A O Smith Corp (AOS) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2009 conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions).

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Miss Pat Ackerman, Vice President - Investor Relations and Treasurer. Please go ahead.

Thank you, Christina. Good morning, ladies and gentlemen, and thank you for joining us on this conference call. With me this morning participating in the call are Paul Jones, Chairman and Chief Executive Officer, Terry Murphy, Chief Financial Officer, and John Kita, Senior Vice President of Finance.

Before we begin with Paul's remarks, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in this morning's press release. Paul?

Thank you, Pat, and good morning to all.

This morning we announced first-quarter sales, which were 16% lower than the same quarter last year. Volumes in all our markets, including China, were down year over year. The lower volumes had a negative impact on earnings and margins.

Historically, we use cash in the first quarter. However, this year we generated $6 million of cash during the quarter compared with $15 million used last year. This $21 million swing is quite impressive when you consider the $13 million earnings shortfall year over year.

I am proud of our team's working capital reduction programs and the diligence with which they are conserving cash. And we are pleased to report that our Electrical Products company achieved $5 million in savings associated with plant repositioning and restructuring charges incurred last year. And we are on track to achieve the $15 million incremental savings from this initiative in 2009.

Considering the lower volumes we experienced in the first quarter, we made significant adjustments to our production schedules as well as implemented SG&A cost reduction programs. Both businesses have significantly reduced their workforce around the world.

All of our programs carefully consider the balance between rightsizing our operations for current volumes and the ability to service our customers at the high levels they expect from us. We are making appropriate adjustments so that we emerge stronger when the market recovers.

Due to lower demand than we originally forecast, we are now expecting earnings per share for the full year of $1.80 to $2.10 per share. We are not proud of the fact that we have had to reduce our 2009 forecast so early in the year.

I made a commitment to you to provide realistic forecasts and I apologize for not delivering what we promised. We, like many companies, have debated whether to suspend guidance in light of the uncertainty we see in our marketplace.

Our conclusion is to continue to provide it. The $1.80 to $2.10 per share reflects our collective realistic thinking at this point in time. Terry will now present the results for the quarter and I will wrap up with further elaboration on our outlook for the year. Terry?

Thank you, Paul, and good morning, ladies and gentlemen.

Total sales in the first quarter declined to $482 million from $571 million last year. Due to the declines in volumes we experienced in all of our end markets, we reported lower earnings of $8.7 million or $0.29 a share compared with $21.9 million or $0.72 a share last year. The 2009 earnings per share included $.03 per share in after-tax restructuring costs associated with the sale of the plant operated by our former automotive company, and previously announced product repositioning costs associated with plant closings at our Electrical Products company.

The 2008 earnings per share included $0.09 a share in after-tax restructuring charges related to plant closures and repositioning activities in our Electrical Products company.

Sales of $339 million in our Water Products business were off 4% from last year and includes sales declines in China of about 10%. Volume decline more than offset price increases related to higher raw material costs, but were consistent with our expectations of year-over-year single-digit volume declines. We estimate that the industry's residential replacement volumes in North America are now about 92%.

Electrical Product sales declined by 35% to $143.6 million, driven by declining and market demand and customer inventory reductions. Despite continuing to add business with some of our large dissertation accounts, volumes in all of our strategic business units or SBUs experienced double-digit declines.

Year-over-year volume declines in our HVAC and pump products were the most dramatic of the normal seasonal inventory build by our central air-conditioning system and pool pump customers is occurring very slowly at this point.

Total operating profit declined $15.1 million from 38.8 million last year. Operating profit at Water Products was 29.9 -- or $29.1 million, 19% lower than last year due to lower volumes. Operating margins were 8.6% compared with 10.2% last year and were impacted negatively by lower volumes and lower sales in China.

Electrical Products posted a first-quarter operating loss of $3.2 million compared with operating profit of $11 million last year. The loss this year included $0.5 million in restructuring charges and the profit last year included $3.8 million in restructuring charges. Improved pricing and $5 million in benefits from product repositioning savings were more than offset by significantly lower volumes.

In addition, out of the money commodity and currency hedges contributed to the loss in the current quarter.

Operating cash flow was $6 million in the first quarter, which was considerably better than the $15 million cash used by operations last year. Improvement cash flow was primarily the result of the smaller investment working capital at both businesses, and the reduction in margin calls associated with our copper and aluminum hedges which more than offset the $13 million decline in earnings.

That being said, working capital reduction is a priority for us and we have implemented aggressive global inventory reduction programs to take out $50 million and align our inventory with the lower volumes, but without compromising service to our customers.

During the first quarter, capital spending was approximately $13 million compared with depreciation and amortization of $16 million. Capital spending for the full year is expected to range between $60 million and $70 million which was trimmed by about $20 million or 25% as a result of our efforts to conserve cash. Depreciation and amortization is expected to total approximately $70 million for the year.

