Alamo Group Inc (ALG) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Alamo Group First Quarter 2017 Earnings Conference Call.

(Operator Instructions) This conference is being recorded today, Thursday, May 4, 2017.

I will now turn the conference over to Mr. Bob George, Vice President of Alamo Group.

Please go ahead, Mr. George.

Thank you.

By now, you should have all received a copy of the press release.

However, if anyone is missing a copy and would like to receive one, please contact us at (212) 827-3746, and we will send you a release and make sure you are on the company's distribution list.

There will be a replay of the call, which will begin one hour after the call and run for one week.

The replay can be accessed by dialing 1 (888) 203-1112 with the passcode 3509415.

Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days.

On the line with me today are Ron Robinson, Chief Executive Officer and President; Dan Malone, Executive Vice President and Chief Financial Officer; Richard Wehrle, Vice President and Corporate Controller; Ed Rizzuti, Vice President and General Counsel.

Management will make some opening remarks, and then we'll open up the line for your questions.

Before turning the call over to Ron, I'd like to make a few comments about forward-looking statements.

We will be making forwarding-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.

Among those factors which could cause actual results to differ materially are the following: market demand, competition, weather, seasonality, currency-related issues and other risk factors listed from time to time in the company's SEC reports.

The company does not undertake any obligation to update the information contained herein, which speaks only as of this date.

I would now like to introduce Ron.

Ron, please go ahead.

Thank you, Bob, and we want to thank all of you for joining us here today.

Dan Malone, our CFO will begin our call with a review of our financial results for the first quarter of 2017.

I will then provide a few more comments on the quarter's results, and following our formal remarks, we look forward to taking your questions.

So Dan, please go ahead.

Thank you, Ron.

Our first quarter 2017 results set several all-time first quarter records for Alamo Group.

So that I don't sound like a broken record, I'll just say upfront that sales, gross margin, operating income, net income, earnings per share and EBITDA were all first quarter records.

I should also mention, to the extent that non-GAAP numbers are included in my remarks that we have already provided reconciliations to the applicable GAAP numbers in the attachments to our earnings release.

First quarter 2017 sales of $215.4 million beat first quarter 2016 sales of $211 million.

Our quarter-to-quarter sales comparisons were favorable in both the Agricultural and Industrial Divisions, while Europe, which was down in U.S. dollars due to translation effects, grew local currency sales by over 5%.

Industrial Division first quarter 2017 sales of $125.8 million represented a 2% increase over prior year first quarter sales of $123.3 million.

Higher sales of sweepers, mowers and excavators were partially offset by lower shipments of vacuum trucks and snow removal equipment.

Agricultural Division first quarter 2017 sales were $51.8 million, up 6% over the prior year quarter, as we saw continued improvement in demand for our agricultural mowing products despite generally weak agricultural equipment markets.

European first quarter 2017 sales were $37.8 million or about 3% lower than the first quarter of 2016.

As already mentioned, excluding the unfavorable currency translation effect, this division's local currency sales were up over 5% compared to the first quarter of 2016, as quarter-to-quarter comparisons in France remained favorable and the U.K. began to recover from its post-Brexit vote slump.

First quarter 2017 gross margin of $54.2 million grew by almost 8% over the prior year first quarter.

Our first quarter 2017 gross margin was 25.1% of net sales, which compares favorably to 23.8% of net sales for the prior year quarter.

These favorable comparisons were helped by a mix of higher parts sales, improved production efficiencies and lower component material costs.

First quarter 2017 operating income of $20.1 million was about 23% higher than the first quarter -- the prior year first quarter.

First quarter 2017 operating income was 9.3% of net sales, which compares favorably to 7.7% of net sales for the prior year quarter.

Net income for the first quarter of 2017 was $12.2 million or $1.05 per diluted share, which is more than a 40% increase over net income of $8.7 million or $0.75 per diluted share for the first quarter of 2016.

Our first quarter 2017 to first quarter 2016 net income and earnings per share comparisons were also helped by a lower effective income tax rate.

