CLARCOR Q1 Earnings Conference Call: Full Transcript

Operator: Good morning ladies and gentlemen and thank you for standing by. Welcome to the CLARCOR Incorporated First Quarter 2016 Earnings Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. It is now my pleasure to turn the conference over to Mr. Tom Lawrence, DVL, Seigenthaler. Please go ahead, Lawrence. Tom Lawrence: DVL Seigenthaler: Thank you. We appreciate your interest in joining us on CLARCOR's conference call to discuss results for the first quarter of 2016. By now, everyone should have received a copy of the news release that was distributed yesterday. Anyone does need a copy, it is available on CLARCOR's website at www.clarcor.com or you can call Marry -- at 615-244-1818, and she will send you a copy immediately. Before I turn the call over to Chris Conway, CLARCOR's Chairman, President and CEO, I'll remind you that all statements made in the news release and during this conference call, other than statements of historical facts are forward-looking statements. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company believes that its expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties, and other important factors that could cause the Company's actual results, performance, or achievements, or industry results to differ materially from the Company's expectations of future results, performance, or achievements expressed or implied by these forward-looking statements. In addition, the Company's past results of operations do not necessarily indicate its future results. Finally, we wanted to let people know that the information statements made during the call are made as of the date of the call, March 17, 2016. Those listening to any replay should understand that the passage of time by itself will diminish the quality of the statements. Also the contents of the call are the property of the Company and the replay or transmission of the call may be done only with the consent of CLARCOR. It's now my pleasure to turn the call over to Chris Conway for his opening remarks. Christopher L. Conway: Chairman of the Board, President, Chief Executive Officer: Thank you, Tom and thank you --. Good morning and thank you for joining us today. With me are David Fallon, our Chief Financial Officer; and David Janicek, our Corporate Controller. After a few opening remarks, I'll turn it over to David Fallon to review our financial results and guidance in more detail. I'll finish with the few additional remarks before we open up for question. We reported diluted earnings per share $0.43 per quarter after the close trading yesterday, this compares to $0.53 for last year's first quarter. Net sales decreased 10% and diluted earnings per share 19% or $0.10 from the first quarter of 2015. As mentioned in our press release $0.08 of this earnings per share reduction is from weaker end markets in our engine mobile segment, $0.01 is reduction from up front expenses related to cost reduction in our industrial environmental segment and $0.01 is from the third quarter of 2015, this position of our packaging business. In the phase of significant micro economic challenges, we were pleased that the performance of our businesses. They exceeded our internal expectations on both the sales and operating profit front and held competitive positions in their markets with encouraging gains in some areas. We're also aggressively working commercial programs and cost reductions to build the stronger foundation going forward. Our adjusted net sales declined 6%, only 3% after excluding the impact of year-over-year average changes in foreign currency exchange rates. Our operating margin declined approximately 1.3 percentage points as a result of the lower sales and lower fixed cost absorption. In our Engine/Mobile segment revenue declined $10 million under 7%. $4 million of that was due to a decline in off road fuel filtration. $4 million due to a decline in sales to other filter companies which were down 36% versus last year's first quarter and the remaining $3 million driven by lower average foreign currency exchange rates. Our Industrial/Environmental segment revenue declined $9 million or 5%, $6 million of that decline due to lower foreign exchange rates and the remaining $3 million reduction was a result of lower industrial air and natural gas sales offset by an increase in gas turbine and HVAC filtration sales. Natural gas sales declined 12% partially due to a large non-recurring order that occurred in last year's first quarter. Gas turbine filtration sales increased $4 million or 23% driven by both first-fit and aftermarket business. Now I'll turn over to David to review more financial details. David Fallon: Vice President of Finance and Chief Financial Officer: Thank you, Chris. As Chris summarized, our first quarter adjusted diluted earnings per share of $0.44 declined $0.08 from last year but our performance across most financial metrics exceeded our expectations heading into the quarter. Better than expected financial performance was assisted by higher than expected sales of fuel filtration products in to the ag and construction equipment markets. Although sales in these markets declined 17% from last year's first quarter, we