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Nacco Industries Inc. (NYSE:NC)

Q3 2007 Earnings Call

October 30, 2007 2:00 pm ET

Executives

Christina Kmetko - Manager of Finance

Al Rankin - Chairman, President and CEO

Ken Schilling - VP and Controller

Analysts

Frank Magdlen - Robins Group

Amy Bloom - Stanfield

David Rubin - SAC

Steve Thomas - Passcode Outlook

Jason McCab - Plutose

Operator

My name is Francis and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I will now like to turn the call over to Christina Kmetko, Manager of Finance. Please proceed.

Christina Kmetko

Thank you. Good afternoon, everyone, and thank you for joining us today. Early this morning, a press release was distributed outlining NACCO's results for the third quarter ended September 30, 2007. Anyone has not received a copy of this earnings release or would like a copy of the 10-Q, 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 website at www.nacco.com.

Our conference call today will be hosted by Al Rankin, Chairman, President and Chief Executive Officer of NACCO Industries. Also in attendance representing NACCO Industries is Ken Schilling, Vice President and Controller. Al will provide an overview of the quarter 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-Q.

In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our 2007 third quarter earnings release, which is available on our website.

I will now turn the call over to Al Rankin. Al?

Al Rankin

Good afternoon. I'll begin with an overview of the earnings release, which was sent out this morning, as Christie indicated this complements the 10-Q, which was also released this morning and which is available on the NACCO website.

As you probably seen already NACCO's third quarter net income was $21.1 million or $2.55 a share, compared with $18.8 million or $2.28 a share last year.

Our key highlights include a number of points. At NACCO Materials Handling Group, wholesale's net income was $5 million, compared with 13.3 a year ago. In August 2007, NACCO Materials Handling Group announced a manufacturing restructuring program, it resulted in a restructuring charge of $5 million or $3.5 million net of taxes and additional cost for the third quarter of $300,000 net of taxes.

NACCO Materials Handling Group Retail had net income of $1.8 million compared to a net loss of 2.8 in the quarter a year ago. Net income in 2007 included a total gain of $3 million or $2.6 million net of tax from the sale of a European retail dealership in the third quarter.

Hamilton Beach reported net income of $6.3 million for the third quarter, compared with a net income of $5 million in 2006. Ham Beach's 2006 net income included a charge for environmental expense of $1.3 million net of tax last year. And net income for 2007 was negatively affected by the increased interest expense payable in or paid in 2007 due to increased borrowings related to the $110 million special cash dividend paid in May of this year.

Kitchen Collection's net loss of $900,000 increased $200,000 from quarter a year ago as a result of two months of seasonal losses of $900,000 or $0.5 million net of taxes from Kitchen Collection's acquisition of certain Le Gourmet Chef stores in late August of 2006.

North American Coal's net income increased to $7.8 million from $5.9 million primarily as a result of a decrease in the 2007 effective tax rate. And NACCO and other's net income increased to $900,000 from a net loss of $1.9 million for the third quarter of 2006. Spin-off expenses related to Hamilton Beach were $400,000 pre-tax in 2007, they were offset by increased interest income and the absence of cost associated with the terminated Applica transaction of $1.3 million net of taxes.

Improved operations at all subsidiaries in the parent company, if you exclude the items that I have just been through resulted in an after tax improvement to the third quarter 2007 net income of approximately $1.6 million compared with previous year's quarter.

Consolidated net income for the nine months ended September 30 was $37.6 million compared with $36.2 million for the first time nine months of 2006. Those are really the highlights of NACCO's overall third quarter results and the outlook for the full year 2007, I'll touch on now.

As basically the same as we saw earlier this year, the combination of favorable market forces and the results of improvement programs are expected to lead to 2000 net income in the general range of 2006 results excluding the 2006 extraordinary gain from the reduction in the company's estimated close mind applications and charges associated with the restructuring program at NACCO Materials Handling Group wholesale.