This favorable comparison was due in part to prior year foreign subsidiary losses for which we did not record a corresponding tax benefit.

EBITDA grew at a double-digit rate compared to the prior year first quarter.

The first quarter 2017 EBITDA of $25.1 million was up 16% over the first quarter of 2016, EBITDA of $21.7 million.

This represents our first favorable quarterly EBITDA comparison since the first quarter of last year.

Trailing 12-month EBITDA of $92.1 million is trending positively, up 4% over full-year 2016, EBITDA of $88.6 million.

Excluding the fourth quarter 2016 noncash charge related to a pension plan termination, adjusted trailing 12-month EBITDA was $94.9 million, which is also trending up 4% over adjusted EBITDA of $91.5 million for full year 2016.

We continue to see strong growth in our trailing 12-month operating cash flow.

As of the end of the first quarter 2017, our trailing 12-month net cash provided by operating activities totaled $79.1 million, which is a 5% increase over the $75.6 million provided in the full year 2016 and over 30% better than the $60.4 million provided in the first quarter 2016 trailing 12-month period.

As a result, after making capital investments and paying interest and dividends, we were able to reduce our debt net of cash position by $66.5 million over the past 12 months.

Our order backlog ended the first quarter 2017 at $147 million, about flat to year-end 2016, but down 3.8% from the prior year first quarter, primarily due to lower backlogs for snow removal and mowing equipment.

New orders were up compared to the first quarter of 2016 due to a rebound in European orders despite currency headwinds and a continued recovery of Agricultural Division order rates.

The same comparison for Industrial Division orders was slightly unfavorable as a rebound in vacuum truck and sweeper orders did not completely offset lower demand for snow removal equipment, mowers and excavators.

In summary, our first quarter 2017 results were highlighted by record first quarter sales and earnings, continued year-over-year improvements in percentage gross and net operating margins, a return to current over prior year quarter EBITDA growth, continued strong cash flows and net debt reduction approaching $70 million, positive trends in new orders and order backlogs about flat to year-end.

I would now like to turn the call back over to Ron.

Thank you, Dan.

And we're obviously pleased with our first quarter results.

It's always good to start a new year, a new physical year off on a positive note.

And I think it once again demonstrated our ability to turn a small growth in top line performance into a much stronger increase in bottom line performance.

We certainly did this in the first quarter in a big way.

It was a quarter where, operationally, a lot of things went right and not much went wrong.

And while this is good, and we're pleased and proud, this is not quite the standard for us yet.

So while we feel good that earnings were up 40% in the first quarter, that should not be the expectation for the rest of the year.

For instance, we had, as I said, a lot of good things went right, we had a favorable spare parts mix in total, we had very favorable purchase price variances in the first quarter and we already know we will be giving a little of that back as the year progresses as certain inputs, such as steel, are already going up.

Still, I am pleased that our cost control efforts are paying off, and we believe they will continue to benefit us throughout the rest of the year, though again, not quite at the pace we experienced in the first quarter.

Our biggest concern remains sales.

It was good to see sales go up in the first quarter, but the sales increase was a very modest 2%.

I mean, that is certainly better than the sales declines we experienced in the second half of 2016, but definitely, that 2% growth indicates the soft market conditions with which we have been facing are still with us.

And so market headwinds are still there.

We believe they will continue to affect us through the years, and our big concern is sales because sales growth has been very modest, if at all, for like 2 or 3 years now.

And other factors, such as currency exchange rates, are also still impacting our results.

As Dan pointed out, in our European operations, where our net sales were up 5% in local currency and yet down 3% in U.S. dollars.

And we believe this will continue to impact us at least till about midyear.

I think, midyear the -- that's when the Brexit vote took place last year, following which there was the big drop in the U.K. pound, so probably about the time we get to the third quarter, the comparables should be a little more favorable, but still, it's, like I say, it will definitely affect us in the second quarter and we just hope the dollar doesn't continue to strengthen, but will actually give us a little break.

