NACCO Industries, Inc. F4Q and Year End 2008 Earnings Call Transcript

| About: NACCO Industries (NC)

NACCO Industries, Inc. (NYSE:NC)

F4Q and Year End 2008 Earnings Call

March 13, 2009 11:00 am ET


Christina Kmetko - Manager of Finances

Alfred M. Rankin Jr. - Chairman of the Board, President and Chief Executive Officer

Kenneth C. Schilling - Vice President and Controller


Frank Magdlen - The Robins Group

Charlene Mills - The Boston Company

Mark Sigal - Canaccord Adams

Vanessa Miranda - Stanfield Capital Partners


Good morning ladies and gentlemen and welcome to the NACCO Industries, Inc. Fourth Quarter and Year End 2008 Earnings Results Conference Call. My name is Noelia and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference Miss Christina Kmetko, Manager of Finances. Please proceed.

Christina Kmetko

Thank you. Good morning everyone and thank you for joining us today. This morning a press release was distributed outlining NACCO’s results for the fourth quarter and year-end December 31, 2008. If anyone has not received a copy of this earnings release or would like a copy of the 10-K please call me at 440-449-9669 and I will be happy to send you this information. You may also obtain copies of these items on our web site at

Our conference call today will be hosted by Al Rankin, Chairman, President, and Chief Executive Officer of NACCO Industries. Also in attendance representing NACCO is Ken Schilling, Vice President and Controller. Al will provide an overview of the quarter and full year and then open up the call to your questions.

Before we begin, I would like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. Additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-K. In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included on our website and in our 2008 fourth quarter earnings release, which is also available on our website.

I'll now turn the call over to Al Rankin.

Al Rankin

Thanks Christy and good morning to all of you. The Company’s revenues for the fourth quarter of 2008 were $949 million which was 13% lower than the $1.1 billion in the prior year period. The sales decline was primarily attributable to lower volume and all of NACCO’s subsidiaries primarily as a result of the deteriorating economy.

During the quarter the Company wrote off the goodwill on its books. Because the Company’s stock price at year-end was significantly below the Company’s book value of tangible assets and its book value of equity accounting rules effectively required that the company take a non-cash write off of goodwill and certain other intangible assets totaling $436 million or $431.6 million net of taxes of $4.1 million. The Company recorded those pre tax charges as follows: $351 million at NACCO Materials Handling Group; $80 million at Hamilton Beach and $4 million at Kitchen Collection. The goodwill and intangibles were incurred largely as a result of acquisitions in the late 1980s and early 1990s. Also in the fourth quarter, basically as a consequence of the goodwill write off, the Company recognized a non-cash charge of $15.3 million against accumulated deferred tax assets for the European operations of NMHG's Wholesale and Retail subsidiaries.

The Company believes that current stock market valuations, which were the basis for the impairment testing under the existing accounting rules are generally reflective of broader global macro economic and stock market conditions and I must say also the trading characteristics of our own stock, rather than reflection of the operating fundamentals and the programs being implemented at each of our subsidiaries. We expect that as market conditions improve the Company will find that these fundamentals and the programs in place at each of our subsidiaries is well positioned, each subsidiary to move positively toward the achievement of sound long-term financial returns.

From here on all of my remarks will address adjusted income which, as Christy indicated, excludes the goodwill impairment and the charge against deferred tax assets and the non-GAAP details and the reconciliation to GAAP of these earnings are all outlined in the supplemental data pages that are attached to the earnings release.

Consolidated fourth quarter 2008 adjusted net income was $18.7 million, or $2.26 a share and that compares with consolidated net income for fourth quarter of 2007 a $59.1 million or $6.27 per diluted share.

Economic conditions in the fourth quarter deteriorated and that deterioration significantly affected consolidated results. A few key perspectives on these numbers: at NACCO Materials Handling Group the adjusted loss was $1.6 million in the fourth quarter compared with net income of $23.8 million in 2007. The key drivers for the change were a decrease in market volume for units and parts, unfavorable foreign currency movements, and costs associated with reductions in force.

NACCO Materials Handling Group retail had an adjusted loss of $1.6 million in 2008, compared with a net loss of $1.1 million in 2007 and the key driver for the increased loss was an increase in income tax expense, underlying operating results were better due to reduced spending and reduced interest expense.

