McCoy Corporation
TSX : MCB

McCoy Corporation

November 05, 2009 08:00 ET

McCoy Corporation Announces Third Quarter 2009 Results

EDMONTON, ALBERTA--(Marketwire - Nov. 5, 2009) - McCoy Corporation (TSX:MCB) ("McCoy" or the "Corporation") announced results for the three months ended September 30, 2009, a quarter in which McCoy continued to show strength in the face of a challenging economic environment. Revenue for the corporation was $22.8 million in the third quarter of 2009, flat from second quarter revenue of $23.3 million, but down significantly from $47 million in the third quarter of 2008. McCoy's gross profit of $9 million continued to be a healthy 39 percent of sales for the quarter. McCoy had a consolidated net loss for the third quarter of $0.8 million, compared to earnings of $1.9 million in the third quarter of 2008. The third quarter loss was an improvement from the $1.5 million loss reported for the second quarter of this year.

"McCoy continues to have a long-term focus on organic and acquisition growth," stated Jim Rakievich, McCoy's President and CEO. "During recent quarters we have taken a proactive approach to keeping this focus while facing adversity in the broader economy and the energy sector in particular. Our activities to date in 2009 are designed to ensure our ability to grow profitably in the future."

On a broader basis, McCoy has kept itself in a strong position with a strong balance sheet while at a low point in the energy services business cycle. Net debt at September 30, 2009 was down to $4.7 million, or approximately half of annualized Q3 cash flow from operations. We have $7.6 million available on McCoy's existing credit line. McCoy continued building on its financial strength throughout the quarter by reducing overhead costs through additional headcount reduction and tight cost controls company-wide.

"McCoy prides itself on providing innovative products and services to the global energy industry. In doing so, we compete on a global basis in terms of the efficiency of our operations. This is why it is important that among other positive steps we successfully consolidated our trailer manufacturing businesses on-time and under-budget during the most recent quarter."

During the third quarter McCoy moved all trailer manufacturing to its Penticton, British Columbia facility, where the Corporation now manufactures both the Scona and Peerless brands. In addition, McCoy reduced the go-forward cost structure for trailer manufacturing with the sub lease of the Edmonton plant effective November 1, 2009 resulting in minimum annual savings of approximately $340,000, while maintaining output capacity.

During the quarter, McCoy also continued to successfully integrate RP Manufacturing & Calibration (RP). RP was acquired by McCoy in early 2009. The sales office remains in Conroe, Texas while production and engineering have been relocated to our highly efficient manufacturing plant in Louisiana.



Financial Highlights

Three months ended Nine months ended
Sept 30 Sept 30
($000, except per share 2009 2008 Percent 2009 2008 Percent
numbers) change change
Revenue 22,780 47,017 (52) 77,066 127,160 (39)
Net (loss) earnings (779) 1,909 (1,926) 6,508
Basic and diluted (loss)
earnings per share (0.03) 0.07 (0.07) 0.23
EBITDAS (1) 620 4,072 (85) 2,279 13,775 (83)
EBITDAS (1) per share 0.02 0.15 (87) 0.09 0.50 (82)
Cash flow from operating
activities (2) 2,385 5,923 (60) 7,576 10,031 (24)
Cash flow from operating
activities per share (2) 0.09 0.21 (57) 0.29 0.36 (19)
Total Assets 86,624 121,404 (29)
Total Liabilities 22,814 40,867 (44)
Total Long-term Liabilities 8,093 12,669 (36)
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(1) EBITDAS, a non-GAAP measurement, is defined by the Corporation as
"Earnings before interest, taxes, depreciation, amortization and
stock-based compensation".
(2) Cash flow from operating activities, a Canadian GAAP measurement from
the Statement of Cash Flows, is defined as cash flows primarily derived
from the principal revenue-producing and service-provision activities of
the Corporation.


The Corporation's continued application of "lean manufacturing" processes was a major success factor in 2008 and continues to be in 2009 and beyond as lean manufacturing continues to show positive results. The Corporation is committed to continuously improving efficiencies and moving closer to McCoy's goal of having its operations become centres of excellence for manufacturing and being the low cost provider while maintaining high quality standards. The Corporation has established a lean consortium group representative of all of McCoy's business segments. The Corporation believes its experience with lean implementations will be an advantage in any manufacturing businesses that McCoy may acquire.

Energy Products and Services (EP&S)

The EP&S segment saw decreased sales in the third quarter of 2009, compared to the third quarter of 2008, due to further softening of the global drilling equipment and downhole tool markets. The softening of the drilling equipment and downhole tool markets are due to the significant reduction in rig utilization, particularly in North America. Uncertainty remains as there is no clear view of how all economic and market conditions will impact spending decisions in this industry. There are many international land and offshore projects that are awaiting approval and international order quoting has picked up, albeit with a lower proportion of quotes actually turning into orders. This is evidenced by the increased sales outside of North America in the third quarter of 2009 to 26% of total sales compared to 13% in the same period of 2008.

McCoy's EP&S segment is focused on growing its replacement parts and service business for drilling equipment used worldwide. As customers continue to use existing capital equipment, the recurring revenue from maintaining this equipment is a large, worldwide market that the Corporation has the ability to penetrate. This is an area that the Corporation continues to be confident to invest in during uncertain times. In addition, McCoy will continue to review and pursue opportunities to fill in the missing drilling equipment products that are part of the Corporation's long term strategy to become a significant supplier of this equipment globally. This will be done both through internal research and development and through acquisition. The February 28, 2009 acquisition of RP Manufacturing and Calibration is an example of a strategic acquisition which filled a product line gap. When additional acquisition opportunities at the right price become available, management will seriously consider acting on them while also recognizing the need to conserve cash in this uncertain business environment.