So -- but we're at least pleased that in local currency, as I said, our Europe operations are starting to show some positive momentum.

All of our operations there are benefiting from this uptick.

And even our U.K. ones, which following the Brexit vote as well, there was a lot of end users who had -- who delayed purchases due to the uncertainty following the vote.

And we're seeing them sort of come back to the market and -- as they saw that the world didn't fall apart.

And so I think there's more stability returning to the market, and we saw that in our results.

We just hope that the -- of course, now, this weekend, we have the vote in France for president, which is kind of an interesting one to follow.

So I hope this does not create another sort of round of uncertainty.

But it's not looking that way at this time.

In our North American Agricultural Division, we had a very strong quarter for the first quarter, which was very encouraging.

Sales were up over 6%, and this outpaced, certainly, the overall ag market, which is forecasted to be fairly flat this year.

I think farm incomes are expected to be flat.

But I'm a little more optimistic.

I think early indications from the first quarter results of other manufacturers in this sector showed a slightly more positive trend, which I think is encouraging.

I think that even if the farm incomes are flat in 2017, manufacturers could do a little bit better because dealer inventories are -- have been coming down for the last couple of years.

So if end user sales are flat, actually, manufacturer sales could be up a little.

And I think our Ag Division will continue to perform well as we benefit from sort of the range of the product offering or the breadth of the markets we serve with that.

Plus, I think we're seeing that some new product introductions we have made are off to a good start.

So we're pleased that our Ag Group has continued to sort of outpace the overall Ag industry for these last few years when the Ag industry has been soft.

And we believe that we will continue to do that through '17.

And I think we all expect that the market itself will show some positive momentum as we move into 2018.

And even our North American Industrial Division had a reasonable start to the current year with sales up over 2%.

While this is a modest increase, as we said earlier, it was a lot better than the declines we saw in the second half of last year in this segment.

Overall, sales to governmental related entities for infrastructure maintenance remained steady with the exception of snow removal products, which are still a little soft following 2 straight winters that were milder than normal.

But even snow equipment sales were not off very much.

They actually held -- they were off, but held up actually pretty reasonable.

And the area that we had been hurt the most was in sales of products to nongovernmental end users, while a small part of the business, but had been a growing part, particularly of vacuum trucks.

And so they -- that was where we were hurt the most in the second half of 2016.

And while we're certainly not back to the levels we were in 2015, there was some improvement there, and it does appear both sales and rental activity in this sector are starting to slowly improve.

So that was a welcome development, a welcome improvement there, because that's not only our biggest division, but a very high-margin part of our business.

So in total, while we continue to face some of the headwinds with which we have been dealing for the last several years, the outlook for most of our markets seems to be steady to slightly improving, though none are what I would call robust at this time.

But we welcome, certainly, any improvement and feel we can continue to take modest sales growth and turn it into even better earnings results, even if not quite as well as we did in the first quarter of 2017.

In addition, we believe we will also get some incremental benefit from the acquisitions we have pending.

We feel both the Old Dominion Brush Company one and Santa Izabel, which is a new one we announced just this week in Brazil, we feel they will both close in the second quarter of 2017.

And while neither of these acquisitions are very big, they should both provide us with some good momentum in their respective markets.

Old Dominion is a solid fit with our Industrial Division's sweeper activity and so I think there'll be not only some market benefits, but some synergistic benefits.

The same with Santa Izabel, which will more than double the small position we already have in Brazil, plus give us much better manufacturing capabilities, which are very important in a country like Brazil that has a lot of barriers against imported products, and yet is -- Brazil is also probably the third largest agricultural economy in the world.

And while it, too, has been down, already we're seeing some signs that market is showing some improvement -- modest improvement this year as well.

So in summary, and we're also pleased that M&A activity in general continues to progress at a healthy pace, giving us exposure to a reasonable level of deal activity, which I believe will lead to more opportunities for Alamo Group.

And while these were pretty small incremental ones, I think we're even having the opportunity to look at a few more sizable deals as well.