Improvements are expected to occur in the last quarter of the year as a result of specific programs at NACCO Materials Handling Group the seasonal nature of the housewares business and increasing benefits from the integration of Gourmet Chef and the Kitchen Collection.

And then assuming market conditions do not deteriorate significantly. We do think on a preliminary basis that results in 2008 are expected to improve in over 2007, as more appropriate benefits are achieved.

That's a very broad and very preliminary perspective at this point on 2008. Now, I would like to move to add a few supporting perspective on each subsidiary as usual more details are in the press release itself.

First, I focus on NACCO Materials Handling Group wholesale the revenues did increase in the third quarter compared to the previous year as a result of the favorable mix and sales, favorable currency movements in Europe and Asia-Pacific and the realignment of certain activities that are performed in Asia-Pacific wholesale and retail to make them more in line with the way that we operate in United States.

In addition, unit volume increased in Europe and Asia-Pacific, parts sales volume and pricing improved in Americas and Europe and the effect of price increases implemented in late 2006 and early 2007 in Americas and Europe contributed to the improvement in revenue.

Worldwide shipments increased a bit to 21,247 from 20,278 in the previous year and the backlog are now stands at 30,500 in comparison with 25,700 a year ago, September 30 and 30,000 units at June 30.

The decrease in net income compared with the prior year resulted from the recognition of the manufacturing restructuring charge, which I had mentioned. An increase in selling and general administrative expense and unfavorable foreign currency movements which increased the cost of lift trucks and components in the U.S. market and sourced from countries with appreciated currencies.

Selling, general and administrative expenses increased primarily due to higher marketing program and employee-related expenses. The decrease in income resulting from these factors was partially offset by an improvement in gross profit resulting primarily as a result of price increases and increase in the sales of higher margin units in Europe and higher margin parts in the Americas.

Turning to the outlook for wholesale, wholesale expects continued growth in the lift truck markets in the fourth quarter of 2007 in both Europe and Asia-Pacific and a moderate year-over-year decrease in the Americas markets. However, growth in the South American market is expected to partially offset the decline in the North American market.

As a result, the company expects modest growth in these markets for the remainder of 2007 and overall modest increases in unit bookings and shipment levels for the fourth quarter of 2007 compared with 2006.

For 2008, our hope really is for better inside over the next few months, but a very preliminary look suggests a continuing moderate year-over-year decline in North America and reasonable strength elsewhere.

The weakening of the U.S. dollar has adversely affected earnings due mainly to NACCO Materials Handling Group manufacturing of certain lift trucks and sourcing of components from countries with appreciated currencies for sale in the U.S. market.

As you know, if you follow the company during the first quarter of 2007 wholesale outsourced its welding and painting operations at its manufacturing facility in the Netherlands to a lower-cost country. This action is expected to provide pre-tax benefits that will reach $1.5 million annually. More importantly, during the third quarter of 2007, NACCO Materials Handling Group announced an additional manufacturing restructuring program, which will phase out production of current product at its facility in Irvine Scotland, change the product mix at its Craigavon, Northern Ireland facility and increase its production at its Berea, Kentucky and Sulligent, Alabama plants in U.S. and at its Ramos Arizpe facility in Mexico.

These actions are expected to reduce purchases of high cost euro and British pound sterling-denominated materials and components, reduce freight costs, lessen the company's exposure to future foreign currency exchange rate fluctuations, reduce the manufacturing footprint of NMHG Wholesale's European manufacturing locations and provide additional opportunities to source components from lower-cost countries. This manufacturing program, net of future charges, is anticipated to contribute to improved results in 2008 and 2009, and at maturity, generate benefits which are expected to exceed $20 million in annual cost savings.

We do expect future additional charges related to this program of approximately $2.7 million in the fourth quarter, $10.2 million in 2008 and $800,000 million in 2009. And those charges are in addition to the $5.4 million of charges already incurred in the third quarter. They of course are not of the improvement benefits which will begin to occur in mid-year 2008.

