Sullivan's say

IT was an upbeat Bucyrus CEO Tim Sullivan talking about “market corrections” not “troughs” late last week, as he outlined the original equipment manufacturer’s strategy of pushing backlog into 2010 to cope with softer demand.
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Bucyrus president and CEO Tim Sullivan.

Angie Tomlinson

“It is not all doom and gloom. There are opportunities out there in the OE market,” Sullivan said.

Bucyrus’s backlog currently sits at $US2.34 billion, down $150 million on the end of 2008.

“We are continuing to work with our customers, restructuring some contracts and moving some of our backlog into 2010 … we have effectively moved approximately $170 million worth of our backlog into 2010,” he said.

“The strategy there is, as we approach some potentially soft booking quarters here in the middle part of this year, we want to make sure that we're backfilling OE business into 2010.

“The business that's being shifted will be replaced by what is continuing to be a pretty strong aftermarket market that we have for our machines out there.”

Sullivan says based on shifting $1.7 billion of the backlog out of this year, Bucyrus can still achieve revenue targets of $2.5 billion by securing $800,000 in new orders in 2009.

Sullivan said he believed some stability had been found in the market, with a floor now present on commodity pricing, adding the stimulus package in China was starting to work.

“All indications are that, as the credit markets improve and fix themselves as we move through the next two quarters, we'll start to see some reasonably good activity in the fourth quarter of 2009, if not before that, depending on how things evolve here over the next few months,” he said.

While Bucyrus has been working hard to restructure its contracts into 2010, it took $16 million in cancellations for the March quarter.

“They're for room and pillar equipment for small Central Appalachian coal companies. Central Appalachia's getting hit particularly hard, their cash costs are high and it's a very complicated market with many smaller players.

“As most of you know, we don't do a lot of business in Central Appalachia because room and pillar is not our strongest product offering, but we're pretty gratified by the fact that so far to date $16 million is our total dollar value of cancellations,” he said.

On the OEM’s order outlook for underground equipment and service, Sullivan said the prospect list was down but had not disappeared.

“I'm not really sure if it's at that same level of opportunity, but it definitely is probably slightly off than what we've had in the first quarter. And we have had some drop-off in prospects, but like I said, it's not disappeared.”

When questioned last week on whether larger OEMs had seen a drop-off on service business as companies tried to save by doing their own maintenance, Sullivan said the case was the opposite.

“If you look at a lot of the announcements that were made by the big multinationals and some of the domestic coal companies, they've had some fairly large lay-offs of their personnel, which actually put a lot more burden on us to provide service. So the service bookings are actually up.”

Looking further afield, Sullivan said the Indian market showed promise, but continued to move slowly.

“The Indian market, in particular, they're talking about doubling or tripling the amount of coal that they need to import, because they're struggling to make decisions on buying equipment to mine their own coal in their own country.

“So it's frustrating for us, but hopefully we'll get the knock-on effect if they start importing more and more coal that we might get some business out of some of the people that are supplying them that coal.”

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