as we discussed in our January call, had expected sales to drop 25% to 30%. In addition although sales in our natural gas filtration market declined 12% from last year's first quarter we had expected sales to decline 20% to 25% primarily as a result of incremental margins on the higher expected sales in both of these markets we exceeded our first quarter expectations. We will provide additional detail for both of these markets shortly. From a segment perspective, sales in our Engine/Mobile segment declined 7% from last year's first quarter, including a 5% reduction in the US and a 10% reduction in international sales which were negatively influenced by exchange rates across most of our foreign currencies. Excluding this foreign exchange impact international sales declined 3% primarily driven by lower exported fuel filtration products and an 8% currency adjusted decline in heavy duty engine filtration sales in China. Lower sales in these international markets were partially offset by higher export sales of traditional Baldwin products and an 8% currency adjusted increase in Europe. The 5% sales decline in the US was primarily driven by lower sales of fuel filtration products into the ag and construction equipment markets combined with lower sales to other filtration companies, both partially offset by a 3% increase in our US aftermarket including Carquest which was ramping up in last year's first quarter. Global sales of fuel filtration products into the ag and construction equipment markets declined 17% in the first quarter including 39% from a first-fit basis and a 10% aftermarket reduction. Notwithstanding the 17% year-over-year global decline, first quarter sales were essentially flat with fourth quarter 2015 sales. possibly indicating some stability in this end market. Despite limited long-term visibility we continue to anticipate a significant year-over-year percentage decline in this year's second quarter but our projections imply relatively flat sequential quarterly sales as we progress through the year. Sales in our Industrial/Environmental segment declined 5% from last year's first quarter but declined only 2% when adjusted for foreign currency. Sales of natural gas filtration products declined 12% better than our expectations, but were aided by the pool-in of several large projects originally forecast for second quarter. The 12% sales decline was driven by 32% reduction in sales of filtration vessels partially offset by a 10% increase in after-market sales. Lower capital vessel sales are indicative of well publicized industry challenges but growth in the aftermarket provides some cautious optimism for approximately half of our natural gas book of business. Despite better than expected first quarter natural gas filtration sales, we are reducing our full year sales projections in this market from 9% down to 12% down from full year 2015, but we still anticipate sequential quarterly improvement as we progress through the year. Sales of gas turbine filtration products increased 23% from last year's first quarter including a 27% increase in sales of first-fit filters system and a 20% increase in the aftermarket. As with prior year, sales in to this market are somewhat lumpy and we still anticipate a relatively flat year overall but we believe our first quarter performance is a positive sign as we continue to develop our relationship with GE and penetrate new aftermarket customers.. To wrap up our discussion on the Industrial/Environmental segment, sales in the industrial air filtration market declined almost 30% from last year's first quarter. This decline was primarily driven by industry challenges in several industrial air markets including coal power generation and cement processing. Year-over-year quarterly sales comparisons were also negatively impacted by several larger multiyear orders processed in last year's first quarter. We anticipate unfavorable year-over-year comparisons to continue into our second quarter with an approximate 20% decline from last year but primarily due to easier comps year-over-year comparisons should stabilize in the second half of the year. As a quick update on our cost reduction program, we realized approximately $4.5 million of savings in the first quarter including approximately $3 million from the reduction in force, $1 million from lower discretionary selling and administrative expenses, and approximately half a million from our purchasing initiatives. We believe we are on track to realize approximately $20 million from cost reductions in fiscal year 2016. We continue to evaluate other cost reduction initiatives that might impact our cost structure beginning in 2017 but we have no significant status update to share for these initiatives at this point. As mentioned in our earnings release, we generated over $60 million of cash from operations in the first quarter, over $40 million more than last year's first quarter and we believe a record first quarter for CLARCOR. $25 million of the $40 million was pursuant to smarter more efficient inventory management as Chris will discuss in his comments but we are focused on optimization initiatives across all working capital accounts and cash management will continue to be a