So I think -- M&A activity is a key part of our strategy, and we think that we will be able to continue to add some other pieces in that sector as well.

So in summary, sort of despite ongoing soft market conditions that continue to constrain sales, our first quarter for 2017 was off to a very good start thanks to very strong operational execution.

So with stable markets, cost control and incremental acquisitions, we're quite optimistic about the outlook for Alamo Group in 2017 and beyond.

So -- and as I said, the key focus is sales.

That's going to be the -- they've been tight and we hope to really do -- focus everything both organically and acquisitions to help bolster our sales level.

Because I think we have shown we can do real nice when we get some extra sales.

So thank you for your continued support.

And with that, we would now like to open the floor for any questions you may have.

(Operator Instructions) And we will go to our first question from Tyler Etten with Piper Jaffray.

Congrats again on the record quarter.

I guess as much as we appreciate the caution on the outlook, instead of getting very bulled up, I guess, as the order book continues to improve, is there anything really that you would need to see before you would start to get positive across the segments?

I mean, you've been cautious on the agriculture side of things for a while, and to put up a 6% growth rate for the quarter, I believe, is pretty good in a difficult market.

And then maybe to build off of that, is this the same sentiment you're hearing from your dealers or are they a little bit more positive about the opportunities to come for the year?

Yes, I believe, especially in the ag sector, everyone is slightly positive but cautious.

I mean like I said, it's been a rough couple of years, and I mean, certain things, like I said, I think mowers are doing better than combines, and so certain products are, again, probably products that serve more than just row crop farmers are doing better than products that are focused solely on row crop farmers.

So there's still some mixed signals out there, but I would say, like some of the bigger -- there was the big National Farm Machinery show in Louisville in February of this year.

That was actually up a little, probably quite well received.

I think that like the CONEXPO show in March in -- that covers more of the products like some of our industrial products, that too was not a record, but a very strong -- like a very good show, a very strong showing with good activity.

I think there is a little optimism growing, but like I said, I mean we did good, but still, sales were only up 2%.

So I think sales -- we're fairly optimistic, and I think much more so for '18 than '17.

But there's still just caution, because I think it's going to be -- sales are our key.

And while we -- like I said, I mean, the results were good, and we do feel good about our outlook for the year.

I think like in Ag, we've been helped with some new product introductions.

The same in a couple of our Industrial units, even in Europe as well.

So I mean, some of the things we're doing, we do feel good about it, but I think there's still a bit of uncertainty out there in the whole markets before we're really saying, hey, this is going to be a great year.

I mean, we think it will be a good one, but how good, it will depend more on sales than anything else.

Okay, yes, I can understand that.

And then maybe shifting to the new Brazil acquisition.

A relatively small acquisition, but could you kind of maybe lay out your strategy for Brazil.

If this is something that you would look to build off of maybe organically?

Or look for other deals in the region?

Or how do you see Alamo being a player in a country like Brazil?

Yes, Brazil, like I said, it's a very interesting economy.

Like I said, it's one of the biggest agricultural economies in the world, due to the fact of the distance and freight, and very high tariffs on imported goods.

It's a market that is very hard to export to.

So I mean, it's important not only that we build stuff, be able to build what we sell there locally.

And so I mean, we're trying -- this acquisition -- we don't -- our initial acquisition with Herder didn't bring a lot of manufacturing capabilities.

Santa Izabel does bring a lot of good manufacturing capabilities, and so that will benefit not only Santa Izabel, but also our Herder operation as we move more production into that -- into the Santa Izabel facility.

So decent synergies.

But I mean, Brazil has certainly had some, as a country, has had some ups and downs, and I think we're a little cautious there.

So we're not -- we wouldn't make a real -- a huge bet there all at once, but I mean, our focus is to go after organic growth.

Even with our small Herder operation last year, even in a challenging market and with a small operation, I mean our sales were up like 20% last year.

So it was -- so the focus is more organic growth.