Overall, Wholesale's full year results are expected to improve over 2006. The company has been investing in long-term programs, particularly its significant new electric-rider truck, warehouse truck and big large truck product development and manufacturing programs are expected to continue to improve future results. The company continues to believe that the programs are in place or under consideration which will allow NACCO Materials Handling Group to achieve its 9% operating profit margin goal in the 2010, 2011 timeframe.

Turning to NACCO Materials Handling Group Retail, as I indicated earlier, Retail's third quarter net income was primarily attributable to a total gain of $2.6 million net of taxes from the sale of the European retail dealership in the third quarter excluding the results of the sale of the European dealership retail had an after-tax improvement in the third quarter of approximately $2 million compared with 2006 primarily as a result of improvements in service and rental margins in Asia-Pacific and higher new unit and used unit margins in Europe.

Retail's key change programs are expected to have an increasingly favorable effect in the fourth quarter of this year and are been put in place to meet the longer-term objectives, strategic objectives, which include at least break-even results while building market position.

And Hamilton Beach third quarter net income increased $1.3 million compared with a year ago quarter primarily as a result of an improvement in gross profit and lower selling, general and administrative expenses partially offset by an increase in interest expense as a result of the borrowings to pay this special cash dividend of $110 million in the second quarter of 2007.

As you look it fit to the HamiltonBeach outlook, current economic factors affecting U.S. consumers, such as high gasoline prices, depressed home sales and mortgage debt concerns, appear to be among factors unfavorably affecting sales at key retailers and creating a challenging environment at the retail level. In spite of those challenges, Hamilton Beach has secured strong placements and promotional programs for the fourth quarter of 2007.

A new product introduced in 2007 along with those products introduced in recent years are expected to continue to generate additional product placements at retailers, resulting in increased revenues and operating profit in the fourth quarter of 2007 and in 2008.

Hamilton Beach has now completed its transition out of manufacturing and moved the production of all products to third-party manufacturers. This transition and other programs initiated by Hamilton Beach, as well as the anticipated increases in sales results from an improved mix of sales of higher-margin products, are expected to have a favorable impact on operating results over time.

In longer-term, Hamilton Beach is focused on improving revenues and profitability continuously through production of innovative new products and focus on cost reduction and margin enhancement programs in conjunction with pursuing strategic growth initiatives.

KCI's outlook, I'll just cover the outlook, Kitchen Collection is expecting an increase in revenues in the fourth quarter of 2007, as a result of opening the seasonal store locations during the holiday season, sales at new stores opened in the last year and higher average sales transactions resulting from improvements in merchandising.

Kitchen Collection also expects operating results for the Gourmet Chef stores in the fourth quarter to improve as the company continues to work to offer a better mix of store inventory and rebuild customer royalty lost as a result of the bankruptcy before the acquisition of LGC by Kitchen Collection.

The integration of Gourmet Chef is on schedule is expected to be completed by the end of this year with the exception of the distribution function which will be expected to be complete in late 2008.

As a result Kitchen Collection expects the majority of the synergy benefits, excluding distribution synergies, from the integration of Gourmet Chef to be achieved by mid-2008.

At North American Coal net income for 2007's third quarter increased compared with the previous year primarily as a result of lower income tax rates from the increased benefit of percentage depletion tax treatment, partially offset by decrease in limerock deliveries as a result of unfavorable decision in the ongoing Florida litigation, which has reduced operations at some of the customers' quarries.

In July 2007, a federal district judge ruled and ordered that mining cease in selected previously permitted areas in South Florida mined by the company for its customers.

However, North American Coal's operations aren't expected to be materially affected by the ruling in 2007. Further, North American Coal's customers continue to challenge this ruling and have appealed the unfavorable decision of the federal district court.

Deliveries from the limerock dragline mining operations are expected to decrease moderately in the fourth quarter as customer projections for 2007 continue to reflect the decline in the housing market. This decrease will be partially offset by customer requests to maximize inventory in advance of the decision related to the pending appeal.

Overall, North American Coal expects strong performance from its current operations over the next few years. And over the longer-term North American Coal expects to continue its efforts to develop new domestic coal projects in is encouraged that more new project opportunities may become available, including opportunities for coal-to-liquids, coal gasification and other clean coal technologies.