focus for the remainder of 2016 and beyond. Finally, we maintain our previous 2016 diluted earnings per share and top-line guidance. However, we added approximately $12 million of sales to our Industrial/Environmental segment pursuant to the TDC acquisition, while concurrently reducing projected sales in our natural gas and industrial air filtration markets by a similar amount, keeping sales flat for this segment and on a consolidated basis. However, due to the shift in sales mix to TDC where we believe we will break even in 2016 due to transition costs, we have reduced anticipated 2016 operating margin and operating profit for the Industrial/Environmental segment and on a consolidated basis. However, on a diluted earnings per share basis, favorably offsetting this reduction in operating profit are lower projected average shares outstanding from 49.5 million in our previous guidance to 49.1 million in our current guidance. We continue to expect quarterly sequential improvement in sales operating margin earnings per share as we progress through the year including in the second quarter. However, due to continued year-over-year challenges relative to last year's second quarter in several filtration markets we serve, we expect second quarter diluted earnings per share to be approximately 10% to 12% lower than last year's second quarter GAAP diluted earnings per share of $0.76, which as a remainder, included financial results for J.L. Clark With that said, I turn it back over to Chris. Christopher L. Conway: Thank you, David. We made continued progress on key initiatives this past quarter. These include integration of new acquisitions, startup of our new corporate innovation center, information technology upgrades and continued advancement of the CLARCOR management system and lean roll out. During the quarter we announced and completed the purchase of the assets of TDC, a company in the industrial air filtration market. We've completed the transfer and startup of this acquisition and have added the customers to our phase in our CLARCOR industrial air business. The team did a great job in a very compressed time frame, well making improvements in line flow at the same time as they installed the equipment. In addition to traditional dust collection cartridge customers, we also gained some additional gas turbine filtration customers, we had not previously serviced as a result of this transaction. We're very excited to have this additional business and new customers. Our new corporate innovation center in Tennessee held a ribbon cutting ceremony this past quarter and is now in startup mode. Our focus is on new media development for engine, engine fuel, engine air, and gas turbine systems as well as advanced product and process development in collaboration with our operating companies. At the start of the quarter we successfully transitioned the standardize business on to a CALRCOR based business or ERP system from a shared environment with their prior owners and our financial consolidation in reporting system is running in parallel through this quarter, before we cut over fully on to the new system. Work continues on an enterprise wide business system design effort which will leverage experience gained from our CLARCOR industrial air business as well as the transition of the standadine business on to a similar platform. One of the areas I am most excited about it the continued development and improvement we've gained from the CLARCOR management system. The best testament to the impact of this effort is shown our cash flow generation this past quarter. We traditionally build the extra inventory in the first quarter across the company and this is the first time we have not done that in many, many years. At service levels remain high in all our businesses. We are making the right products in shorter cycles as a result of lean techniques we have deployed in our engine mobile business our industry air business and our process liquid business to peak of -- pure leather business. All these companies have trend numerous employees and lean techniques reduce set up times increased flow through their factories and improved first time quality and still we're early innings of the improvement efforts. We have teams hard at work on these and many other projects aimed at continuing to improve growth and operating margin and these are just a few examples of the work done in a first quarter to continue growth both organically and through acquisition and improved profitability. We'll now open it up for questions. Question & Answer Operator: If you would like to ask a question please signal by pressing star, one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again press star, one to ask a question. We'll pause for just a moment to allow everyone the opportunity signal for question. As a reminder that's star, one to ask a question. The first question comes from Kevin Maczka with BB&T Capital Markets. Kevin Maczka: BB&T Capital Markets: Thanks. Good morning. Christopher L. Conway: Good morning Kevin. David Fallon: Good morning Kevin. Kevin Maczka: So first question lot of talk on the off road about that stabilizing which is good to see but not much talked about the on road can you just