Rising product costs and a weak North American consumer market had an adverse effect on results at both Hamilton Beach and Kitchen Collection. Hamilton Beach’s adjusted income decreased to $6.6 million in 2008 from $12.8 million in 2007. The decrease in 2008 primarily resulted from increased product costs net of price increases, lower unit volumes, and reduced sales of higher margin products.

Kitchen Collections adjusted income was $3.8 million and that decrease compared with net income of$5.9 million in the previous year. That was a result of decreases at both the Kitchen Collection and Le Gourmet Chef comparable stores due to fewer store transactions and lower average sales transactions.

North American Coal’s net income decreased to $4.9 million, compared with $6.6 million primarily due to fewer tons sold at the Mississippi Lignite Mining Company.

For the full year our revenues were $3.7 billion compared to $3.6 billion the year before. Consolidated adjusted income was $23.8 million or $2.87 compared with $90.4 million or $10.93 for the year ended the end of 2007.

All of our subsidiaries had lower results for the year ended December 2008. North American Coal was the one bright spot reporting net income of $22.1 million. Overall adjusted income was negatively affected by increased material costs not recovered by price increases, adverse foreign currency movements, and related volumes as the global recession unfolded.

Also, as the year went on, in light of the current economic conditions NACCO increased the capitalization of three of its subsidiaries by contributing $68 million to NMHG, $29 million to Hamilton Beach and $25 million to Kitchen Collection to put their balance sheets on a firmer footing.

As we look to 2009 economic and market conditions, of course, deteriorated dramatically toward the end of 2008 with a deep global recession likely to continue throughout 2009. The depth and the duration of this downturn, from my perspective, are extremely uncertain. Consumer markets in which Hamilton Beach and Kitchen Collection participate have declined as consumers reduce purchases and the forklift truck capital goods market in which NACCO Materials Handling Group participates has moved into a significant global downturn that has resulted in a decline in bookings in the America’s, Europe and Asia-Pacific.

Price increases, changes in product positioning, and product cost reductions were implemented in 2008 and early 2009 to offset higher material and transportation costs and adverse currency movements at both NACCO Materials Handling Group and Hamilton Beach in order to achieve more acceptable margin positions.

Well North American Coal’s lignite coal operations continue to be strong, the Company expects limerock production and limerock deliveries to be significantly lower in 2009 due to a continued drop in demand in the housing and construction markets in Southern Florida and an unfavorable legal ruling that terminated customers’ existing mining permits at most of the limerock mining operations. Limerock customers’ are expected to reduce inventory levels until they return to production under new permits that are expected to be issued toward the end of 2009.

The Company is really operating on the assumption that the economic environment will not improve in 2009 and accordingly we moved very aggressively to put plans in place to help meet the challenges of 2009. We have taken cost containment actions which include spending and travel restrictions, personnel reductions, suspension of incentive compensation and profit sharing, benefit reductions, wage freezes, and salary reductions have been taken at our consumer and capital good subsidiaries and here at our NACCO headquarters.

At NACCO Materials Handling Group these cost containment actions are unlikely to overcome the effect of reduced volumes in the early part of the year, particularly in the first quarter.

NMHG’s 2009 net income is expected to be somewhere around break even, assuming, and that is an important assumption, that market conditions don’t deteriorate further than we currently expect.

Retail’s objective is to break even while the consumer businesses anticipate weak markets in 2009 both Hamilton Beach and Kitchen Collection expect results in 2009 to improve increasingly over the course of the year, especially at Kitchen Collection where the new Le Gourmet Chef store format is in place and no further large product clearance program is needed. The Coal Company expects 2009 income to be comparable to the previous year.

Overall the Company expects its subsidiaries to generate substantial cash flow before financing activities and the Company has substantial cash available which provides flexibility with respect to capitalizing its subsidiaries.

As we turn now, I will touch on some highlights at each of the subsidiary companies. First at NACCO Materials Handling Group, wholesale income was$1.6 million compared with net income of $23.8 million in the fourth quarter of ’07. The revenues decreased from $760 million to $647 million as a result of a decrease in both units and parts volumes in all geographic areas due to the downturn in each of these markets.