Accordingly, expenditures for the development of additional uncommitted coal reserves are likely to be higher in 2007 compared with 2006 and the company also continues to pursue additional non-coal mining opportunities.

In closing, I have a few broad thoughts about the challenges and opportunities, which lie ahead. First, Hamilton Beach, Kitchen Collection, and North American Coal are all operating quite well. Some improvements programs are still underway for example the completion of the integration of LGC in Kitchen Collection. But mainly the emphasis in all these businesses is on growth. Through Gourmet Chef the Kitchen Collection through innovative products of Hamilton Beach product, Proctor-Silex are now Hamilton Beach brands and through new deals at North American Coal.

Second, NACCO Materials Handling Group plans to reach its 9% operating profit target in 2010 to 2011 period seem to be on track at this point. New products, especially in the electric counterbalanced line are coming along in 2008 and 2009. We have the restructuring program, which I mentioned earlier, but the focus is still on even more cost reduction and on the performance and feature positioning in our big truck product line and in our internal combustion engine line serving the Americas.

We think there are further profit improvement efforts, as a result of this and all of these are receiving major emphasis, especially with the currency mix continuing to deteriorate for NACCO Materials Handling Group in total. We are also hopeful that the Australia retail business is now headed in the right direction.

Third, NACCO's businesses continue to expect to be sound free cash flow generators, as we look to the future. So, an overview then, I think we are on the same track that I've suggested, we've been on in the last few quarters, which is basically one of enhanced underlying profitability that we achieved in 2006 and expect again in 2007. And then a gradual move to a further new plateau over the period between the end of 2007 and 2010 and 2011.

I do however, want to know, as I always do that markets in competitive conditions are uncertain. U.S. market conditions as I think any close observer of the U.S. economy knows at this point are unclear. The risk may well be on the side of weaker than current forecast but it's too early to say. Fortunately, each of our businesses we will be addressing any future issues from position of strength. Each of our company is a real leader in its industry and each has, we believe a very strong management team. And with that, what I would like to do now is to turn to any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Frank Magdlen with Robins Group. Please proceed.

Frank Magdlen - Robins Group

Good afternoon.

Al Rankin

Good afternoon.

Frank Magdlen - Robins Group

When I look at your longer-term strategy, what is the capital expenditure program, what does it looks like in the future, and what is the maintenance CapEx going forward?

Al Rankin

Well, I'd answer that in a general way as follows, and I will do it business by business. At NACCO Materials Handling Group Wholesale, we don't expect major change in our level of capital expenditures. Really the issue there is focus around the profitability programs into the extent that we have additional capital expenditures associated with enhancing our Berea, Sulligent, and Ramos Arizpe operations. They are set by reduced capital expenditures for the plant in Scotland which will no longer need them.

With the NACCO Materials Handling Group Retail, we don't expect significant capital expenditures. At Hamilton Beach capital, expenditures will continue at a very low level having withdrawn from manufacturing, those capital expenditures are associated mainly with new product tooling, in certain instances, and that is not a very major capital expenditure.

At Kitchen Collection, capital expenditures will stay at a fairly modest level, despite expansion of the Gourmet Chef format at both factory outlet malls and at enclosed malls over the next few years.

The one that is very difficult to call is the Coal Company. Our existing coal mines will not require particularly large capital investment. That will be pretty stable, and at not a very high level.

The part that is hard to call is the part that is related to new deal opportunities in those businesses. We do expect that we will have some, we hope substantial expansion opportunities in the coal business. And in many of those we may have to supply a significant portion of the capital.

It is worth noting, however, that those projects are all backed by the way we do business, and by long-term contractual commitments. 20, 30, 40 years from now customers that they serve and to that extent, capital expenditures have a self financing aspect to them. This is because they allow the individual company entities that are involving creating new mining operations to borrow money on the back of the capital expenditures that are being put in place to carryout the contract commitments. But that's the one area where you really can't call it till you get a deal and other than that I can't, that's about as far as I can go.