address that what you're seeing there has there been any notable change and all positive or negative on the on road side. Christopher L. Conway: We see a basically as flat at this point. No significant change while we 've gained on the Carquest front that's been offset by what we've seen oil and gas that is off if that is on road related so I'd call it still flat. Kevin Maczka: Okay, and then just a quick one on the net gear side, so we were looking at negative 9% for the year now it looks like more or like negative 12% that will down sharply aftermarket up. Can you just talk again about the visibility you have there, we've talked about that before there is areas of that business you have visibility areas you don't. I am just wondering what's your comfort is there with the negative 12 and do we run the risk that's sort of continues to step down as the year goes on. David Fallon: Well we have on the vessel side we typically have I have call it maybe a six months window of visibility. So what we've the remaining variability would be what we've seen in the later part of the year at this point. The visibility on the aftermarket side is like most aftermarket business its run rate type business, so for the most part that's not going to be significantly effected we think. But it's the -- there maybe the back end of the year a little bit of filling that we got to still see come through so. Okay? Kevin Maczka: Yes, and again by that you just mean that you don't have everything on the vessel side that you are expecting to shift for the year currently in backlog. David Fallon: Right, right its backlog its orders that are either in the RFQ coding stage right now that need to turn into firm orders or its quarters that make what is the main comment between now and say June time frame. Kevin Maczka: And then just in terms of the quarterly progression there, can you address that? Are we expecting a much worse Q2 because of this full forward and then a bigger back half? How does the quarterly progression look for pico? Christopher L. Conway: So it's sequentially progressing as go through the year from quarter-to-quarter. So I would say the fourth quarter is typically always been a larger quarter for us than any of the others. Kevin Maczka: Okay. I'll get back in the queue. Thank you Christopher L. Conway: Okay Operator: The next question comes from Brian Drab at William Blair. Brian Drab: William Blair: Hey Chris. Hey David Christopher L. Conway: Good morning. David Fallon: Good morning, Brian. Brian Drab: Good morning. First I just wanted to be clear on the second quarter guide that you gave. Can you just repeat that David what you said for second quarter? David Fallon: Yes it's down 10% to 12% versus last year's second quarter GAAP earnings of $0.76 a share but as a reminder that $0.76 includes the results of GFR. Brian Drab: Okay and any comment on revenue in the second quarter and how we should model that versus last year? David Fallon: I would say directionally the decline year-over-year should be somewhat consistent with what we saw in the first quarter. Brian Drab: Okay great and then also just want to be clear, you said that revenue and margin and earnings can step up sequentially first quarter to second, second to third, third to fourth? David Fallon: Yes. Brian Drab: Okay great and then could you talk a little bit more about the export business? Sounds like that's stabilized somewhat. David Fallon: Yes. The export business actually was up slightly less than a million dollars but from a percentage basis it was up about 5% or 6%. So we believe that has stabilized including sales to the customer that we spoke about last year that heavy duty equipment. So we see stability and at this point we would project full year export sales and this is just a traditional volume business to the up low single digits. Brian Drab: Okay great. You of course my next part of question was there so thanks and then what percent of sales are we talking about there today. Total sales. David Fallon: For the traditional Baldwin business? Brian Drab: For this export business component. David Fallon: It's about 30% of the traditional Baldwin's business international sales. From a dollar perspective think $40 million to $50 million. Brian Drab: Okay great and then I wanted just one more on the inventory management so I think that's obviously interesting and I think a good change but is this something that it is a permanent change going forward you think or is it kind of an experiment and see how it goes this year or how do you think about that and what exactly are you doing differently? Christopher L. Conway: So I would characterize it is a permanent change going forward. What we are doing is through the improvement efforts finding that we can run leaner and with less inventory in the whole pipeline and still hit the right service levels that we want. So I would characterize it as an improvement that we see and even would expect eventually we are going to that's a focus the whole working capital focus to David and his financial team started a year ago is coupled with this and I think you'll continue to see efforts that trying to optimize that inventory. Brian Drab: Are we kind of beginning stages of