We are still projecting operating cash flow of $140 million to $150 million for 2009, despite our lower earnings forecast and higher pension plan payments. We are continuing to invest in our major strategic programs, including bringing new products to market that our customers expect from us.

Our liquidity position and balance sheet remains strong. Our debt to capital ratio increased modestly to 34.7% from 34.3% at the end of the year. We have limited amortization of our long-term debt portfolio in the coming years. Our $425 million credit facility does not expire until February 2011 and we have over $220 million of available capacity under the facility at the end of the quarter.

Paul will now discuss the outlook for 2009.

Thanks, Terry.

In discussing the outlook I want to touch on four items -- one, the strong water heater replacement demand; two, the volume declines in our motor business; three, our China volumes and, four, our cash conservation coupled with cost reduction activities.

Let's start with Water Heater replacement demand. As you know, the North American Water Heater market is largely a replacement market. Historically the replacement volumes for the industry range from 7 million to 7.5 million units per year.

We now expect new construction to incrementally add only 550,000 units in 2009. With the replacement market now expected to be 92% of the volume this year, these volumes are much more predictable than our motors business.

That being said, our job one at Water Heaters is to protect our margins and, at the same time, protect our market share. These can be conflicting goals, especially when the marketplace is very competitive like it is this year. But we have experienced managers who have successfully navigated through these situations before, and I am very confident in their ability to do so this time around.

The second item, as I mentioned earlier, our OEM customers have indicated that their 2009 volumes will be substantially below last year's volumes. Most are forecasting 20 to 30% declines.

In our conversations with all of our largest customers, we are hearing the same inputs as we hear in the general economy. Most are building little inventory in advance of the summer selling season which is deleveraging the inventory and finished goods in the marketplace.

Further, we are expecting a greater percentage of households to repair their units in this environment. We have adjusted our production schedules accordingly and have reduced our global workforce significantly since the beginning of the year.

That being said, we are mindful to follow our strategy of developing energy-efficient products and are adding resources in those areas. We are closely monitoring daily order items in order to react quickly to capture any pickup in demand. At the same time we are prepared to make additional adjustments to production schedules as the year unfolds.

The third area I want to cover is China. We are still expecting our China business to grow in 2009. Our China Water Heater sales were down about 10% in the first quarter. We have seen the year-over-year gap associated with January and February volumes all but close in March.

We surmise that the China stimulus package is helping our customers buy homes and instill confidence. We are enthusiastic about two new products coming online in China -- a solar thermal water heater in this quarter and a wall-mounted heat pump water heater later this year. And we are bringing three products to market right now with a lower price point to gain back some of the share we lost as a result of price-sensitive customers.

And, finally, we have engaged in all-out war on costs and cash conservation. We have implemented many cost reduction programs including aggressive price and term negotiations with our suppliers, global inventory reduction efforts, and capital spending curtailment as Terry mentioned earlier. And we announced a Companywide reduction in salaried workforce earlier this year as well ask continue to flex our hourly workforce.

So despite lower forecasts from our customers and end markets and our adjustment to our expectations for full-year 2009 results, we have seized this opportunity to control what we can control, to deliver substantial profitability in this very challenging market, and emerge stronger when the market recovers.

We will host an Investor Day in New York City next month on May 5. Our operating unit Presidents, Chris Mapes and Ajitas Rajendra, will join Terry Murphy and me to present our business strategy and answer your questions. Invitations to the event will be sent out shortly.

This concludes our prepared remarks and we welcome your questions at this time. Christina?

(Operator Instructions). Scott Graham from Ladenburg Thalmann.

Good morning. The note that you guys have made here about the 90% replacement on residential water heaters that is good information and, obviously, you guys are looking at that as one of your backstops if you will.

The other side of it is the commercial side where I know historically that you guys have ascribed something in the 60+ percent level of replacement activity on the commercial side.

I'm just wondering, are you looking at that a little bit differently today? Are you seeing commercial -- I mean, is there any way to characterize where the commercial volumes are running right now? Are they still down sort of this single digit? Do you expect it to get worse, do you expect those customers to maybe repair those larger units rather than replacement? How are you looking at your commercial Water Heater business right now?

Yes, Scott, it's a good question. The commercial Water Heater business is off from last year and it is a single digit decline. We think that is as bad as it will get.

We have developed some high efficiency units for that market, the Cyclone Xi which we've introduced. Customers are not repairing units, they are replacing them. And we've actually picked up some market share with the commercial units primarily with the high efficiency products, because customers can get a pretty quick payback. And this is a product we have that nobody else has.