Shipments in the fourth quarter declined to 20, 830 units from 25,046 units in the fourth quarter of 2007. The backlog, importantly, ran down considerably during the fourth quarter with a backlog of 14,900 units at December 31, compared with 30,500 at the end of 2007 and about 26,000 at the end of the third quarter. The significant decrease in results compared with 2007 in the fourth quarter was primarily due to a decline in gross profit, unfavorable foreign currency movements of $15 million pre tax mainly due to adverse currency revaluations and a $6 million pre tax charge for reductions in force at all NMHG locations because of the downturn in forklift truck markets.

Gross profit declined as a result of the reduced volumes and lower cost of sales of higher margin units and parts and an increase in manufacturing costs with less fixed costs absorbed due to lower production volumes. These unfavorable items were partially offset by the effects of LIFO liquidation at lower liquidation at lower prior year inventory costs of $6.7 million, reduced warranty costs, and benefits of $21.5 million pre tax from price increases that have been implemented in prior periods. Those price increases were, however, partially offset by material cost increases of $17.1 million primarily from increased steel costs.

As you look to 2009 NMHG wholesale expects significant declines in all lift truck markets around the world in 2009 and very little recovery until 2010. That will affect both unit bookings and shipment levels and parts sales.

The Company NACCO Materials Handling Group has taken a number of steps to respond to the market outlook. These include capital expenditure constraints, planned plant down time, reductions in force, restrictions on spending and travel, suspension of the incentive compensation programs and profit sharing wage freezes, and salary and benefit reductions.

The benefits from price increases that are previously implemented are expected to be fully realized in 2009 and NMHG is actively monitoring commodity costs and other supply chain drivers to ensure that we have timely implementation of reduction and provide additional opportunities to source components from lower cost countries and reduce working capital. We expect benefits from this, which are very significant, and at their conclusion about $17 million in annual cost savings.

We’ve got a regular compliment of new truck product development programs underway. Of particular importance is the new electric rider program which is progressing as planned. The new electric rider program is expected to bring a full line of newly designed products to market including the introduction of two series in the second quarter of this year.

Overall, NMHG wholesale expects earnings in the first half of 2009 to be well below the first half of 2008 with an especially difficult first quarter. Modest market improvements are expected in the second half of 2009 largely as inventory de-accumulation at dealers’ ends. Along with the benefits of new product introductions and the restructurings in reductions in force are expected to lead to something close to break even results, but that assumes, as I said earlier, that market conditions don’t deteriorate further.

We do expect significantly improved cash flow before financing activities in 2009 as a result of cost containment actions, plant restructurings, and particularly, importantly, a reduction in working capital.

Turning to Hamilton Beach, income was $6.6 million for the fourth quarter on revenues of $186 million compared with $12.8 million of net income for the fourth quarter of 2007 on $200 million. During the fourth quarter Hamilton Beach changed its method of valuing inventories from LIFO to FIFO and all of the prior year financial information that’s contained in the supporting exhibits has been revised to reflect those changes.

Revenues decreased due to a significant drop in consumer spending stemming from the weak economy and adverse foreign currency movements that were caused by the weakening Canadian dollar and the Mexican peso also contributed to the decrease.

The adjusted net income was down significantly. The most significant factors that contribute to the decrease were increased product and freight costs of $7.6 million, net of price increases of $1.8 million, lower unit volumes, and reduced sales of certain higher margin products. During the quarter there was also adjustment of certain inventories to market value and an increase in the Company’s environmental liability due to the bankruptcy of a corrupt responsible party, and the absence of favorable product liability adjustments were recognized in the previous year. When you put that all together it netted out with the significant reduction in net income. Partially offsetting those factors that were reducing income were lower employee related costs, unfavorable foreign currency movements, and lower interest costs.

As you look forward the global recession and other financial concerns are among the factors that create a really challenging retail environment as consumer confidence continues to decline. As a result consumer spending is expected to be significantly reduced in 2007, particularly in the first half, with Hamilton Beach revenues expected to be lower in 2009 than in 2008. On the other hand, Hamilton Beach is focused on high value adding products, which in a difficult market are more likely to hold up well than more discretionary products.

