Raymond James Conference
Raymond James Conference March 2010
Safe Harbor Statement Some of the items discussed in this presentation deal with our views on future company performance and results and with other forward-looking statements within the meaning of U.S. securities laws. The company
cautions that actual results may differ materially from those discussed in these forward-looking statements. Please refer to additional information contained in our filings with the U.S. Securities and Exchange Commission regarding the risks and uncertainties that could cause actual results to differ from those discussed in this presentation. The company’s SEC filings can be viewed at www.lufkin.com.
2
Company Overview Businesses Oil and Gas Artificial Lift Provides products, services and automation for multiple forms of artificial lift in global turnkey applications for oil & gas production. Traditionally known for beam pumping units for rod lift, now offers gas lift and plunger lift. Mechanical Power Transmission Serving the energy and industrial sectors with engineered gearing solutions. Ticker Market Cap (03/02/10) Stock Price (03/02/10) Annual Dividend Countries Served Employees Headquarters
NASDAQ: LUFK $1.114 billion $74.87 $1.00/share 40 2,600 Lufkin, Texas 3
Investment Highlights • Provides products across the energy continuum • Expanding global platform
• Proven model for acquiring and fast track development of technologies • Financial strength & brand for step function growth
4
Strong Customer Base Providing reliable, high-quality products and services to a broad spectrum of energy and industrial companies.
5
Customer Metrics EnergyPoint Research report on customer satisfaction “Highest marks for customer satisfaction, regardless of service category.” “The results suggest customers tend to be more pleased with suppliers’ specializations within, rather than integrations across, the completion related products and services.”
Select Suppliers of Completion-related Products & Services 2004-09 YTD Ratings as % of Group Average 115% 110% 105% 100% 95% 90% 85% LUFK
FRANKS
BHI
HAL
BJS
SLB
WFT 6
Strategic Initatives • Total responsibility support for artificial lift – Bundling units, automation, and service
• Leverage global aftermarket opportunities – Requisite engineering and manufacturing capabilities – Network of global service and support centers
7
Expanding International Operations
8
Strategic Initiatives • Vertical Integration – Innovation – Cost reduction
– Lean supply chain – Reduced cycle times
• M&A – Technologies / Services – Geographic locations – Synergies – Ability to erect competitive barriers
9
Financial Highlights Revenue Contribution by Segment Oilfield
2009
($ in millions)
Power Transmission
$349
2008
$172
$552
2007
$190
$401
0%
10%
20%
30%
40%
$125
50%
60%
70%
80%
90%
100%
10
Financial Highlights Order Backlog History Comparison Oilfield
($ in millions)
Power Transmission
$43.3
YE 2009
$97.0
$188.1
YE 2008
$129.3
$76.9
YE 2007
$122.2
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
$200.0
11
Fundamentals Improve in 2010 • Market fundamentals: – Supply and demand returning to balance – Demand pressure and tightening global supply 2011 – 2012 World Primary Energy Demand by Fuel in the Reference Scenario
Source: World Energy Outlook © OECD/IEA, 2009, Figure 1.1,p.75
12
Fundamentals Improve in 2010 • Lufkin used 2009 to position for the future – Capital investments
– Strengthened organization – M&A
• Expansion of global support platform will continue
13
Successful M&A/Start-Up Model
BASE
NA SVC
AUTO
ARG
ILS
INTL START-UPS
FRANCE
RMT
800 700
$ Revenue (mil)
600 500 Acquisitions & Start-Ups: 47%
400 300 200
Base Revenue: 53%
100 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The CAGR for the base revenue is 9.8% and the total CAGR is 14.2% over the 10-year period. 14
ILS Acquisition • Expands Lufkin’s footprint in artificial lift • Takes us offshore and down hole • Leverages Lufkin’s sales and service
network – particularly internationally • Creates synergies with our automation product line • Excellent management team • Strong financial performer
15
RMT Acquisition • Strong synergies with our high-speed turbo gear product line and gear repair business • Expands our opportunities in oil & gas, LNG, and petrochemical markets for both geared and nongeared applications • Puts us at the forefront of bearing design and
manufacturing technologies • Excellent leverage with our global sales team • Financially strong with solid growth prospects • Excellent, stable management team
16
Oilfield Division