But Santa Izabel brought us better manufacturing, a little bit broader product line, a little bit better marketing capabilities.

So I mean, we certainly -- and we would look for some other sort of small incremental acquisitions to put into the mix to make this a bigger stronger, to give us more capabilities.

But like I say, even though we're looking at some acquisitions, our focus is really to go more for organic growth.

To go after -- it seems like there's a lot of -- there are a lot of sort of implement manufacturers in Brazil, and most of them carry a very -- a fairly broad product line of lots of different implements, none of which have a particular amount of volume.

And our focus is going to be a little different.

We want a little bit narrower product line where we really go after penetrate -- market penetration.

So we really want a few -- like I say, fewer products that have good volume, where we can get some good manufacturing synergies, manufacturing economies of scale and really go after, like I say, market penetration.

Instead of a shotgun approach, we want a much more of a rifle approach going after, really, certain segments of the market where we think we can become a reasonable sized volume player.

So that's basically it.

But like I say, while we're looking at acquisitions, our focus is very much organic growth there.

And we'll take our next question Mike Shlisky with Seaport Global.

So your margin did surprisingly well in the quarter considering the cost of CONEXPO.

And yet your operating expenses didn't go up from the previous year.

Could you maybe comment on whether the $34 million that we saw in Q1 is a good run rate going forward?

Or whether, given some of the trade show costs in Q1, whether it's an operation -- are going to roll off in Q2 for the next 3 years, I guess.

Yes, I mean, certainly CONEXPO -- I mean, we had a lot of big trade shows in -- we had CONEXPO, we had the National Farm Machinery show, we had SIMA in Europe.

So it's a big -- but some of those costs are spread earlier.

I mean like we paid for the booths several quarters ago.

So all the costs related to those shows did not hit in the first quarter, and so -- like you said, I mean, I think our costs, or operating expenses, are pretty nicely under control, but you're not going to see any declines -- any big declines just because we had some trade shows in the first quarter.

And I think especially in the second or third quarter -- I mean, first quarter for us is actually, historically, one of our weaker ones.

And that's why, like I said, I think we had a little bit better spare parts sales, whereas the second and third quarter generally have better spare parts sales because there is more operating activity, and so I mean, I think -- and so sales commissions will usually be a little higher in the second and third quarters.

But on the overheads, I don't see the level -- I think we've got it under control.

And we're going to keep it, cost expenses, fairly modest growth in there.

But I don't see any big changes due to things like trade shows or anything else that was there in the first quarter.

Because like you said, costs there were already under pretty good control.

Got you.

And just to follow-up on that, I've found Alamo to have a pretty reliable seasonality to your earnings, especially since you bought Super Products a couple of years ago.

Is it safe to say that the first quarter could be the low point for your EPS this year as we've seen in previous years?

Or is there a different pattern you see this year to your earnings seasonality?

Of course, we don't give guidance or anything, but yes, historically, our second and third quarters are stronger, too, just because there is more operating activity and more spare parts consumption in those quarters.

Like I said, we were helped in the first quarter by a little bit more spare parts.

But yes, our first and fourth quarters are typically our weakest.

And like I said, a lot of things went right in this first quarter.

But as I also said, sales weren't up but 2%.

So it wasn't like -- I just think we -- like with last year, the fourth quarter sales being down, we really tightened the belt and so -- and we didn't loosen it as we went into the first quarter.

So it was good to have positive sales growth when we were sort of geared up to have a fairly flat first quarter, because that's what the outlook was for.

So we outpaced that.

And like I said, I think we're cautiously feeling that we're set up to have a nice year.

But sales are the key.

I mean, and so I mean, we still need to get sales.

And I don't see, like I said, I mean, I think the trends are slightly positive, but they're not robust.

Even as we move into the second quarter, we know there's not some great pickup in sales.

Got you.

I also just wanted to ask about your broad-based efforts to centralize procurement and get other efficiencies.

It's been a long time now that you've been doing this, I mean, over a year, maybe even 2. As you go through this, are you finding that there are products and divisions that just can't participate in this or just aren't culturally up to the task of being a part of a large organization?