As a result of these lower volumes Hamilton Beach took actions which are very similar to those I just described at NACCO Materials Handling Group with regard to personnel reductions and so on. In addition to those, Hamilton Beach is working actively to improve its pricing, its product positioning, and reduce its product costs in light of the softening commodity costs for resins, copper, steel and aluminum, as well as reduced transportation costs and to get its margin structure to more acceptable levels that are comparable to earlier years before the spike in product costs occurred early in 2008. Hamilton Beach is monitoring those commodity costs closely and negotiating with suppliers and retailers on those costs, prices, and product placement programs.

Overall, net income and cash flow before financing activities are currently expected to improve compared with 2008 as a result of Hamilton Beach’s cost containment actions and efforts to improve margins through reduced costs, improved prices, and new product introductions and placements: again, the caveat that if markets deteriorate further revenues and earnings could be adversely affected.

Kitchen Collection reported adjusted income of $3.8 million on $78 million of revenue in the fourth quarter compared with $5.9 million on revenues of $85 million in 2007. The decrease was driven by a decrease in both Kitchen Collection and Le Gourmet Chef comparable store sales as a result of fewer store transactions and a lower average sales value. Those declines were the result of reduced traffic at outlet malls and an increase in shopping for lower priced items due to the current recessionary environment.

Uncertainty in the US economy and financial markets, and a reduction in consumer confidence, the same factors affecting Hamilton Beach affect Kitchen Collection and they’re expected to continue to affect consumer traffic to outlet and traditional malls and negatively affect retail spending decisions in 2009, which again makes forecasts very uncertain. Never the less, Kitchen Collection expects a modest increase in revenues in 2009 as a result of improved holiday selling, late in 2009, in comparison to 2008, and expected improved sales volumes and margins at the Le Gourmet Chef stores as a result of the completion of the new product enhancement and store merchandising programs. Those programs, coupled with the completion of the large product clearance program in the Le Gourmet Chef stores that significantly reduced margins in 2008 are expected to improve results in 2009.

Again, Kitchen Collection has put in place capital expenditure restraints, administrative cost control measures, including those I described for Hamilton Beach.

Kitchen Collection expects a difficult first quarter with increasing improvements in quarterly results for the remainder of the year and that will produce an improvement in full year results, as I indicated.

Cash flow before financing activities is expected to be slightly negative, but significantly improved compared with 2008.

North American Coal’s net income for the fourth quarter was $4.9 million compared with $6.6 million in the previous year. The decreases were primarily due to fewer tons delivered at Mississippi Lignite Mining Company as a result of its customers’ planned extended power outage and fewer limerock deliveries at the limerock mining operations which I described earlier. Those unfavorable items were partially offset by an increase at the unconsolidated mines due to contractual price escalation and higher royalty income.

North American Coal’s lignite mining operations are not significantly affected by the economic downturn, because of North American Coal’s long-term contract structure and the continuing high demand for electricity from the power plants that it serves. The Company does expect improved performance at its mining operations in 2009 provided that customers achieve currently planned power plant operating levels.

Tons delivered at the lignite coal mines are expected to increase in 2009 compared with 2008, especially at the Mississippi Lignite Mining Company as a result of fewer planned outage days and improved operating efficiencies the customer’s power plant. However, contractual price escalation at all mines is not expected to effect results as favorably in 2009 as it did in 2008 because of the recent declines in commodity costs.

As I have already indicated, limerock customer projections for 2009 deliveries continue to reflect the significant decline in the Southern Florida housing and construction markets and the Company really won’t be mining until the new permits are issued toward the end of the year.

The Company has a number of potential new products and opportunities that are under consideration and will be incurring additional expenses related to those in 2009. Permitting it taking place in the Company’s Outer Creek Reserve in North Dakota in expectation of a new mine and North American Coal is also working on a project with Mississippi Power to provide lignite coal to a new plant in Mississippi.

Overall, North American coal expects solid operating performance in 2009 comparable to 2008 and cash flow before financing is expected to be positive, but down somewhat from 2008.

That really completes my remarks and now I will turn to questions if any of you have them.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Frank Magdlen with The Robins Group.