Oilfield Revenue by Product Line $349.2 million of total revenues in 2009 ($ in millions)
3%
4%
15%
Pumping Unit Sales ($188.2) Pumping Unit Service ($84.9) Automation ($51.4) 54%
Foundry ($9.3) ILS ($15.3) 24%
18
Oilfield Revenues and Margins • Increasing sales of equipment & services to Latin America and other international markets
FY Revenue
Gross Margin 30%
600
$ in millions
500
25%
$552
20%
400 $401
$349
300 200
$397
$307
15% 10%
$216
100
5%
0
0% 2004
2005
2006
2007
2008
2009 19
Global Artificial Lift Market • $5.8 billion in 2009 • Lufkin’s share of rod lift market based on revenue equals 30% • Rod Lift share on per well basis (LUFK/HF/DOV 53%)
18%
ESP ($3,350) Hydraulic ($110) 4%
PCP ($470) Other ($345)
4% 58%
Gas Lift ($240) 6%
Plunger Lift ($233) Rod Lift ($1,075) 8% 2%
Source: Spears & Associates, Oilfield Market Report, October 2009 20
Artificial Lift
Oilfield Division Industry Growth Drivers Demand for artificial lift
More than half of current global production is on some form of artificial lift
Maturing oil reservoirs require artificial lift technology to counter natural production declines 22
Oilfield Division Opportunities for Lufkin • Increasing international activity, especially in Latin America, the Middle East, North Africa & Russia • Growing demand for automation as producers seek to maximize production and reservoir output, optimize equipment performance and minimize operating costs
• Emerging opportunities to service thirdparty aftermarket equipment • Greater synergies through bundling manufacturing, service and automation products 23
Power Transmission Division
Power Transmission Sectors
25
Power Transmission by Market Segment $172.2 million of total revenues in 2009 Energy Related – 61% 4%
Oil & Gas ($53)
4% 4%
Refinery ($13.5)
31%
Petrochemical ($9.7) Power Generation ($28.4)
19%
Marine ($13) Others ($32.8) Service Work ($7.6)
8%
8%
Steel & Metals Processing ($6.8) 6%
Rubbers & Plastics ($7.3)
16%
26
Power Transmission Revenues and Margins • Strongest demand is from oil & gas, refining & petrochemical, power generation • Weakness in gross margin due to pricing pressure and loss of volume leverage FY Revenue
Gross Margin
250
35%
200
30%
$ in millions
$189 $172
150
$158
25%
$125
100
20%
$107 $79
50
15%
0
0% 2004
2005
2006
2007
2008
2009 27
Power Transmission Division Industry Growth Drivers Global demand for energy: electrical power generation (gas, coal, nuclear), oil and gas production, “green” renewable energy
Emphasis on increasing efficiency and reliability driving technical advances in design and manufacture
Successful aftermarket business model 28
Power Transmission Division Opportunities for Lufkin • Continuing demand for new equipment from – Power generation – Exploration & production – Petrochemicals – Refining
• New international opportunities for thirdparty equipment rebuild and repair services
• Opportunities also developing in emerging wind turbine gearbox repair, and infrastructure projects in the U.S. • Lufkin is the only manufacturer with full design, manufacture and mechanical testing capabilities in U.S. and Europe 29
Financials
EBITDA From Continuing Operations(1) ($ in millions) $180 $158.3
$160 $140 $123.8 $113.4
$120 $100 $79.1
$80
$58.1
$60
$40
$36.7
$20 $0 2004
2005
2006
2007
2008
2009
(1) Excludes discontinued Trailer division results for all years. Excludes a pre-tax litigation charge of $6 million in 2008, or $0.25 per diluted share and $6 million for 2009, or $0.26 per diluted share. A reconciliation to net earnings and EBITDA is found in the appendix. 31
Earnings per Share From Continuing Operations(1) ($ in millions) $7 $6.16
(1)
$6 $4.71
$5
$4.76
$4 $2.98
$3
$1.77
$2
(1)
$1.15 $1 $0 2004
2005
2006
2007
2008
2009
(1) Excludes discontinued Trailer division results for all years. Excludes a pre-tax litigation charge of $6 million in 2008, or $0.25 per diluted share and $6 million for 2009, or $0.26 per diluted share. A reconciliation to net earnings and EBITDA is found in the appendix. 32
Strong Capital Structure At December 31, 2009 • Financial resources to weather the current industry cycle and grow organically or through acquisitions – Minimal debt
– $24 million available under credit facility – $101 million of cash
33
Growth Strategy • Attract new business through high-quality engineering and design, superior products and exceptional customer service • Expand our geographic footprint to take advantage of growth in key international markets in both Oil Field and Power Transmission Divisions • Maintain financial strength and flexibility to grow through both organic expansion and acquisitions
34
Lufkin Industries, Inc.