And at this point, after you've seen all the efforts, does taking any products or businesses out of the portfolio make any sense at this time, given where everyone is, kind of, cued in on this initiative so far?

No, as far as based on this initiative, no.

There's no one unit -- like I said, some benefit more than others, as you said.

But I mean, almost every unit has benefited from these initiatives, and every unit can benefit from these initiatives.

Because some of them are corporate purchasing, where we're actually taking like, sort of negotiating purchases for everybody from the corporate.

And some of it is just a much more corporate-led benchmarking that even when we can't consolidate the purchases, we can benchmark to make sure everybody is sort of getting -- taking advantage of the best prices available even if you're buying from 2 separate vendors.

So, and as I said, I think one of the reasons the earnings were good is that we had some nice purchase price positive variances in the first quarter, some of which will continue and some of which are results of these programs.

I mean, like I said -- as I said, the big jump in the first quarter was not a sales increase; it was internal management initiatives on cost control, and purchasing is a big factor of that.

And I think, yes, that's part of what's been driving our steady margin increase for the last couple of years -- it is some of these purchasing related activities and taking advantage, and so we believe those will continue.

Now like I said, also, we're seeing some price increase pressure out there.

Steel price is probably the main one right now, and we know that's going -- we won't get as favorable purchasing variances on steel in the second quarter as we got in the first quarter.

So that's the -- of course, we didn't expect to get as much in the first quarter as we got in the first quarter.

So as usual, the improvements, it was not one big thing.

I mean, it was a dozen little things.

It was a little bit -- it was some pricing, which we believe will continue in total even, like I say, give or take some on steel.

It was certainly a little bit of mix.

Spare parts were better.

It was certainly a little bit of volume.

It was a little bit of pricing.

A lot of our price increases go in, in the first quarter of the year -- early in the year.

And so I mean, it was a combination of those things, but like I said, a lot of that -- pricing, the bottom line was certainly helped by pricing, and we believe that will continue to benefit us.

(Operator Instructions) And we will take our next question from Joe Mondillo from Sidoti & Company.

So I wanted to ask about the margin at the Industrial segment.

So last year, you saw revenue sort of flattish throughout the year on an absolute basis, but margin came from over 9% in the first quarter, and it fell to around 8% in the second and third, and then it fell off a cliff to 5% in the fourth quarter.

And we know that vacuum trucks and the oil and gas nongovernmental part of the business certainly played a role in that.

And then it just slungshot right up to 10% in the first quarter here.

So I'm wondering, looking at that fourth quarter and that 5%, was there any sort of mix issue that got pushed into the first quarter that we just saw here and that's why the fourth quarter was so bad?

Or just try to help me understand maybe the mix aspect of that and how to sort of look at that going forward.

Joe, this is Dan.

Did you back off the entire -- that pension charge?

Remember that noncash pension charge?

That was entirely in the Industrial Division segment earnings, so you need to add that back.

So that was the big drop off in the fourth quarter was the pension adjustment, which was 100% in the fourth quarter and 100% in the Industrial Division.

And that was I think almost $2 million...

$2.9 million.

$2.9 million pretax, and so that heavily impacted the -- like you take that out, and we did not have the big drop in margins in the Industrial Division.

I see.

So going back to my question, though, you were still at over 9% in the first quarter, and it still fell to 7%, I guess, if you back that out, in the fourth quarter.

I guess bigger question, looking at the mix in the first quarter on the Industrial segment -- I mean I know you highlighted on your prepared commentary that some favorable parts and whatnot, but looking at Industrial alone, was that 10% margin that you saw in the first quarter here, is that relatively sustainable when I look at that?

Yes.

That's a little bit better than we anticipated.

But, like I say, maybe I was looking for more like 9% instead of 10%.

Our Industrial Group has shown that they should be in that range fairly consistently.