Frank Magdlen - Robins Group

Well, could you put a minimum in size or maximum or a range of what a major project might entail?

Al Rankin

Well, it depends so much on how they are structured, it's very difficult to do that. The one thing I would say is that, we don't enter into speculative contractual arrangements in terms of pricing structure. We are willing to take the risk that is associated with being an effective miner. We really don't take price risks in those. And so, as I said there is a self-financing element, they could be very substantial, we certainly hope so because it would be wonderful to be able to use the free cash flow of a company for constructive high returning investment opportunities. But we can't really predict what those will involve and some will be financed by customers, some will be financed by us. It really has to be built with on an individual mind by mind basis, as those deals come alone.

Frank Magdlen - Robins Group

Well, could you characterize irrespective of who finances it, what would be the magnitude of the total capital needed, whether you provide it or whether the customer provides?

Al Rankin

No, an individual new coal mine today, if you add all the pieces together, we're typically quite an expensive preposition, and many of them could exceed a $100 million in capital investment, depending on whether the draglines are new or used pieces of equipment and a number of things of that nature.

Frank Magdlen - Robins Group

Alright.

Ken Schilling

I think in terms of the information we've given in the release, we've incurred $42 million of CapEx to date and we've got a forecast of 25 for the rest of the year. I don't know if that's helpful to you.

Frank Magdlen - Robins Group

That's helpful. What is your maintenance CapEx going forward? You have a lot of moving pieces as you expand capacity in certain parts of the world and contract in others. But I guess I have loss side a little bit as total to what the ongoing…

Al Rankin

Well, I think, our maintenance, level of maintenance capital expenditures is going to be something below those numbers. And I don't know that I have, off hand, a specific number, but if you think around the system is going to be more alike, it is less than $50 million.

Frank Magdlen - Robins Group

Okay. So…

Ken Schilling

It is just from a depreciation perspective, we are running at about $16 million of depreciation, if you think about that in terms of replacement capital.

Frank Magdlen - Robins Group

$16 million.

Ken Schilling

$16 million a quarter.

Frank Magdlen - Robins Group

Okay, so…

Ken Schilling

$64 million.

Al Rankin

And I think, we're probably, at this point given the state of our facilities, they are all in good condition. Our mines are established and it's a number that's well below that.

Frank Magdlen - Robins Group

Alright. And then, back to Materials Handlings a little bit. You talked about the lead costs that have increased and Al, I am not quite sure what lead cost means, other than I keep thinking of the commodity cost going up and there is a surcharge involved, does that mean...

Al Rankin

You mean lead?

Frank Magdlen - Robins Group

Well, I'm sorry. Its lead, I am sorry, it's lead. I am a really bad reader.

Al Rankin

I think its lead cost, and lead has gone through the roof, and our position is that there are no selected product lines that require the use of lead. And that whatever the cost is, we are going to pass it onto the customer. And we just put it on as a surcharge, and if the price of lead goes down, we'll reduce it immediately by the same amount. We are going to keep the company hold, and we just don't have any other way of dealing with those kinds of things that are involved in somewhat specialized parts of the product line.

Frank Magdlen - Robins Group

Can you give me an idea, how much that's fluctuated in the last year or two?

Al Rankin

I don't know exact, lead is up three or four times. I forgot what the number is. But it's a huge amount.

Frank Magdlen - Robins Group

Alright.

Ken Schilling

In lieu to the fact that a lot of products we sell are electric products that use a lead-acid battery. That's where a lot of the lead is, as well as sometimes in counter weights.

Al Rankin

Counter weights is a big issue though.

Frank Magdlen - Robins Group

Alright. Thank you gentlemen.

Al Rankin

Okay.

Operator

(Operator Instructions) Your next question is from the line of Amy Bloom with Stanfield. Please proceed.

Amy Bloom - Stanfield

Hi. On the Hamilton Beach subsidiaries, I was wondering if you could talk about the improvement in year-over-year sales. Where is that from any particular product category or any particular customer?