this or is it been rollout globally? Christopher L. Conway: It's rolled out domestically for the most part so I have call it second, second or third inning type thing. Brian Drab: Great. Thanks very much. Christopher L. Conway: Okay. Operator: The next question comes from Stanley Elliott of Stifel. Stanley Elliott: Stifel: Hey guys, good morning. Thanks for taking my question and congratulations. The actually inventory piece could you guys mentioned early innings is there at target that we should think about either from like a percentage of sales or any sort of metrics along those lines? Christopher L. Conway: I think at this point, we wouldn't issue a targeted at this point we are, because we are early on with it, as I said we're looking to where we would optimize the right level of inventory wouldn't we're certainly not going to ever jeopardize our ability to service our aftermarket customers by a single mindedly going after inventory at the expense of that so. Stanley Elliott: But it definitely assumed that lot of this improvement that you've made it seems very structural and directly related to a lot of investments you guys have made in IT systems etcetera over the past several years. Christopher L. Conway: I would say at this point as I wouldn't described it much to IT, is that is to the practical lean techniques of reducing set up times and planning a right stuff in the pipeline. Stanley Elliott: Great. Thank you very much. Christopher L. Conway: Yes. Operator: The next question comes from Richard Eastman from Robert W. Baird. Richard Eastman: Robert W. Baird: Yes, good morning. Dave would you comment or Chris you may have made this when you talked about industry layer and you said year in the first quarter that was down about 30% is industrial layers anonymous with BHA. David Fallon: Yes. I have characterized the biggest impact there probably is BHA impact. Richard Eastman: Okay, and so is so down meaningfully you did mentioned cement, I think the comments where around maybe down 20% in the second and then flattish in the back half and that's is that comps or is that Christopher L. Conway: Yes. I would say its flat to slightly up, and absolutely that's related to comps. So if you go back to that first quarter of 2015 sales were running pretty steady first quarter to second quarter and then there was drop off in the third and fourth quarter last year. We dropped even sequentially a little bit from the fourth quarter of last year. But we think going forward we should see some stability on a sequentially basis going forward. With some upside potential in the fourth quarter. Richard Eastman: Okay, and that's not again that's not market, that's not a market that move the great deal is it I mean... David Fallon: Well I think there is vertical markets in there that are influenced by different things right now. So when we talk cement of course you think immediately you think of roads and construction and housing but also cement goes into well casing for example oil and gas, and so probably the biggest impact there we think even though most of the other markets I mentioned they're stable though oil and gas effect is probably hitting that, and then the energy piece of it is we saw bank folders into a lot of coal-fired power generation market companies and that's where we've seen some of the single time orders that didn't repeat this year, and more it gets shifted into the natural gas power generation that may have a structural impact on that business from that vantage point. Richard Eastman: Okay, I understand and just and again when you, basically know on the guide including the TDC acquisition revenue that $12 million, the $12 million offset was part of this BHA may be softness early in the year and then also, it does sound like you're slipping a little bit of revenue pico vessel revenue out of what would have may be been the fourth quarter, is that just and again I may be derisking that estimate a little bit or? David Fallon: Yeah I think that's directionally correct and we will certainly a know a lot more as we exit this second quarter. Generally the lead times on those vessel orders are sixth months, but we're seeing some continued weakness there and if you look at it from a pure numbers perspective, I think we talked about, oil and gas revenue being down $24 million in our initial guide, that's now down $30 million. So from our percentage basis down 9% previously to down 12%, so some of that additional $12 million revenue from TDC was offset by that and then the remainder in industrial air. Richard Eastman: OKay, and then I just want to ask a question on the decremental margin in the engine mobile business, whether you look at that number, and I'm taking about at the EBIT line, whether you look at that number year-over-year or sequentially it's about 60% at the EBIT line and can you just give a little bit of color on that? Is that partially absorbing the IT spend or I am just a little surprised that numbers quite that great. David Fallon: Yes it's down exactly at the gross margin level down 69% from an incremental perspective. We always warned and internally as well that the first quarter is such a strange quarter because of the inclusion of the December