The Corporation will continue to integrate its drilling equipment operations of Farr, Superior and PDT in order to gain cost efficiencies, speed up product development and take full advantage of our sales and marketing group. The manufacturing activities of RP have been moved to Superior in order to utilize the manufacturing efficiencies in Superior.

Trailer Manufacturing

The Trailer Manufacturing segment experienced significantly decreased revenue in the third quarter of 2009, compared to the third quarter of 2008, mainly due to the further reduction in conventional oil and gas activity in the Western Canadian Sedimentary Basin (WCSB), the source of the majority of the Trailer Manufacturing segment's revenue. Management is taking a very conservative view on near term domestic drilling activity due to natural gas price declines during 2009 and a lack of confidence in capital equipment spending by McCoy's customers over the remainder of the year.

Field testing of a prototype turbine Blade Hauling trailer for the wind energy market has proven successful, with the trailer design receiving positive customer response. Trials are continuing into the fourth quarter using turbine blades from different manufacturers and various blade lengths. A turbine tower segment hauling Jeep-Schnabel-Dolly trailer combination is in the final stages of assembly and testing in the plant and is scheduled for field trials in fourth quarter. The results of these initiatives are expected to increase revenue and earnings and reduce cyclicality over time. However, new product development takes time and in response to the immediate market slowdown management has acted on cost cutting measures which are necessary to ride out the current economic conditions in the segment. Management expects that there will continue to be pressure on this segment in 2009 and beyond. During the third quarter, management has consolidated the two production facilities at the Penticton plant in order optimize our resources and minimize operating costs. Management has secured a tenant to sublease the Edmonton facility effective November 1, 2009 and therefore will avoid the costs of rent and other plant costs going forward. This translates into an annual savings of approximately $340,000.

Truck and Trailer Products and Services (TTP&S)

The TTP&S segment saw decreased revenue in the third quarter of 2009, compared to the same period in 2008, mostly related to a decline in sales at the Peerless parts and services locations. The TTP&S segment generates almost all of its revenue in western Canada and as trailer demand decreases so does the sales of parts and services for trailers. This decline in demand is tempered by the revenue from the Real McCoy Service Centres, which comes from maintenance budgets rather than capital equipment budgets. This results in a less volatile revenue stream. Typically a reduction in demand for new capital equipment tends to result in more maintenance spending on existing equipment to keep it operating longer. The current trend in the TTP&S segment is anticipated to continue through 2009 as the lack of sales in heavy duty trailer parts for "new build" customers remains soft and the volume of drilling activity that mobilizes equipment remains uncertain.

Outlook

Looking ahead, McCoy has now made the decision to consolidate the Peerless Parts and Service operation in Edmonton with the Edmonton Southside Real McCoy Service Centre. This will result in better customer service for the Peerless and McCoy Service businesses as the relocation will provide a more complete and efficient parts and service operation. The consolidation will be complete before year-end 2009 and management has begun looking for a sub-lease tenant for the Peerless location. This is a permanent consolidation that will result in long term bottom line improvement.

While the credit crisis and low natural gas prices have negatively impacted McCoy's 2009 results, recovering markets have the potential to result in improved financials in 2010. The Corporation will continue to monitor the markets in which it operates and will continue to take decisive action to improve efficiencies. At the same time McCoy is proactively seeking out opportunities for growth as the business environment gives signs that it is on the way to recovery.

As a positive development, rig activity appears to have bottomed during the quarter in North America resulting from improved oil and gas prices. This may be early signs of a recovery. Should the upward trend continue, McCoy will be well-positioned to show profitable growth through increasingly efficient operations. Additionally, the Corporation's exposure to international oil and gas drilling activity continues to provide stability.

Conference Call

McCoy will host a conference call and webcast to discuss its third quarter results at 9 a.m. Mountain Time (11 a.m. Eastern) on November 5, 2009.

Management participants will be:

- Jim Rakievich, President and Chief Executive Officer;

- Milica Stolic, Chief Financial Officer and Corporate Secretary; and

- Ted Redmond, Executive Vice President, Energy Products & Services.

Participants calling from Canada or the United States may call toll-free: 1-866-253-4938. Callers from other locations may access the call at: 1-416-849-6209. For those who prefer to join by webcast, a link will be displayed on the home page of McCoy's website at www.mccoycorporation.ca. The call will also be available for replay via telephone for seven days after the conference call by calling 1-866-245-6755 or 1-416-915-1035. The replay passcode number is 823175. A transcript of the conference call will be archived on the conference calls page of McCoy's website.

About McCoy Corporation

Established in 1914, McCoy Corporation provides advanced products and services for the global energy industry. McCoy Corporation is comprised of three main operating segments: Energy Products & Services, Trailer Manufacturing and Truck & Trailer Products & Services.

Forward-Looking Information

This news release and the website referenced therein may contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause McCoy's actual results and experience to differ materially from the anticipated results or expectations expressed. Readers are cautioned not to place undue reliance on forward-looking information that may be contained herein, which is given as of the date it is expressed in this news release or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose. McCoy undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

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