Gardner Denver, Earnings Call INSIGHTS: Pressure Pumping, Drill Pump Trends
On Friday, Gardner Denver, Inc. (NYSE:GDI) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Brian Konigsberg – Vertical Research Partners Inc.: Just want to start out on pressure pumping. It sounds like cancellations have actually been fairly modest to-date. Just the conversations from your customers and the dynamics that you’re seeing on the ground, you anticipate to accelerate into the second half of the year or do you feel as though the customers really have a grasp on supply and demand in the market?
Michael M. Larsen – Interim CEO, VP and CFO: What I would say is that we have a backlog now in pressure pumping that gives us confidence in our forecasts for the second half of the year. At the same time, I’ll tell you that conditions are certainly not improving in pressure pumping. As a matter of fact our previous guidance which included a significant decline in the second half of the year is still valid, and if anything, we’re also seeing that the aftermarket is becoming more challenging, so what I would say our view on pressure pumping that we expect on the last call that for the next 12 to 18 months in North America, there is ample supply of equipment that’s still valid. Now that said you’re right. The team did a great job working with our customer and kept the cancellations to a fairly modest level. We’ve also seen some pick-up in demand internationally, so I think we’re developing – continue to develop our view of a very dynamic situation, but like I said we are not expecting any type of improvement here in the short-term.
Brian Konigsberg – Vertical Research Partners Inc.: Just on the aftermarket, it seems like that will become a much bigger focus for yourself and your compactors. To anticipate that there is going to be I guess substantial incremental pricing pressure in that business, maybe just give us a sense how you expect that to play out.
Michael M. Larsen – Interim CEO, VP and CFO: The way I would answer that is when we have a market that grows as quickly as pressure pumping has over the last say two year, and you have significant amount of capacity being added over the same time period. When thing slowdown, it would be reasonable to expect that the competitive pressures increase. That said if you look at our customer base which is concentrated on a fairly short list of large customers who value reliable aftermarket fluid end that is safe, that lasts, that is back by the warranty from a record level company, they really are not that many alternatives. So, I think that to some extent will offset or mitigate some of the pressure that you would expect to see on price, but clearly the dynamics here in the aftermarket are challenging.
Drill Pump Trends
Michael Halloran – Robert W. Baird: Just continuing on the aftermarket comment that you made that things were softening a little bit there even, could you maybe parse that out a little bit more finely. Is it the amount of capacity created by the original equipment side, and the fact that that there’s fluid ends available there and there’s more supply there? Is it the transition from nat gas towards oil rigs and the dislocation that happens there, or are you seeing activity levels slow on a broad basis, which is also impacting it? So, maybe just a little bit more finer detail there, please.
Michael M. Larsen – Interim CEO, VP and CFO: Yeah. I would say, first and foremost, it’s probably the first thing you mentioned, which is excess equipment pumps, as well as aftermarket fluid ends in the market. I think the transition from gas to oil is largely complete, is our view, so I wouldn’t say that that is contributing factor going forward. It’s really excess supply that are causing this low here, and that we expect will continue in the next 12 to 18 months. I think, everything, you will see a reduction in CapEx budgets from our large customers. So, that tends to favor the repairs activity in the aftermarket and that’s where our investments in a world class facility for repairs in Fort Worth are expected to give us a significant amount of benefit as we go forward.
Michael Halloran – Robert W. Baird: Any commentary on how the drill pump trends for you guys are in the quarter and any signs of changing dynamics on that side of the business?
Michael M. Larsen – Interim CEO, VP and CFO: Yeah, I think if you look at drill pumps we clearly saw a slowdown in orders here in the second quarter. Total P&IP was down about 60%, which also includes drilling pumps. So we’ve got a strong backlog here that gets us through the next six months, the majority of which is with a long standing terrific customer that historically hasn’t cancelled orders and we certainly don’t expect that but I will tell you that we also don’t expect a significant increase in drill pump orders in the near future. Now, all that said, a lot of this depends really on what your assumptions are for commodity prices. Your assumptions for crude oil and natural gas are moving higher recently, could bring this down cycle and stabilize it sooner; depends on your assumptions for rig count, and I think in general we have to say that things are slowing and the outlook for 2013 is not as optimistic as six months ago.
Michael Halloran – Robert W. Baird: On the IPG margin side, the margin progression there seemed certainly faster than your expectations that you laid out in the most recent couple of quarters. Maybe you can talk about some of the drivers you’re seeing in the quarter, whether some of the headcount or facility reductions are starting to impact, sourcing whatever it is starting to impact your margin lines sooner than expected and maybe just thoughts on the progression from here
Michael M. Larsen – Interim CEO, VP and CFO: I would say the main contributor was really the Robuschi busyness, delivering on what they thought they would be able to do which is operating margins that are in the low 20s, so clearly we benefited from the first full quarter of Robuschi operating on what I would say almost all cylinders. That certainly helped. Other than that, very good cost control, I think if you look at our SG&A, down 3% year-over-year is a pretty good accomplishment and those are things obviously Robuschi and SG&A that’s going to continue to benefit us here over the next couple of quarters, so I think in terms of our expectations for the year IPG margins was previously said flat at about 12%, I would say that still the case and also say that it could be a little bit better than that, a lot of it really hinges on what happens as we start restructuring here in the second half and how do we keep everybody focused not allowed productivity to drop off, but you’re right overall good quarter, good performance by the IPG did on margin expansion.