holidays and also the winter months that it's hard to look at the first quarter and project that more globally on the fundamentals of the business. So of course we've had some movements with fixed costs and how we've managed that with the cost reduction programs I would truly look at this as an anamoly and to probably a better judge is going to be looking at the second quarter incremental margins versus the second quarter of last year. Richard Eastman: Okay, all right fair enough. And Chris in your mind, is there any doubt that the engine mobile business doesn't have low 20s GAAP operating margin opportunity in it at this point been lots of puts and takes in terms of investments standadyne and the OE exposure there. Is there any reason that as we look out two to three years that this engine mobile business doesn't have a GAAP EBIT that's low 20s again? Christopher L. Conway: I think that's certain and we would expect it to be moving back towards historical position. So yes I don't see any reason why we wouldn't get back to that... Richard Eastman: It's very volume and absorption dependent. David Fallon: Absolutely and especially that standard Stanadyne business when we purchased that business, it had a book of business of close to $110 million. We are projecting close to $80 million this year. So that's $30 million of revenue that came out of the business and recall EBITDA margins are 40%, incremental margins there are 50% to 60% so when sales go down, that absolutely significantly impacts the overall operating margins. The hope is when the ag and construction equipment markets recover and we believe they will eventually recover, the lift we'll get from an incremental margin basis for higher sales will be just as impactful as it has been going down. Richard Eastman: Okay fair enough and Dave one last quick question what would be your expectation now for currency top-line translation for the full year? David Fallon: Yes I think last quarter for the full year guidance we had it implied about $15 million negative impact on the top-line for FX. That has widened a bit so it's between $20 million and $25 million and the biggest impact has been the British pound. So that it came just connected from the Euro here in the last several months and with me have quite a bit exposure to the Great Britain pound and in fact that's our most exposed currency. It is overtaken the Euro with the acquisition of the gas turbine business. So we would estimate that headwind to be $20 million to $25 million. Richard Eastman: Versus the $15 million. David Fallon: Yes, versus the $15 million in our initial guidance. Richard Eastman: Right. Okay, and the difference in the top-line guidance then again we got the $12 million offset on TDC and offset by the industrial air and PECO, and just kind of moving within the sliding within the range? David Fallon: Yes, and I would say the offset, it's spread around several markets. Including dust collection we had a pretty good quarter from an order perspective in our dust collection market and we've increased our internal projections there for the remainder of the year, and actually you can look at that has been the offset from the foreign currency. Richard Eastman: Okay, prefect. Thank you very much. Operator: The next question comes from Brian Sponheimer at Gabelli. Brian Sponheimer: Gabelli: Hi, good morning guys. Christopher L. Conway: Good morning Brian. David Fallon: Good morning. Brian Sponheimer: We talked about the (Audio Issues) is up higher market, I guess obviously body language of customers a little bit better can you just about what your customers are saying relative to kind of where... Christopher L. Conway: They're basically saying that they are stable at this point and not seeing much recovery from the position they are in at this point but not significant decline from current levels. Brian Sponheimer: Alright, your distributed customers we've seen this in the past for distributors that are more lean than they may be they necessarily needed to be and you guys get a double benefit when markets sequentially recovered what your sense about channel inventory and the potential for when if and when from price to ride and the customer to come back revenue that stock itself as well along with services own customers. David Fallon: Yes. I think we will see a little bit of that effect one of our larger distributors actually in the first quarter recovered and stabilize actually grew significantly ordered significantly compared to prior year first quarter and part of that was internal issues they have but also I think part of that was general confidence that as they look towards the later part of year they are seeing more stability in the business projection ahead. Brian Sponheimer: Thank you and then last one for me $30 million of buyback in the first quarter can you kind of walk through what process there and then why you expect that trend. Christopher L. Conway: Okay, David. David Fallon: Yes. I would say that's very consistent with our long term philosophy we share repurchases we buy 2000 shares a day regard this us stock that the stock price and that's what we commit to at the beginning of the year, but we are also opportunistic and of course