Al Rankin

There are product categories that have gone up, and product categories that have gone down. In general, the most important single thing we have done is to continue to try to have innovative new products come out. For example, our Toastation has been out for a while that's been a very successful product. Our BrewStation family of products have been a real leader in the coffee maker area.

Other product lines, sometimes with smaller, lower unit prices, like can openers, have been much less robust and have declined a little, and to some degree as it's been a movement away from cans that have to be open with the can opener, but generally speaking it's more higher price products and fewer opening price point products that have moved the revenue structure up. Now, we have had some other selected categories that have been doing well this last year, but it's fairly broad.

Amy Bloom - Stanfield

Thanks for the color. How many new products were introduced in 2007 and how many do you plan to introduce in 2008?

Al Rankin

I think, those are not numbers that I have on the tip of my tongue. I think Christie can probably get some perspective on that and give you a sense of those numbers. But there is a great deal of innovation that goes on and the level of new product activity continues to be extremely high. I have a recollection that we have 40 to 50 major programs going on at any one-time with the sort of [cadre] of engineering people that we have. We have a collaborative arrangement that we use which involves a combination of deep knowledge of the U.S. market by the engineering group. And here, the headquarters of the business in Richmond at Virginia, which very much is in tune with the needs and requirements of American consumers. But we complement that with some of our own engineering capabilities in China, in Shenzhen, at our own facility and our people that are very much in touch and were close with our suppliers' engineering groups. So, we are trying to leverage the whole system while keeping innovation coming through for our particular products. Maybe that gives you a little bit more field force.

Amy Bloom - Stanfield

Got. Thank you. And has there been any change in the ordering patterns of your larger customers? I've heard a lot that some of the big customers keeping inventory levels tight?

Al Rankin

Our big customers have kept inventory levels pretty tight for a very long period of time. Wal-Mart, KMart Series target those kinds of customers. Certainly, a while back Wal-Mart explicitly reduced its inventories across the Board for everyone. And we find there is a general pattern that our sales to our customers, or sale in the fall selling season are coming closer and closer to the actual sales, and there's less and less accumulation of inventory in anticipation. So, the whole system is quite highly geared and pushed back toward the end of the year. So, the months of October and November are, the Hamilton Beach are just enormous months and November and December for Kitchen Collection.

Amy Bloom - Stanfield

Thank you and just one last question. Is there any update on the spin-off of Hamilton Beach? Is that still on hold?

Al Rankin

The update is really the one that we gave a while back when we made our formal press release, which is if we cancelled the spin-off of Hamilton Beach market conditions were extremely unsettled. We concluded it didn't make sense and I think we said at the time that well we might go back and revisit that sometime in the future, we have no plans to do that at this time.

Amy Bloom - Stanfield

Okay, thank you.

Operator

Your next question comes from the line of [David Rubin with SAC]. Please proceed.

David Rubin - SAC

Hi, I just wanted to understand the basis for your, not the exemptions, you said net income is going to be for '07 to '08 or is it fixed '07?

Al Rankin

As '07 compared to '06, what we said is, and I think, if we stick by the very specific language that we used which was in the general range, as opposed to just flat. It's in the general range in '07 of '06, taking into account the elimination of the extraordinary income item that we had in '06, it was literally, an extraordinary item. And secondly, we also noted that and have throughout the year, it would exclude the charges associated with the restructuring decision that NACCO Materials Handling Group, but that's the general framework that we have used for '07 in comparison to '06.

David Rubin - SAC

As of '06, would that exclude a one-time charge number? What is that that you are, what is that net income that '06 number that you are using as a comparison?

Al Rankin

The '06 numbers that excluding the extraordinary charge was, I think, $93.4 million, it was an extraordinary item in '06, a $12.8 million and we had total net income in '06 of a $106.2 million and what we excluded was that $12.8 million.

David Rubin - SAC

Got you.

Ken Schilling

And restructuring charge that we also mentioned, however, about 3.5 or there about.