The fourth quarter, in addition to the onetime, the pension charge, that was where we had the sales -- the biggest sales volume drops, especially in like you say, vacuum trucks, which were very profitable products.

So and snow removal was down a little too.

So it was volume related -- like I say, even forgetting the pension, it was mostly volume related that we had drops at some very profitable areas.

We -- like I say, some of that volume has not totally recovered, and yet, I think we've gotten the margins under better control, our costs a little bit under.

When you have a downturn, you never cut fast enough.

And already, as I think I even said in the last quarter, we probably even overcut, though, like even in vacuum trucks, because right now, we're actually trying to gear up production.

Our rental rate, that's one area where we do some rentals.

Our rental utilizations are up, but we don't have enough equipment on the lots.

We're actually turning down opportunities due to lack of equipment.

Plus our backlog of sales of vacuum trucks has grown nicely, still not back to where we were at the peak levels of 2015.

But that has improved, so we're actually trying to gear up some production in that sector.

But, no, I think, yes, this quarter was a little bit better than anticipated on margins in Industrial.

But really, I thought it'd be 9% because it's the first quarter, but we ought to be in that 9% to 10% actually going ahead.

As long as volumes -- like I said, we were down like, what, 6% in the fourth quarter in the Industrial Division.

This quarter we're up 2%.

That's a nice swing.

And that's a lot of -- like I say, that's a $1 billion division.

That's an 8 point swing.

That's a lot of money going to the bottom line.

So yes, it was not any one, like I say, other than the pension thing, which you need to -- it was a noncash sort of operating item.

Other than that, no, I think things are a little bit more stable and steady, and that's why we're -- like I said, the key this year is volume.

And as long as we can get some decent -- reasonable volumes to either hold steady or move up even slightly, we'll do just fine.

Okay.

And then looking at the Ag segment, obviously, very good volume there.

Just wondering on the contribution margins, the contribution margin was 66% in the quarter.

Any way you can sort of distinguish between volume playing a role in that and mix on the Ag segment, or talk about the contribution margins.

Volume -- firstly, like I said, again their volume was up in the fourth quarter of last year, actually.

That's one of the bright spots even in the fourth quarter last year.

And we're up another 6% in the first quarter of this year.

So volume certainly helped.

And mix actually helped a little.

Because usually, the first quarter is not a big spare parts quarter for us.

It's -- because the operation activity is more limited.

It's the second and third quarters when the equipment is really being utilized, that spare parts tend be a little bit better.

So operationally, like I say, but we had a little bit better mix, we had a little bit more spare parts in the first quarter, and spare parts are high margins for us.

And we had a little bit more volume.

And then, like I said, in our Ag sector, since it's been down for 2 or 3 years in a row, we've got the costs pretty under control there.

And so we certainly didn't release that.

I mean our cost control efforts.

And I guess the last thing is I've commented that there we benefited by some new product introductions.

And I would say in general the new products are a little bit higher margin than some of the products which they replaced.

And so I think, new products, again, as I've said, it's not one thing; it's a dozen things.

So helped a little bit by pricing, helped a little bit by mix, helped a little bit by new product introductions.

So I mean, some cost control efforts, like I said.

And some better price -- purchase price variances on input commodities, which, like I said, some of that we'll give back as steel prices go up in the second quarter.

But no, I think we'll be able to keep -- they're operating at a good level, which should even get better in the second quarter.

Okay.

I also wanted to ask you about the mild weather.

I know you cited that the snow equipment suffered because of that.

But net-net, how do you think the weather played a role in the overall business?

And then can you comment on what you're seeing across North America so far this year -- this quarter here, this spring.

It seems like it's pretty good from my vantage point.

But I know you're getting -- I know there's a lot of rain in the Midwest, so just wondering how that's going?

So at this point -- I mean we were certainly hurt a little by the sort of the mild winter, especially in our snow removal segment.

But in general, I mean, we were probably helped a little.

I said spare parts were a little bit better, maybe because -- I mean, they were mowing along highways a little bit earlier than, because of the weather conditions.

