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NACCO Industries(NC) - 2019 Q1 - Earnings Call Transcript
NCNACCO Industries(NC)2019-05-05 00:21
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Financial Data and Key Metrics Changes - Consolidated operating profit increased to 16.4millionfrom16.4 million from 9.7 million in the previous year's first quarter [11] - Consolidated net income rose to 15millionor15 million or 2.15 per share, up from 8.2millionor8.2 million or 1.18 per share last year [11] - Effective income tax rate increased to 13.4% compared to 9% last year [11] Business Line Data and Key Metrics Changes - Coal Mining Segment: Operating profit decreased due to the absence of a 1millionfavorableadjustmentfromthepreviousyearandincreasedselling,general,andadministrativeexpenses[12]−∗∗NorthAmericanMiningSegment∗∗:Operatingprofitdecreasedprimarilyduetoincreasedselling,general,andadministrativeexpenses,includingadditionalbusinessdevelopmentcosts[13]−∗∗MineralsManagementSegment∗∗:Significantincreaseinoperatingprofitduetoariseinthenumberofwellsoperatedbythirdpartiesfornaturalgasextraction[12]MarketDataandKeyMetricsChanges−OveralldeliveriesintheCoalMiningsegmentareexpectedtodecreasemoderatelyforthefullyear2019[14]−NorthAmericanMiningdeliveriesarealsoexpectedtodecreasemodestlycomparedto2018[15]−Royaltyincomeisanticipatedtoincreaseyear−over−year,althoughatalowerratethanthefirstquarter[16]CompanyStrategyandDevelopmentDirection−Thecompanyisfocusingongrowthopportunitiesintheroyaltybusiness,leveragingtechnologicaldevelopmentsandinfrastructureimprovements[26]−NorthAmericanMiningisexpandingitscorebusinessandexploringnewcontractsbeyondFlorida,includingarecentsandminingcontractinVirginia[30][35]−Thecompanyaimstooptimizeitsoperationsandexpanditsserviceofferingstoquarryoperatorsandmineralproducers[32]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpectsconsolidatednetincometoincreasesignificantlyin2019duetohigheroperatingprofitandreducedinterestexpenses[17]−Thecompanymaintainsaconservativebalancesheet,allowingforstrategicbusinessdevelopment[34]−Futureroyaltyincomeisdependentonthird−partyproducers′activitiesandnaturalgasprices[28]OtherImportantInformation−Capitalexpendituresareexpectedtobeapproximately1 million favorable adjustment from the previous year and increased selling, general, and administrative expenses [12] - **North American Mining Segment**: Operating profit decreased primarily due to increased selling, general, and administrative expenses, including additional business development costs [13] - **Minerals Management Segment**: Significant increase in operating profit due to a rise in the number of wells operated by third parties for natural gas extraction [12] Market Data and Key Metrics Changes - Overall deliveries in the Coal Mining segment are expected to decrease moderately for the full year 2019 [14] - North American Mining deliveries are also expected to decrease modestly compared to 2018 [15] - Royalty income is anticipated to increase year-over-year, although at a lower rate than the first quarter [16] Company Strategy and Development Direction - The company is focusing on growth opportunities in the royalty business, leveraging technological developments and infrastructure improvements [26] - North American Mining is expanding its core business and exploring new contracts beyond Florida, including a recent sand mining contract in Virginia [30][35] - The company aims to optimize its operations and expand its service offerings to quarry operators and mineral producers [32] Management's Comments on Operating Environment and Future Outlook - Management expects consolidated net income to increase significantly in 2019 due to higher operating profit and reduced interest expenses [17] - The company maintains a conservative balance sheet, allowing for strategic business development [34] - Future royalty income is dependent on third-party producers' activities and natural gas prices [28] Other Important Information - Capital expenditures are expected to be approximately 23 million for the full year 2019 [18] - The company ended the fourth quarter with consolidated cash on hand of 79.1millionanddebtof79.1 million and debt of 12 million [19] Q&A Session Summary Question: Has there been a meaningful change to the 2019 outlook? - Management indicated that there has not been a significant change, with coal and North American Mining operations performing in line with earlier expectations [21][22] Question: What drove the spike in royalty income this quarter? - The spike was entirely due to increased production activity [24] Question: Is the company pursuing growth opportunities in the royalty business? - Yes, the company is actively pursuing growth opportunities and has hired a petroleum engineer to optimize income streams [26] Question: Will royalty income increase year-over-year for the remaining quarters? - Yes, it is expected to increase year-over-year, but not at the same rate as the first quarter [27][29] Question: What business development initiatives are being pursued in North American Mining? - The focus is on expanding existing core business and exploring new contracts beyond Florida [30][31] Question: What drove the decision to buy back stock in the first quarter? - The decision was based on the belief that buying stock makes sense when there is a good return on investment [39] Question: Under what circumstances would the company return cash to shareholders in the form of a special dividend? - The company has a disciplined approach to returning capital and does not see paying a special dividend as necessarily in the best interest of taxable shareholders [41][42]