David Rubin - SAC

That's the 3.5 for fiscal '07.

Ken Schilling

'07, right.

David Rubin - SAC

Okay. And just thinking about the general machinery, what do you think it will take you guys to get to above the last year's numbers versus what would happen to get you modestly below last year's numbers?

Al Rankin

I really don't want to comment anymore on forecast. There is a general rule. We really don't make forecasts of our earnings. I do think that I would just make the obvious comment that both Hamilton Beach and Kitchen Collection are highly dependent on having a strong Christmas and Thanksgiving selling season. The stronger it is, the better they do, the weaker it is the less well that they might want to do. So, North America Coal Corporation is not terribly dependent on that and NACCO Materials Handling Group. It's really question of completing the year with the strong fourth quarter, which has got a lot of working days in it.

The third quarter is always a little bit muddled because it's a vacation quarter, and so we have. But it's not much more of the situation in our hands than it is in the two consumer based businesses.

David Rubin - SAC

And a final question, in this again, and I apologize I know someone has just asked this question but it relates to the spin-off in Hamilton Beach. And I know you said at that point that it was because of market conditions, I mean, I guess, in the equity markets the market has basically kind of normalized. I mean, stocks are not much up their highs. I am just trying to understand why the issue would be the market, I mean, there is another reason why you decided not to go through it, just because it seems to make a lot of strategic sense as part of the business.

Al Rankin

Well, I think, what we meant in what we said, it's unsettled market conditions. It's not just equities it's debt. We are not sure how that's all going to play out. These are very tricky times in financial markets. Then there are lot of issues associated with smaller companies, valuations being spun off, the kinds of pressures that come up and markets where hedge funds are playing a significant role in terms of market movements.

It's just a whole variety of issues that kind of came to '04 and are still unsettled in terms of the situation that may be playing out in front of us and I think you see it pretty much every day with disclosures, not just about some sub-prime mortgage issues, but also about specialized investments vehicles of the banks, the implications for the bank's lending and so on and so forth.

So, I think all of that went into our thinking and we just stand on what we said and what was. I think Christie not only in press release but in 8-K filing and that's the way we would kind of stick with it.

David Rubin - SAC

Okay, thank you very much.

Operator

Your next question comes from the line of [Steve Thomas with Passcode Outlook]. Please proceed.

Steve Thomas - Passcode Outlook

There is a mission made of a decline in coal sources due to an extended power plant outage. I was wondering, what plant that was they linked about it versus the plant outage and the affected the tonnage?

Al Rankin

We really don't get into the specifics usually. We have outages from time-to-time. I think the best way to think about the Coal Company is to take a full year and we think the prospects for the Coal Company for the full year are very sound. We feel comfortable with those. We do try to indicate the narrow and special conditions that effect one quarter or another, as matter of explanation. But the outages are, on the one hand, often planed, but on the other hand, never known in terms of duration until the power plant owners get in there to do the maintenance when they have an outage and see what the conditions are.

Sometimes, they have more work to do and sometimes they have less work to do. We have, but it is just sort of a random thing that we simply deal within that. Keep in mind that, almost all of our coal operations effectively are paying a profit per tons. So that on the margin some of those fluctuations have, well they have an impact, not necessarily a dramatic impact because they just reduced the number of tonnes that are sold in any one quarter but the base for the year is still a very, very high number. And so, most of the profit comes on through. So, there is not a lot of fixed cost to cover in most of our operations in that sense.

Steve Thomas - Passcode Outlook

Thank you.

Operator

And your next question comes from the line of [Jason McCab with Plutose]. Please proceed.

Jason McCab - Plutose

Yes, hi. I guess the stock is down about a third for the quarter. And I guess, I haven't heard any discussion on the phone call, I apologize if I missed it but I haven't heard any discussion about that decline. Do you have thoughts on the decline and how would you get the stock back up right.