Safe Harbor Statement Some of the items discussed in this presentation deal with our views on future company performance and results and with other forward-looking statements within the meaning of U.S. securities laws. The company
cautions that actual results may differ materially from those discussed in these forward-looking statements. Please refer to additional information contained in our filings with the U.S. Securities and Exchange Commission regarding the risks and uncertainties that could cause actual results to differ from those discussed in this presentation. The company’s SEC filings can be viewed at www.lufkin.com.
2
Company Overview Businesses Oil and Gas Artificial Lift Provides products, services and automation for multiple forms of artificial lift in global turnkey applications for oil & gas production. Traditionally known for beam pumping units for rod lift, now offers gas lift and plunger lift. Mechanical Power Transmission Serving the energy and industrial sectors with engineered gearing solutions. Ticker Market Cap (03/02/10) Stock Price (03/02/10) Annual Dividend Countries Served Employees Headquarters
NASDAQ: LUFK $1.114 billion $74.87 $1.00/share 40 2,600 Lufkin, Texas 3
Investment Highlights • Provides products across the energy continuum • Expanding global platform
• Proven model for acquiring and fast track development of technologies • Financial strength & brand for step function growth
4
Strong Customer Base Providing reliable, high-quality products and services to a broad spectrum of energy and industrial companies.
5
Customer Metrics EnergyPoint Research report on customer satisfaction “Highest marks for customer satisfaction, regardless of service category.” “The results suggest customers tend to be more pleased with suppliers’ specializations within, rather than integrations across, the completion related products and services.”
Select Suppliers of Completion-related Products & Services 2004-09 YTD Ratings as % of Group Average 115% 110% 105% 100% 95% 90% 85% LUFK
FRANKS
BHI
HAL
BJS
SLB
WFT 6
Strategic Initatives • Total responsibility support for artificial lift – Bundling units, automation, and service
• Leverage global aftermarket opportunities – Requisite engineering and manufacturing capabilities – Network of global service and support centers
7
Expanding International Operations
8
Strategic Initiatives • Vertical Integration – Innovation – Cost reduction
– Lean supply chain – Reduced cycle times
• M&A – Technologies / Services – Geographic locations – Synergies – Ability to erect competitive barriers
9
Financial Highlights Revenue Contribution by Segment Oilfield
2009
($ in millions)
Power Transmission
$349
2008
$172
$552
2007
$190
$401
0%
10%
20%
30%
40%
$125
50%
60%
70%
80%
90%
100%
10
Financial Highlights Order Backlog History Comparison Oilfield
($ in millions)
Power Transmission
$43.3
YE 2009
$97.0
$188.1
YE 2008
$129.3
$76.9
YE 2007
$122.2
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
$200.0
11
Fundamentals Improve in 2010 • Market fundamentals: – Supply and demand returning to balance – Demand pressure and tightening global supply 2011 – 2012 World Primary Energy Demand by Fuel in the Reference Scenario
Source: World Energy Outlook © OECD/IEA, 2009, Figure 1.1,p.75
12
Fundamentals Improve in 2010 • Lufkin used 2009 to position for the future – Capital investments
– Strengthened organization – M&A
• Expansion of global support platform will continue
13
Successful M&A/Start-Up Model
BASE
NA SVC
AUTO
ARG
ILS
INTL START-UPS
FRANCE
RMT
800 700
$ Revenue (mil)
600 500 Acquisitions & Start-Ups: 47%
400 300 200
Base Revenue: 53%
100 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The CAGR for the base revenue is 9.8% and the total CAGR is 14.2% over the 10-year period. 14
ILS Acquisition • Expands Lufkin’s footprint in artificial lift • Takes us offshore and down hole • Leverages Lufkin’s sales and service
network – particularly internationally • Creates synergies with our automation product line • Excellent management team • Strong financial performer
15
RMT Acquisition • Strong synergies with our high-speed turbo gear product line and gear repair business • Expands our opportunities in oil & gas, LNG, and petrochemical markets for both geared and nongeared applications • Puts us at the forefront of bearing design and
manufacturing technologies • Excellent leverage with our global sales team • Financially strong with solid growth prospects • Excellent, stable management team
16
Oilfield Division
Oilfield Revenue by Product Line $349.2 million of total revenues in 2009 ($ in millions)
