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Baird's 2008 Industrial Conference

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  • 1. SPX Corporation Chris Kearney Chairman, President and CEO 2008 Industrial Conference November 11, 2008
  • 2. Forward-Looking Statements Certain statements contained in this presentation that are not historical facts, including any statements as to future market conditions, results of operations and financial projections, are forward-looking statements and are thus prospective. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Particular risks facing SPX include economic, business and other risks stemming from our international operations, legal and regulatory risks, cost of raw materials, pricing pressures, pension funding requirements, integration of acquisitions and changes in the economy. More information regarding such risks can be found in SPX’s SEC filings. The estimates of future performance and guidance are as presented on October 29, 2008. SPX’s inclusion of estimates and guidance numbers in this presentation is not an update, confirmation, affirmation or disavowal of the estimates and guidance given on October 29, 2008. Although SPX believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition, estimates of future operating results are based on the company’s current complement of businesses, which is subject to change. Statements in this presentation are only as of the time made, and SPX does not intend to update any statements made in this presentation except as required by regulatory authorities. This presentation includes non-GAAP financial measures. A copy of this presentation, including a reconciliation of the non-GAAP financial measures with the most comparable measures calculated and presented in accordance with GAAP, is available on our website at www.spx.com. PAGE 2
  • 3. SPX Overview Global, multi-industrial manufacturer of engineered products e Pr ur oc ct ru es st s ra Eq nf u lI 2008E revenue: $6b ip ba m en lo G t Tools & Diagnostics Operations in over 35 countries Over 17,000 global employees Note: 2008E as of 10/29/2008 SPX Well Positioned for Future Growth in Global Infrastructure, Process Equipment and Tools & Diagnostics Markets PAGE 3
  • 4. SPX Overview 2008E Revenue Earnings Growth* by Segment Thermal 17% 58% ~33% Flow 17% 58% ~33% Equipment & Technology $6.40 to Services $6.50 $4.85 33% 29% $3.07 19% 19% $2.62 Industrial Test & Products & Measurement Services 2005 2006 2007 2008E Note: Data from continuing operations, 2008E as of 10/29/2008 *2005 – 2008 adjusted for certain items, see appendix for reconciliations; 2008E as of 10/29/2008 $6b Global, Multi-Industrial Manufacturing Company PAGE 4
  • 5. 2008 Financial Targets and Updated Guidance 2008 Target Range ($ millions, except per share data) Comments +28% to 29% Organic: 7% to 8% Revenue 13.2% to 13.4% +10 to 30 bps Segment Income Margin 14.6% to 14.8% +150 to 170 bps Excluding APV $6.40 to $6.50 32% to 34% Adjusted Earnings Per Share $300 to $320 85% to 90% of NI Free Cash Flow $140 to $150 Capacity, Lean Capital Spending & IT Investments Note: Data from continuing operations; Targets as of 10/29/2008; see appendix for non-GAAP reconciliations Targeting 7% to 8% Organic Growth and More Than 30% Earnings Growth in 2008 PAGE 5
  • 6. Global End Markets Pro Forma Revenue Q4 2008E Organic by End Market Growth Expectations Global Infrastructure 53% HVAC, Telecom, Other Power & Energy 20% Power & Energy Tools & 33% Diagnostics 20% Sanitary General Sanitary Industrial 14% (Food, Beverage, Dairy, Pharma 13% and Personal Care Markets) General Industrial Pro Forma Revenue by Geography HVAC, Telecom, Other North America 49% Tools & Diagnostics Europe 32% Double Digit Mid-Single Digit Double Digit ROW Asia-Pacific Flat 4% Growth Growth Decline 15% Note: 2007 data from continuing operations, pro forma for APV acquisition; 2008E as of 10/29/08 Targeting Q4 Organic Growth Between 8% and 10%; Tools & Diagnostics Declining PAGE 6