Frank Magdlen - The Robins Group

On the Hamilton Beach side what is happening to your costs right now particularly in light of maybe declining deflationary trends for raw material and what are the new products? Can you give us new product examples?

Al Rankin

Let me address the issue of product cost first, because it is a very important issue. We have challenged all of our suppliers to get their costs back to the levels that we saw toward the end of 2007 and we have seen increasingly positive responses from suppliers as their own supply chains are having lower costs. To the extent that the lower costs have not fully come through at this point we have been working with our customers to change product offerings, to increase prices and generally to put ourselves back in a margin position that’s much closer to our traditional margin position than it was after the big spike in costs occurred.

I think the answer to your question is it’s a very aggressive program to get costs back down to levels that they previously were at.

As far as new products are concerned, I think if you want some more detailed list that Christy can provide those in a separate call, but we have a very broad new product introduction program. It covers our commercial products where we have an increasingly broad set of products. It covers our US consumer product lines and includes really new products in essentially every product category. On average, and I would have to check a little bit, but my recollection is that we renew about 1/3 of our products every year, so it is a very broad program.

To the extent your question was focused on break through products I think in the main these would be more classified as updating and enhancing the performance of products we have, ensuring that the quality is as high as it can possibly be. We give a lot of attention to quality. We have a very significant quality oversight organization in China that works closely with our suppliers and is actively involved in bringing forward a strong new set of products.

Frank Magdlen - The Robins Group

Okay Al. On the cost side could you quantity a little bit, ’08 costs were what percentage higher than ’07 and you’re halfway or ¾ of the way back to the ’07 levels?

Al Rankin

I don’t think I’d put it in terms of costs, but margin aspirations and I think that we’re hopeful that our gross profit margins will return to levels that are closer to 2007. That is the way I would put it.

Frank Magdlen - The Robins Group

All right and in the lift truck market do you have a feel for where dealer inventories are today versus what they were maybe six months ago?

Al Rankin

You know it’s a very geographically dependent answer that I have to give. We think that in certain areas of the world Eastern Europe, Latin America, South America, that dealer inventories were fairly substantial. The pipelines are much longer in those areas and so the factory booking levels have fallen off very rapidly in those areas. All factory bookings have fallen off very rapidly, but even more rapidly in those areas. Generally speaking, the last two months, December and January, I don’t have the numbers yet for February, showed global declines slightly over 50% in terms of market volumes compared to the previous year.

I would guess that by the end of February the largest portion of that will have worked its way through and we’ll be dealing much more with underlying retail bookings, order levels, but again, that will be somewhat dependent on the inventory situation in some countries. But, that is the general flavor that I would give you, which is that the biggest stress of that run off will, for us, occur in the first quarter or in first quarter bookings and then we should return to levels that are closer to retail consumption levels.

Frank Magdlen - The Robins Group

All right and in your backlog number will most of that be shipped in the first quarter?

Al Rankin

I would have to think about it carefully, but in the main our 12 weeks of backlog would mean that most would be shipped in the first quarter, but some will go into the second quarter. I can’t really give you the numbers on that, but certainly some of those are planned to be produced in the second quarter.

Frank Magdlen - The Robins Group

All right and do you have your market share numbers for ’08?

Al Rankin

Well we have never commented publicly on our market share. Not in recent times in any event. But, we feel that it depends on the product category. We’ve had some customers that have been good customers of ours that have been more stressed than some of our competitors, for example in the automotive area. We’ve been gaining share in certain products over the last couple of years, particularly in Class 2, that is the narrow isle types of warehousing products. Overall we’re a little bit lower, but it’s more related to the industry segments, in my view, and how we’re positioned in certain markets. But, it is a relatively stable situation and we expect to have about our normal level of share as we look forward in the course of 2009.

Frank Magdlen - The Robins Group

All right. Company wide can you give a feel for what your headcount is down to, or what percentage it’s down?

Al Rankin

I really couldn’t give you company wide figures. We don’t tend to look at it from that point of view. Just go through the businesses and say that the coal company is stable. They operate efficiently and their demand characteristics haven’t changed much.

The bulk of employees in Kitchen Collection are out in our retail stores and we have restricted hourly hiring to try to tie it better to the sales levels in the stores. Some constraints on head count at the headquarters at that business, freezes in salaries and elimination of certain benefits and incentive compensation.