And I guess, kind of second point that I've heard, the middle market buyouts are getting done. They are still getting done at the same pace that they did in the previous two quarters of the year. So, I guess, I don't understand the thought behind the market turmoil sub-prime, special purpose vehicles. I'm not sure have anything to do with middle market buyouts but shopping you feel as to buyout funds or strategic players. Though, I guess what I am saying is I don't understand, I don't hear a sense of urgency about dramatic decline in the share price.

Al Rankin

My guess, there are couple of factors, first of all, if you are referring to Hamilton Beach, we never proposed to sell the company. And so, there never were questions of buyouts or anything of that nature. We were spinning it after the same shareholders who own it today. So in that sense, there was no transaction involved, this is a question of the ownership vehicle. Our objective at the time was simply to find a more flexible vehicle to accomplish kinds of things that we had previously had tried to accomplish including the merger with Applica. So, that's the broadest answer as far as that kind of an aspect is concerned.

With regard to the stock price, I really can't answer your question. We have had earnings that have been pretty much what we anticipated that they would be. We haven't really changed our view, with regard to the company and its prospects, since early this year. So, in that sense, nothing has happened. The stock price, I suppose and perhaps you all are in a better position than us to say, as made by the folks that are either buyers or either a combination of buyers and sellers in the marketplace.

Jason McCab - Plutose

But it was an…

Al Rankin

And I think to the extent that the market turmoil brought pressure to bear on certain funds that own our company, so they needed to liquidate shares at regardless of the price in order to raise liquidity to provide more collateral for the banks or to meet liquidation needs in the particular funds.

There could easily be a situation where there were substantial selling price pressures on the price of the stock. The company is very thinly traded. The market is one that can go up or down for the stock without over regard to the performance of the company. We have a long-term view that is focused on performance of our individual businesses. And so, we tend to put it in that perspective and hopefully the market will recognize the performance of the businesses. But in the meantime, we simply are continuing to carry-out our efforts with the individual businesses.

Jason McCab - Plutose

But if the market is saying that the company is worth more separated, and then that seems to be the indication because then the market is back over where it was in July but the stock is still down, which seems to me that it is de-coupled from the market. The market seems to be suggesting that the company is worth more separated than together. I don't hear anything to say, okay, well, if we're not to going to separate, if we're not going to spin it out or we're not going to sell pieces of the business, how do we get back up to where we were before? How do we get back that share price performance kind of corollary behind that, is it a $1 billion market cap or over a $1 billion? And do you have any ideas about getting coverage from investment banks from this company or getting more exposure for the company.

Al Rankin

It is a subject that we discuss from time-to-time the economics of the business of coverage in today's world are not highly supportive of a thinly traded security. And the expensive coverage in terms of where the revenue is derived from is complex. Certainly, if there are operations in which we are interested, and being covered, we would be interested in trying to support that within the limits of the clear requirements for making information broadly public to all investors.

But it's not something that has, I would say coverage condition. The coverage, in general, for small cap companies has deteriorated rather than improved, it's a problem. And my hope is in the broader question of valuation that as markets continue to settle down, people will look at our particular company, get interested in it. And the price can go back up just as fast as it went down.

But it's probably going to be more a function of individual investors than interest in the company, particularly, institutions that do there own research and analysis.

Operator

And there are no other questions in the queue at this time. I would like to turn the call over to Mr. Al Rankin for closing remarks.

Al Rankin

I think if you do have further questions that Christie Kmetko, I would be happy to try to answer those for you. We appreciate all of you being a part of the telephone conference that we've had. And we look forward to continuing to carry on programs that we've been carrying on for the last few years that are outlined in our annual report and our other various publications, and if we think are going to create real long-term value for all of our shareholders. So, those would be my closing thoughts. Christie is there anything you want to say?

Christina Kmetko

I just want to say, thank you for joining us today and if you do have a follow-up question, please call me at 440-449-9669. Thanks and have a great day.

Operator

Thank you for your participation in today's conference. This concludes the presentation. If you wish to access the replay, you may do so by dialing 617-801-6888 or 888-286-8010 and enter a pass code 58506257. You may now disconnect and have a great day.

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