  • 7. Backlog Development ($ millions) Q3 ending backlog at $3.6b, Last 3 Quarters Ending Backlog down $120m or 3% from Q2: – Foreign currency fluctuations $2,002 $763 $648 Q3 '08 reduced the backlog value by $108m $2,077 $796 $648 Q3 '08* – Industrial backlog down 10%: $2,003 $782 $721 Q2 '08 • 28% organic growth in Q3 • Distribution transformer orders $1,401 $799 $696 Q1 '08 slowing $0 $1,000 $2,000 $3,000 ~60% of annual revenue from Thermal Flow Industrial short-cycle businesses *Q3 2008 backlog excluding the impact of foreign currency fluctuations No major contract cancellations Backlog Decline Primarily Driven by Foreign Exchange Rate Changes; Total Backlog Down ~$120m or 3% During Q3 PAGE 7
  • 8. Financial Position ($ millions) Key Balance Sheet Debt to Capital Accounts at, 44.0% 12/31/07 9/27/08 39.0% Cash $354 $466 Other Current Assets 2,362 2,540 Total Assets 6,237 6,523 Q4 2007 Q3 2008 Debt to EBITDA (1) 2.3x Total Debt $1,569 $1,531 1.9x Other Current Liabilities 1,837 1,842 1.8x 1.4x Shareholders' Equity 2,006 2,361 Q4 2007 Q3 2008 Net Leverage Gross Leverage Consolidated leverage ratios; Net and Gross Debt to EBITDA as defined in the credit facility (1) $466m of Cash on Hand at September 27th; Gross Leverage Ratio Within Target Range of 1.5x to 2.0x EBITDA PAGE 8
  • 9. Disciplined Capital Allocation Share Repurchases Strategic Acquisitions ($ millions) $716 $675 6 acquisitions completed ~$1.2B total revenue $386 15m 9m 8m 2005 2006 2007 $1.8B of total share repurchases Johnson Controls European Diagnostics Repurchased more than 40% of outstanding share count Disciplined Approach to Capital Allocation PAGE 9
  • 10. Projected Liquidity ($ millions) Amount Cash on hand at 9/27/2008 $466 Expected Expected cash proceeds from the sale of LDS 102 Sources 2008E free cash flow remaining 242 Available, committed credit lines 400 Total Projected Availability $1,210 Remaining dividend payments ($15) Required 2008 minimum remaining debt payments (19) Uses Working capital management needs (200) Projected Liquidity $976 Planned Repurchase 3m shares (based on 11/10 closing stock price of $37.92) ($114) Use Projected Liquidity after Share Repurchases $862 Note: Our ability to access these sources under our various facilities may be limited by the terms of our credit facility and by certain tax regulations that pertain to cash in overseas locations Over $850m of Projected Liquidity After Completing Planned Share Repurchases PAGE 10
  • 11. Changing Economic Environment % Value Decline Foreign exchange rates have changed vs. U.S. Dollar dramatically, impacting SPX’s 2008 outlook and backlog: 10% 0% – % decline from June through November 10th: -10% -20% • Euro: (18%) -30% • British Pound: (21%) -40% J J J Jul- Jul- Jul- Au Au Se Se Se O O un- un- un- 08 08 08 g- g- p- p- p- ct- ct- 08 08 08 08 08 08 08 08 08 08 EUR GBP ZAR Banking failures and consolidations have impacted credit availability for many companies Global credit crisis has created an uncertain economic environment… …as a result, capital budgets for 2009 are uncertain ~40% to 45% of SPX’s Revenue is Translated From Foreign Currencies; PAGE 11 Too Early to Predict How Economic Changes Will Impact SPX Customers in 2009
  • 12. Flow Technology PAGE 12
  • 13. Flow Technology Overview Key Flow 2007 Flow Technology Technology Characteristics Revenue by End Market Includes Food, Beverage, Dairy, 2008E Revenue: $2b Pharmaceutical and Personal Care Markets Strong brands with market leading Sanitary 41% positions Power & Energy 25% Global sales infrastructure and distribution General Engineered products and turnkey Industrial solutions 19% Compressed Air Chemical 5% 10% Operational expertise Note: Data from continuing operations, 2007 pro forma for APV acquisition; 2008E as of 10/29/2008 About 1/3 of SPX’s Annual Revenue is Generated from Sales of Flow Technology PAGE 13