So while weather hurt our snow a little, in general, I think it sort of balanced out.

As you said, there's actually pretty good moisture across the country right now.

Maybe in the Southeast a little too much.

But I mean, there don't seem to be many drought areas right now, which helps the -- on one hand, it helps Ag, it helps the farmers, but it actually sort of hurts -- last year, if anything, the farm crop was too good because there weren't any -- usually if there's a drought here and a flood there, then it kind of helps bolster crop prices because there's a little bit less volume.

Last year, that wasn't the case.

There weren't the droughts and the floods, so the crop came in very strong levels of production, which actually hurt pricing a little bit.

This year, it looks similar in that moisture looks good, no particular big droughts, no particular devastating hurricanes or this kind of stuff.

So actually, like I say, that probably bodes well for us and for equipment needs and everything, even though I'm not -- like I say if the crop comes in quite as strong as last year, it could still keep prices fairly constrained.

But yes, I think weather, other than a little bit less snow -- like I said, it's interesting.

Maybe our snow units were off a little, but they were at a healthy profitable level.

But weather is actually probably in our favor right now.

All right.

And then just lastly, the volume in the European part of the business was the best in a while.

But that segment, sort of all told, as you look at it over the last 2 years, obviously Brexit played a role last year, and the European economies have been, I think, a little bit more volatile than domestically here over the last few years.

Just wondering your sort of take on sustainability of that volume that you saw and any certain product lines that you're seeing strength?

Is it more on the Ag side of things?

What are you sort of thinking there?

In Europe, I mean like you said, it was a number of things that have sort of constrained the market.

There's been very low growth in the European economy, there's been some hiccups on, like I say, the Brexit votes and this, which has caused some uncertainty.

But the main thing is there's been the strong U.S. dollar, which has certainly made our sales and results in Europe worth less.

But actually, our European operations have actually stayed reasonably steady in local currency.

Like Ag, they've been impacted just like in the U.S., but the agricultural industry has been down for a couple of years now.

We're seeing slight improvements there.

We're seeing, like I say, I think their economies, while certainly are not robust, but there's slight improvements.

I mean, I think they're believing some of these votes, like the elections in England and France and Germany, I mean, they're saying, hey, we need to get back to some growth.

And I think you're seeing a little bit more pro-growth people.

So I think we're going to see a little bit of growth in the markets.

I think we'll see a little bit of return to the Ag -- a little bit of strengthening in Ag.

I think, my view is while I don't see the dollar getting much weaker, I just -- as long as it doesn't get much stronger, then the comparables should start being better come the second half of this year.

So for us in particular, yes, like I said, we were really hurt in the second half of last year in the U.K. particularly, where the farmers kind of took a wait-and-see attitude following the decision to leave the EU.

We're seeing them come back to the market a little bit more.

Some of the growth we saw in bookings and backlog in the first quarter was a rebound there.

But even our -- the sales from -- all of our manufacturing, while we service mostly central Europe, all of our manufacturing is in England and France.

And even our French -- sales from our French operations showed improvement both in the ag side and in the industrial side.

And so -- and to be honest, I think some of that is the market.

And I think some of that was us that I think -- we were helped last year -- we closed the plant in France and got our costs a little bit better under control, and that has -- and I think they're being a little bit more effective in the marketplace.

So I think it's internal actions and a little bit of market, and a little bit of just some stability in some of the -- of what's going on there from the macro point of view.

And a little bit better in Ag.

And again, it's several things that I think are moving in the right direction, but it's nice to have -- like I say, for us to have better bookings and backlogs than we've had in a while there.

It appears there are no further questions at this time.

Mr. George, I'd like to turn the conference back to you for any additional or closing remarks.

Okay.

Well this is Ron.

But again, thank you for the questions, and thank you for joining us today.

And we look forward to speaking with you on our second quarter conference call in early August.

So thanks, everybody, and have a good day.

Ladies and gentlemen, this does conclude today's call, and thank you for your participation.

You may now disconnect.