Then Hamilton Beach there have been reductions in force in the United States that are not insignificant. The biggest ones, however, really have occurred, as you would expect, in the forklift truck business where we’ve had very significant reductions in the numbers of people. I’m not sure I have the numbers. Christy can check on them, but my recollection is they’re in the order of 20% reduction in headcount in the business.

That is really not the full story either, because we have taken weeks out of the schedule and the employees have in effect taken weeks off at our manufacturing operations and that’s been complimented on the salary side by headcount reductions, but also by salary reductions in that particular business and here at NACCO headquarters. That is so that everyone is sharing in the difficulties of what is the sharpest downturn the industry has seen and certainly in my memory, and going back into the 70’s and before, from a percentage point of view. That includes the US market which is our strongest market.

Frank Magdlen - The Robins Group

All right, thank you very much.


Your next question comes from Charlene Mills with The Boston Company.

Charlene Mills - The Boston Company

With regards to Hamilton Beach what was the impact of the shift from LIFO to FIFO?

Ken Schilling

In our footnote too we describe the impact to the prior years, but the impact after tax to 2008 was $2.1 million.

Al Rankin

I think just to complete that, that it’s important to recognize that the environmental charge and the inventory write down to get our inventories at an absolutely clean level more than exceeded the change from LIFO to FIFO. So, if you’re trying to think about it in terms of the future you probably have to take all of those things into account, not just the one.

Charlene Mills - The Boston Company

Okay thank you. Regarding some of the other comments in your 10-K about the covenants, if things don’t get better in the second half as you expect them to at NMHG are you at all concerned about this 3.25c leverage covenant or the 1.5x fixed charge covenant and could you confirm that those are correct for me?

Al Rankin

I believe that those are correct and I guess what I would say is I am always concerned about covenants. We have operating plans and have no expectation that we’ll have difficulty meeting those covenants. It takes a lot of hard work and cost reduction of the type that we’ve been implementing and a variety of other actions, but we’re watching all of that very, very carefully.

Now I can certainly describe for you a scenario where the market volumes go down so much more than we’re currently anticipating that you would have a problem, but at this point we are not forecasting one.

Charlene Mills - The Boston Company

Thank you, I’m all set.


Your next question comes from Mark Sigal with Canaccord Adams.

Mark Sigal - Canaccord Adams

With regard to the NACCO Materials business in light of some of your prior comments, can you talk a bit about how the domestic business is faring versus International and perhaps what geographies you might expect to lead recovery when it happens?

Al Rankin

The pain is very broad based and I suppose the worst hit are some of those developing country environments or the less developed countries. The forklift truck business, which was quite large in Russia, virtually came to a halt in December and January. That is probably the worst. Markets are down in China, not as much. Markets are down in Japan, but the Europe market turned down a little bit later than the US market and now the decline is very pronounced. I think these declines have affected all areas of the world.

Our most significant markets by quite a significant margin are Europe and North America. I think that if the stimulus is effective and if the actions that are designed to shore up the banking system work effectively, we could see the US market turn up perhaps earlier than some of the others and that would be good for us. I suppose if I were speculating that is probably the way I would speculate. I think I said in my remarks at one point, these are uncharted waters and we really don’t have the kind of insight that we would normally have on how our end markets and demand for our products should work; so it is very difficult to give you a good answer on that, particularly with regard to timing.

Perhaps the most important thing in our forklift truck business is the overall perspective that we are very fortunate that we took aggressive actions over two years ago to begin the process of changing our manufacturing footprint in Europe and America so that we didn’t have as much exposure to currency fluctuations. That has reduced our capacity and the project, as I indicated, that whole program basically is complete at the end of this quarter. It would be very expensive to undertake that program in the middle of a downturn, but that’s behind us.

In addition, we have with the new electric truck line we will have, in large measure, all of our product lines with very solid up to date products. We’ll be adding some products in the internal combustion engine area that we hope will be particularly suited to a lower more competitive market level that you see in a recession of this nature that will be coming in towards the end of this year, but we’ve got the big product development programs largely in hand.