  • 14. APV Overview 2007 Revenue by End Market 2007 Revenue by Geography Power and Energy 11% EMEA Sanitary 56% (Dairy, Food, Americas Beverage) 20% 73% General Industrial 16% Asia-Pacific 24% APV is a Global Manufacturer of Process Equipment and Engineered Solutions PAGE 14
  • 15. Key Sanitary Market Drivers Dairy Food Increases in hygienic standards and regulatory controls Economic expansion in developing regions Beverage Pharmaceutical Process and business optimization Energy efficiency and waste reduction Brewing Personal Care Production of value added or higher quality produce Demand for new plants SPX Has Technologies that Serve the Food, Beverage, Dairy, Pharmaceutical and Personal Care Manufacturers PAGE 15
  • 16. Food Processing Market Characteristics Food Processing Machinery and Attractive End Market Equipment Global Forecast Characteristics ($ billions) $45.4 6% CAGR Regulated market $43.0 $40.7 Stable $38.6 Consistent growth Developing market opportunities 2008E 2009E 2010E 2011E Source: Food Processing Machinery & Equipment Global Food Processing Market Projected to Grow Significantly From 2008E to 2011E PAGE 16
  • 17. Expected Growth by Region 2001 to 2010E Investment for Food Processing Machinery and 2007 Global FPME Spend by Region Equipment by Region ’01 – ’06 ’07 – ’10E EMEA Region CAGR CAGR 30% Asia-Pacific 5.8% 7.1% Asia-Pac 35% Europe 3.3% 3.3% 0.1% 3.6% US 4.0% 5.6% Latin America North America Latin America 18% ROW 10% 7% Source: Food Processing Machinery and Equipment Report, Global Industry Analysts Investment in Food Processing Machinery Expected to be Higher in Developing Countries PAGE 17
  • 18. Typical Sanitary Customers Power SPX Serves a Global Customer Base Including Many of the Leading Food and Beverage Manufacturers PAGE 18
  • 19. Primary Product Uses Positive Displacement Pumps: Pump viscous products such as tomato paste, peanut butter Centrifugal Pumps: Pump thin fluids for beverage or clean in place systems Heat Exchangers: Temperature control for mechanically separated meats, margarines, icings, fondants Valves: Process flow diversion & shut off Mixers: Dispersion & solid suspension Diverse Product Portfolio of Customer Engineered Solutions PAGE 19
  • 20. Sanitary Offerings 2007 Revenue by Type ~70% engineered components for niche end markets: – Built to order Engineered Components 70% ~30% turnkey and skidded process systems: – Engineered, designed and installed Process Systems 30% Note: Data from continuing operations, pro forma for APV acquisition SPX Offers Customers Engineered Components, Skidded Systems and Turnkey Systems PAGE 20
  • 21. Flow Technology Global Presence Before APV Strong Presence Growing Presence Global Expansion of Manufacturing, Sales and Distribution Presence Underway Prior to APV Acquisition… PAGE 21
  • 22. Flow Technology Global Presence Including APV Strong Presence Growing Presence Key APV Additions APV has increased SPX’s presence in developing growth markets: – China – Eastern Europe – South America – Middle East – Russia – South Africa …Addition of APV’s Global Platform is Expected to Accelerate SPX Flow Technology’s Global Expansion PAGE 22
  • 23. APV Integration Streamline combined global presence Increase leverage with suppliers on combined spend Share best manufacturing practices globally: – Including implementation of “Lean” Increased localization of manufacturing Leverage respective distribution markets globally – Product “pull-through” combined distribution channels Expect Integration to be Completed During 2010 Projected Annualized Savings of $40m to $60m PAGE 23
  • 24. Summary 2008E SPX 2005 SPX Revenue by Segment Revenue by Segment Flow Flow Revenue: Flow Revenue: Flow Technology Technology $775m ~$2b 33% 21% Thermal Thermal Equipment Equipment 32% 29% Test & Measurement 28% Test & Measurement 19% Industrial Industrial Products Products 19% 19% Note: Data from continuing operations, 2008E as of 10/29/2008 Flow Technology Revenue has Growth ~160% Since 2005 PAGE 24