with the share price with what is been really over last two quarters we were opportunistic. So I think over the last two quarters so fourth quarter last year, first quarter of this year we've actually repurchase close to $70 million of shares about $1.5 million shares and average price just north of $47. So of course that would be indicative of an opportunistic buy. Going forward we will continue to evaluate opportunities, but that the only thing that we've really can be relatively sure about is that will continue to buy our 2000 shares a day. Brian Drab: Thank you very much, guys. Christopher L. Conway: Thanks, Brian. Operator: We'll go next to Larry Pfeffer at Avondale Partners. Larry Pfeffer: Avondale Partners: Good morning, --. David Fallon: Good morning, Larry. Larry Pfeffer: So just a couple of end markets that haven't been touched on there is much, what are you guys seeing in the China first fit on road market? Christopher L. Conway: Well overall in China we saw a decrease of about 15% in the engine side, 8% to excluding foreign exchange, and that's probably I would say that's majority of that is first that type business. Larry Pfeffer: Got I know are you looking at that kind of range somewhere flat to down 10 on the business for the full year? Christopher L. Conway: Yes. Larry Pfeffer: Okay, and then just the very strong result in gas turbine in the quarter. Is that more of comps or timing or you expecting that kind of growth rate to continue into the second quarter? Christopher L. Conway: We expect as I think we indicated in the press release that expect will be flat for the quarter and as we get to for the year and so we may be up a little in the second quarter but then as we look at the back half of the year we'll level out and end up the year basically flat a last year's numbers and there is as we've mentioned there is lumpiness in those business in that business is well as the vessel business of PECO so some of that could move around a bit from one quarter to next and affect those, but for the year we expected to be flat. Larry Pfeffer: Okay. Appreciate taking my question. Best of luck guys. Christopher L. Conway: Thanks. David Fallon: Thanks. Operator: Will take a follow up question from Kevin Maczka at BB&T Capital Markets Kevin Maczka: BB&T Capital Markets: Thanks for taking the follow up if we can we go back to the discussion on the engine mobile margin because that 14% is of course not a number that we are used to seeing there but the question around getting back to 20% I mean to get up north of 18 for the year are you anticipating that the back half will be approaching or even above that 20% level? David Fallon: Yes what I will take Kevin first the guide for the full year at the mid-point is 18.3% which is just slightly above what we did last year. So the full year number for 2015 was 18.2%. So we see some slight improvement from prior year but not exceptional improvement. If (Audio Gap) calculate rest of the year based on the guidance and what we did in the first quarter that implies about 19.5% operating margin for the rest of the year and we do think that that will be higher than that in the fourth quarter and certainly lower than that in the second quarter. So we are, our fourth quarter generally are our best quarter from our sales perspective and we get that fixed cost absorption so, what we are implying in our guidance is for the fourth quarter that we would be above that 19.5% operating margin. Kevin Maczka: Got it and then, is this all about volume leverage and absorption now because it seems like, and I know the restructuring isn't all targeted at engine mobile but you are kind of at the run rate $4.5 million, your $20 million goal for the year, is a $5 million quarterly run rate. So, your almost there. There's not a lot of incremental new restructuring savings, so is it all volume leverage? David Fallon: I would say that that would be the primary driver of where we end up from an operating margin perspective. However, we do have a dynamic in the cost reductions with some of our purchasing initiatives that those who ramp up as we go through the year. So, we had about a $0.5 million impact and lot of this is in the engine mobile business. We had $0.5 million positive impact in the first quarter but we will realize about $4 million for the full year and we think we will exit 2016 at a $7 million annualized run rate. So, certainly the benefit we get in the fourth quarter will be significantly larger than the benefit that we actually realized in the first quarter. Kevin Maczka: Okay, that's helpful and then finally, your comment about incrementals bit a bit of an anamoly in the first quarter but Q2 being more telling more like 30% is that kind of what we would view is kind of the more normal run rate here? David Fallon: Yes. Kevin Maczka: Okay, that's all I had. Thank you. Operator: And we have no further questions at this time. Christopher L. Conway: I want to thank our employees who continue to generate the results for our customers and shareholders during these challenging economic times and thank all of you for your interest and your questions. Operator: That does conclude today's conference call. At this time you may disconnect.