We had restructured our supply chain activities a couple of years ago. Major centralization supported by a new system which has allowed us to be very aggressive about going after cost reductions as material costs come down. Over the last couple of years we’ve taken very significant actions to enhance our sourcing from low cost countries whether they are in Eastern Europe or in China, in particular.

We had a number of things that really came together and were maturing just in time for this downturn. So in that sense we feel fortunate that those programs are operating at the level that we had hoped they would and having the kind of impact, because it helps to moderate the problems of the dramatic decline that we’re dealing with.

Mark Sigal - Canaccord Adams

Okay, that’s very helpful. Then can you just give us a sense of the mix of business between internal combustion engine and electric units? Does the mix shift significantly in light of the expected new product introductions in the next couple of quarters?

Al Rankin

If you look at total units we have a lot of electric trucks because we have motorized hand trucks, narrow isle trucks, and the counter balance trucks; all of them are electric powered. I think the more important aspect to your question is traditionally the internal combustion engine trucks have been more cyclical than the electric trucks. We expect that to be the case, especially in certain countries in this downturn as well. However, this is a broader downturn and we think that that shift will be less pronounced in the United States because the warehousing infrastructure that was associated with the tremendous increase in imports, particularly from China, really has been put in place over the last 10 or 15 years, and now with the decline in imports that comes from the downturn in the economy, the supportiveness of the electric truck line in a downturn is just not there. So, that business is cyclical as well.

Christy can probably get you some more specific figures on the mix, but I think we will see a mix away from internal combustion engine towards electric, but not as much as would have been the case in past years.

Mark Sigal - Canaccord Adams

All right, great, thanks so much.


Your next question comes from Vanessa Miranda with Stanfield Capital Partners.

Vanessa Miranda - Stanfield Capital Partners

I don’t know if you said this in the call, but I was just wondering if you could tell us the amount of equity that was contributed to Hamilton Beach in the fourth quarter and for the year? In addition, what is your outlook for 2009?

Al Rankin

I did mention it. It is in the press release and over the course of the year we contributed $68 million to NACCO Materials Handling Group and we would expect to make additional contributions during the course of this year. It will depend on the circumstances. We want to make sure that our business is adequately capitalized and in the best position to move forward. I would add that we expect NACCO Materials Handling Group to be a very large cash generator over the course of 2009 as well. That is simply a consequence of the reduced volumes that it expects to sell due to market levels which are so much lower than normal. So, the working capital component will come down very significantly.

Vanessa Miranda - Stanfield Capital Partners

Okay and also you put out a press release regarding the consulting agreement for Kitchen Collections. Do you have any plans or any thoughts about combining the two businesses?

Al Rankin

No, but I think it goes without saying that one of the reasons that we want to associate them more closely is we think that there are elements that can work together in those businesses. I will just give you a couple of examples:

Both businesses bring in very substantial amounts of product from China. Both have negotiated freight rates. We have certain areas where we can provide administrative support that can be helpful. The Kitchen Collection business, very importantly, has a licensing agreement with Hamilton Beach and uses the Hamilton Beach and Proctor Silex names on certain of its products and that has to be overseen from the point of view of product quality and consistency with the requirements of the license.

I think the fundamental answer to your question is that it’s more of an oversight issue and not combining, because one business is really a retail business and the other business is sales products to retailers and so there is not an overlap of any significance at that level.

Vanessa Miranda - Stanfield Capital Partners

Okay, thanks, that is it for me.


I am showing that at this moment you don’t have any further questions.

Al Rankin

Okay, I thank all of you for joining us. I think what we most need and what everybody most needs is stabilization and an upturn in the economy. But, I would leave you with the overview thought that our approach to this is not to assume an upturn. When we see it, we will respond. In the meantime, we are taking every action that we can to strengthen our businesses and manage them in a highly disciplined way in light of the extraordinary economic and financial market conditions that we’re dealing with.

I thank you all for participating and that’s it for today.

Christina Kmetko

Thank you. If you do have any additional questions you can reach me at 440-449-9669. Have a good day.


Thank you for your participation in today’s conference. To access the replay for this call you may dial 1-617-614-4949 or 1-888-233-1854 internationally with a replay pass code of 52105229. The replay will be available in approximately one-hour’s time. This concludes the presentation. (operator instructions) Have a great day.

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