  • 25. Current SPX Situation Targeting growth in Q4 2008: – Targeting 8% to 10% organic growth – Targeting 14% to 20% earnings growth Solid financial position and liquidity: – Expect to repurchase 3m shares of SPX stock – Significant flexibility in uncertain economic environment Reducing cost through APV integration Evaluating and preparing for 2009 Carefully Monitoring Risks In Uncertain Economic Environment PAGE 25
  • 26. Questions PAGE 26
  • 27. Appendix PAGE 27
  • 28. Balance Sheet ($ millions) 12/31/07 9/27/08 Change Cash $354 $466 $112 Other Current Assets 2,362 2,540 178 Goodwill 1,930 1,921 (9) Other Assets 1,591 1,595 4 Total Assets $6,237 $6,523 $286 Other Current Liabilities $1,838 $1,842 $4 Total Debt 1,568 1,531 (37) Long-Term Liabilities 825 790 (35) Shareholders' Equity 2,006 2,361 355 Total Liabilities and Shareholders' $6,237 $6,523 $286 Equity Debt / Capital Ratio 44% 39% (1) LTM EBITDA $663 $772 (1) Net Debt / EBITDA 1.83x 1.35x Gross Debt / EBITDA (1) 2.29x 1.89x (1) As defined in the SPX credit facility PAGE 28
  • 29. Full Year Financial Model ($ millions, except per share data) 2008E Guidance 2007 Mid-Point Revenue $4,677 $6,000 Segment Income Margin 13.1% 13.3% Corporate overhead (95) (107) Pension / PRHC (44) (37) Stock-based compensation (41) (43) Special charges (5) (16) Operating Income $428 $598 % of revenues 9.1% 10.0% Equity Earnings in J/V 40 46 Other Income/(Expense) (5) (7) Interest Expense (71) (107) Pre-Tax Income from Continuing Operations $392 $530 Tax Provision (126) (178) Income from Continuing Operations $266 $352 Tax Rate 32% 34% Weighted Average Dilutive Shares Outstanding 56 55 EPS from continuing operations $ 4.73 $ 6.45 EPS from businesses discontinued in 2008 $ 0.12 (1) Adjusted EPS $ 4.85 Adjusted EPS Guidance Range $6.40 to $6.50 EBITDA $ 663 $ 800 Note: Data from continuing operations Adjusted EPS, includes businesses discontinued in 2008, see appendix for reconciliation (1) 2008E Mid-Point EPS Guidance is $6.45 Per Share PAGE 29
  • 30. 2008 Full Year Segment Targets July 30th October 29th Primary FY Targets FY Targets Drivers for Change Revenue Growth +91% to 93% +88% to 89% FX fluctuations Flow Flow Operating Margins 11.8% to 12.3% 12.0% to 12.2% Discontinued product line FX fluctuations Revenue Growth +11% to 13% +10% to 11% Thermal Thermal Strong Q3 margin Operating Margins 10.6% to 11.1% 11.7% to 11.9% execution FX fluctuations, Revenue Growth +9% to 11% +3% to 4% Test & Test & Softness in U.S. market Measurement Measurement Operating Margins 10.5% to 11.0% 10.5% to 10.7% Discontinued product line Revenue Growth +18% to 20% +19% to 20% Strong Q3 operating Industrial Industrial execution Operating Margins 20.2% to 20.7% 20.6% to 20.8% Note: Data from continuing operations, 2008E as of 10/29/2008 Targets Have Been Adjusted to Reflect Foreign Currency Fluctuations, Discontinued Operations and Q3 Performance PAGE 30
  • 31. Re-Stated Quarterly Segment Data First Quarter Second Quarter Third Quarter Fourth Quarter Full Year 2007 2008 2007 2008 2007 2008 2007 2007 Flow Technology Revenue $237 $492 $266 $535 $256 $493 $311 $1,070 Segment Income $37 $47 $44 $70 $44 $56 $51 $175 Segment Margins 15.4% 9.5% 16.5% 13.1% 17.2% 11.3% 16.4% 16.4% Test and Measurement Revenue $236 $270 $284 $320 $245 $260 $315 $1,080 Segment Income $24 $24 $32 $37 $22 $30 $41 $118 Segment Margins 10.0% 8.9% 11.2% 11.4% 9.0% 11.7% 13.0% 11.0% Thermal Equipment and Services Revenue $313 $347 $388 $409 $422 $437 $438 $1,561 Segment Income $16 $36 $38 $46 $57 $52 $52 $163 Segment Margins 5.2% 10.5% 9.8% 11.1% 13.4% 12.0% 12.0% 10.4% Industrial Products and Services Revenue $212 $267 $253 $276 $249 $320 $253 $966 Segment Income $26 $54 $34 $57 $44 $70 $52 $156 Segment Margins 12.3% 20.3% 13.5% 20.5% 17.7% 22.0% 20.5% 16.2% Note: Data from continuing operations PAGE 31
  • 32. Non-GAAP Reconciliations PAGE 32
  • 33. Q3 2008 Organic Revenue Growth Reconciliation Quarter Ended September 27, 2008 Net Revenue Acquisitions/ Organic Foreign Growth Divestitures Growth Currency Flow 92.4% 83.1% 1.0% 8.3% Test 6.1% 7.4% 1.8% -3.1% Thermal 3.5% 0.0% 5.3% -1.8% Industrial 28.6% 0.0% 0.4% 28.2% Consolidated 28.8% 19.7% 2.6% 6.5% Note: Data from continuing operations PAGE 33
