seen we've we've know, have been prior. Robert, think, I not and But think lot of it we change I we from

build growth As our about start how become we has over our customers we how how we of year. can with we a past competitive can serve always can – better. we can more in stronger. our a and we And been strategy, about platforms. of reminder, We really think progress We strategies the – think anything made And lot out with grow I think – how how on we think all gain strength. first we strategy

a of a as of opportunity us. result think in attractive set front that, I very see we And

to four for on attractive our to be caution have that what really forward. that move look would developed, valuations, say I platforms. always and in the You be believe you we to bolt-ons profile our to used will have and us build strategies first at has at and obviously, We have disciplined strategy. return timing, But an we is, look valuations, out there we the because you our

And that in us. sets I good feel we front we would say opportunity about of that see the

and back will But from questions, past in of haven't thresholds, obviously of your what spoken change So quarters not return we those. a I multiples to past. specific the in and we seen have couple – the lot we've changes about the that

Robert Barry

Got it.

mean I that lastly, sense portfolio pipeline, about at. a just say don't look at I the if consider, terms size in of actionable. Just with you you're the know Give of top of of things you'd ranges quartile that the when looking things just us

analyst have to at had wanting day, you starting actually, think I appetite for to talked some even about acquisitions. do an larger-scale the maybe

Gene Lowe

thinking that the pretty opportunities head, see past, range. in that the we some we've million We most million would see $XX top of off the tactically to Yeah. interesting $XX of my in probably I range. opportunities in say, said are the

us we've communicated in And a that our I'd front the we see business. us. be one extension be most of also a range in into I We just to bring of would could the of that years SGS for sweet for But than a bit had is really is strategic acquisition, place well. us natural think, that, – opportunities in little range. larger see spot I very or past. more a that interesting it's think number The very in partnership in that and It for say our we've that two as pipeline

Robert Barry

Thanks Have good Great. so right. a All night. much.

Gene Lowe

you. Thank

Scott Sproule

Thanks, Robert.

Operator

I'm would Mr. no Thank questions you. like to now back showing at Paul Clegg. turn this to time. I the And further conference

Paul Clegg

in. next you Thank forward quarter. of to to all for Look dialing Laura. Thanks, talking again you

Operator

Thank your participation for Ladies have conference. day. a and and gentlemen, wonderful this concludes you today’s

disconnect. You may all

SPX (SPXC) 4 Aug 192019 Q2 Earnings call transcript