3%
4%
15%
Pumping Unit Sales ($188.2) Pumping Unit Service ($84.9) Automation ($51.4) 54%
Foundry ($9.3) ILS ($15.3) 24%
18
Oilfield Revenues and Margins • Increasing sales of equipment & services to Latin America and other international markets
FY Revenue
Gross Margin 30%
600
$ in millions
500
25%
$552
20%
400 $401
$349
300 200
$397
$307
15% 10%
$216
100
5%
0
0% 2004
2005
2006
2007
2008
2009 19
Global Artificial Lift Market • $5.8 billion in 2009 • Lufkin’s share of rod lift market based on revenue equals 30% • Rod Lift share on per well basis (LUFK/HF/DOV 53%)
18%
ESP ($3,350) Hydraulic ($110) 4%
PCP ($470) Other ($345)
4% 58%
Gas Lift ($240) 6%
Plunger Lift ($233) Rod Lift ($1,075) 8% 2%
Source: Spears & Associates, Oilfield Market Report, October 2009 20
Artificial Lift
Oilfield Division Industry Growth Drivers Demand for artificial lift
More than half of current global production is on some form of artificial lift
Maturing oil reservoirs require artificial lift technology to counter natural production declines 22
Oilfield Division Opportunities for Lufkin • Increasing international activity, especially in Latin America, the Middle East, North Africa & Russia • Growing demand for automation as producers seek to maximize production and reservoir output, optimize equipment performance and minimize operating costs
• Emerging opportunities to service thirdparty aftermarket equipment • Greater synergies through bundling manufacturing, service and automation products 23
Power Transmission Division
Power Transmission Sectors
25
Power Transmission by Market Segment $172.2 million of total revenues in 2009 Energy Related – 61% 4%
Oil & Gas ($53)
4% 4%
Refinery ($13.5)
31%
Petrochemical ($9.7) Power Generation ($28.4)
19%
Marine ($13) Others ($32.8) Service Work ($7.6)
8%
8%
Steel & Metals Processing ($6.8) 6%
Rubbers & Plastics ($7.3)
16%
26
Power Transmission Revenues and Margins • Strongest demand is from oil & gas, refining & petrochemical, power generation • Weakness in gross margin due to pricing pressure and loss of volume leverage FY Revenue
Gross Margin
250
35%
200
30%
$ in millions
$189 $172
150
$158
25%
$125
100
20%
$107 $79
50
15%
0
0% 2004
2005
2006
2007
2008
2009 27
Power Transmission Division Industry Growth Drivers Global demand for energy: electrical power generation (gas, coal, nuclear), oil and gas production, “green” renewable energy
Emphasis on increasing efficiency and reliability driving technical advances in design and manufacture
Successful aftermarket business model 28
Power Transmission Division Opportunities for Lufkin • Continuing demand for new equipment from – Power generation – Exploration & production – Petrochemicals – Refining
• New international opportunities for thirdparty equipment rebuild and repair services
• Opportunities also developing in emerging wind turbine gearbox repair, and infrastructure projects in the U.S. • Lufkin is the only manufacturer with full design, manufacture and mechanical testing capabilities in U.S. and Europe 29
Financials
EBITDA From Continuing Operations(1) ($ in millions) $180 $158.3
$160 $140 $123.8 $113.4
$120 $100 $79.1
$80
$58.1
$60
$40
$36.7
$20 $0 2004
2005
2006
2007
2008
2009
(1) Excludes discontinued Trailer division results for all years. Excludes a pre-tax litigation charge of $6 million in 2008, or $0.25 per diluted share and $6 million for 2009, or $0.26 per diluted share. A reconciliation to net earnings and EBITDA is found in the appendix. 31
Earnings per Share From Continuing Operations(1) ($ in millions) $7 $6.16
(1)
$6 $4.71
$5
$4.76
$4 $2.98
$3
$1.77
$2
(1)
$1.15 $1 $0 2004
2005
2006
2007
2008
2009
(1) Excludes discontinued Trailer division results for all years. Excludes a pre-tax litigation charge of $6 million in 2008, or $0.25 per diluted share and $6 million for 2009, or $0.26 per diluted share. A reconciliation to net earnings and EBITDA is found in the appendix. 32
Strong Capital Structure At December 31, 2009 • Financial resources to weather the current industry cycle and grow organically or through acquisitions – Minimal debt
– $24 million available under credit facility – $101 million of cash
33
Growth Strategy • Attract new business through high-quality engineering and design, superior products and exceptional customer service • Expand our geographic footprint to take advantage of growth in key international markets in both Oil Field and Power Transmission Divisions • Maintain financial strength and flexibility to grow through both organic expansion and acquisitions
34
Lufkin Industries, Inc.