  • 34. 2008E Organic Revenue Growth Reconciliation 2008E Net Revenue Acquisitions/ Organic Foreign Growth Divestitures Growth Currency Consolidated +28% to 29% +19% to 20% +1% to 2% +7% to 8% Note: Data from continuing operations, 2008E as of 10/29/2008 PAGE 34
  • 35. EBITDA Reconciliations LTM Sept. ($ millions) 2006 2007 2008 Revenues $4,313 $4,822 $5,742 Net Income $171 $294 $381 Income tax provision (benefit) 56 90 127 Interest expense 50 77 110 Income before interest and taxes $277 $461 $618 Depreciation and intangible amortization expense 90 83 102 EBITDA from continuing operations $367 $544 $720 Adjustments: Non-cash compensation expense 38 41 43 Extraordinary non-cash charges 41 14 (9) Extraordinary non-recurring cash charges 27 7 11 Excess of JV distributions over JV income (12) 2 3 Loss (Gain) on disposition of assets 56 4 (14) Pro Forma effect of acquisitions and divestitures 53 20 Other 8 0 Adjusted LTM EBITDA from continuing operations $525 $663 $772 Note: EBITDA as defined in the credit facility PAGE 35
  • 36. Debt Reconciliations ($ millions) 12/31/2007 9/27/2008 Short-term debt $ 254 $ 260 Current maturities of long-term debt 79 76 Long-term debt 1,235 1,194 Gross Debt $ 1,568 $ 1,531 Less: Puchase card program and extended A/P programs $ (58) $ (59) Adjusted Gross Debt $ 1,510 $ 1,472 Less: Cash in excess of $50m $ (304) $ (416) Adjusted Net Debt $ 1,206 $ 1,055 Note: Debt as defined in the credit facility PAGE 36
  • 37. Pro Forma APV Calculation: 2008E Excluding Including APV APV APV SPX Consolidated 2008E Revenue $5,150 $850 $6,000 Segment Income $762 $38 $800 Segment Margin 14.8% 4.5% 13.3% Note: Data from continuing operations, 2008E as of 10/29/2008 PAGE 37
  • 38. 2008E Free Cash Flow Reconciliation to GAAP Financial Measures SPX Corporation and Subsidiaries Free Cash Flow Reconciliation (unaudited) ($ millions) 2008E Guidance Range Net cash from continuing operations $ 440 $ 470 Capital expenditures $ (140) $ (150) Free cash flow from continuing operations $ 300 $ 320 Note: Data from continuing operations, 2008E as of 10/29/2008 PAGE 38
  • 39. 2008E Adjusted Earnings Per Share 2008E EPS Range GAAP EPS from continuing operations $6.76 $6.86 Q3 Tax Benefits (0.47) (0.47) Q3 Legal Settlement (Other Expense) 0.11 0.11 Adjusted EPS from continuing operations $6.40 $6.50 Note: Data from continuing operations, 2008E as of 10/29/2008 Adjusted EPS Presented Consistent with 2008 EPS Guidance PAGE 39
  • 40. 2007 Adjusted Earnings Per Share FY 2007 GAAP EPS from continuing operations $5.33 Q3 Tax Benefits (0.34) Q4 Tax Benefits (0.25) Q4 Asset Impairment 0.05 Q4 Legacy Legal Matters (Corporate Expense) 0.06 Adjusted EPS from continuing operations $4.85 Note: Data from continuing operations PAGE 40
  • 41. 2006 Adjusted Earnings Per Share FY 2006 GAAP EPS from continuing operations $3.74 Q2 Tax Accrual Reversal (0.57) Q2 VSI Legal Settlement 0.20 Q4 Miscellaneous Tax Benefits (0.28) Q4 C harges for Legacy Legal Matters 0.07 Loss from operations discontinued in 2007 (0.08) Adjusted EPS from continuing operations $3.07 Note: Data from continuing operations PAGE 41
  • 42. 2005 Adjusted EPS Reconciliation Year ended, Dec 31, 2005 GAAP net income per share $15.33 Income from discontinued operations (15.61) SFAS 142 asset impairment 0.96 Loss on early extinguishment of debt 0.96 Normalized tax rate (40%) 0.41 Projected share count (64m) 0.26 Normalized interest expense ($37m) 0.12 Other (1) 0.19 Adjusted earnings per share $2.62 (1) Includes income from businesses discontinued in the second half of 2005, other expense relating to FX losses on the repatriation of cash, a one-time legal settlement at our EGS joint venture and a one-time gain on the sale of property. Note: The model above has been presented on the same basis as the annual earnings per share model presented in SPX’s March 3, 2005 investor presentation PAGE 42
  • 43. PAGE 43