So our commercial business is a holding in there pretty well and we think it will for the rest of the year. We think there will still be some declines, but we also think that the share gains we've got are holding and we may be able to add to that with the high-efficiency product which gives a pretty compelling buying opportunity for the customers.

Got it, thank you. The other question I would have is you are out there looking at your Water Heater business from a kind of defensive nature. I know you want some business there for sure, but you are looking to protect share, you are looking to protect price.

Paul, could you talk a little bit about how you do that? How do you protect price, particularly the big one as we know is that of concern is the wholesale channel where those guys are kind of priced up pretty materially during raw materials inflation times. How do you keep as much of that as you can? What are the programs there?

Well, it is a day by day and trading area by trading area management. The team we have doing that has been doing it for years and our margins have been increasing for those years. This team has been doing that.

And the other thing is, the wholesalers, our customers don't want to see the prices come down. That lowers the value of whatever inventory they have on their floor.

So it is not -- I don't want this to sound like it's a major, major issue. We obviously don't want to go out and start a price war, but we want to hang on to the -- we are not going to lose share either. And if there ends up being a little bit of furniture that around in the house, so be it. That's what we will do.

But I'm confident that the team will do this for the year and do it well.

Thanks a lot and thanks for being so forthcoming.

Paul Mammola with Sidoti & Company.

Good morning. Was there price improvement on the Water Heater side as anticipated this year?

Yes.

Okay. Is it fair to say that a part of the reduction in guidance has to do with competitors pricing more aggressively than you anticipated?

No.

Okay.

It's base volume, Paul.

Okay, to move away from price. Is it still fair to say that [GOME] and Suning will open around 200 stores in China this year? And is there any way that that is tentative or can be pushed off?

We think we are pretty sure that Suning will. GOME is a little different situation over there. Their CEO is in jail.

Right, exactly. So that -- .

But Suning is doing quite well. You know, I alluded to it in my prepared remarks, but we were off significantly January and February. The recession was taking hold in China too.

But our March numbers improved considerably and they are continuing to improve this year. So we still see growth in China this year.

You know our products are included in the rural program the China government has just trying to get more appliances sold out in the rural environments as well as the continued expansion. Especially as Suning has into tier 2 and tier 3 cities.

And so on China as well. What is Nanjing running at as a utilization rate? And that tick out of CapEx -- I guess, where is that coming out of? Is that maybe an India or China project?

No. We are totally focused on our expansion programs. Nanjing is running at about a 60% capacity utilization. If you remember, we doubled that facility a year ago.

To take it up to the full size of the facility, we would have to add some equipment, but we can do that easily. But right now China and Nanjing is well capable of flexing as the demand increases and as a matter of fact we are planning for it. We are prepared for it, and we are going to be able to serve the customers.

Terry, how much did hedging hurt you in the quarter? On an EPS basis, if you have it?

I don't have it on an EPS but on an operating profit, it was about $2 million.

Perfect. And then finally could that applied energy recovery systematic position add anything meaningful this year? Or what is the medium-term outlook for that?

That's -- it's not going to affect us this year in a material manner. It's -- what we wanted there was primarily technology. We see that particular technology as playing right to what the government is doing, relative to the energy-efficient programs.

And we have as I already mentioned, we are selling a heat pump water heater in China right now. We have been working on that development for years and this is just a way for us to speed up our development process by nine to 12 months.

And we determined it was worth a few hundred thousand dollars that we spent for that to get that -- it just fits our strategy on innovation and technology development, and we just jumpstarted.

And one more if I could, sorry. How long do you think from an inventory cycle perspective -- how long can motors stay so depressed and like $160 million quarterly revenue range? I guess from your perspective, how long can that last before you have to see an inevitable uptick in orders?

I don't think it can go on much longer, but that is an opinion. You know we have -- Paul, we had customers, where we have 100% of their business and their volume with us in the first quarter was off 50%.

That's just something that nobody would have predicted and nobody would have seen coming. That can't continue. The replacement market is higher than that and we are anticipating there will be a pickup.

We think our guidance is very conservative. We have tried to be as realistic as we can be, and I'm hoping we get surprised on the upside on the motor volume. But obviously the HVAC and the pump customers -- there's one particular CEO, use the quote, he's just going to disappoint customers" in the summer and he's not putting in inventory.

I am not going to name that company, but that's an example of some of the things that we are hearing. But we are ready and prepared. We have kept our capabilities. We have been doing a lot of short work weeks so we can flex up quickly if that demand comes through.

And I personally think we will see that as the weather heats up in North America and people start turning on their air conditioners and start starting up their swimming pools.

Okay. Thanks for your time.

Matt Summerville with KeyBanc.

A couple of questions. First, Paul, you mentioned in your prepared remarks you have been pretty aggressive in taking out headcount.

Relative to where headcount would have been following your prior motor-related restructuring, how much have you taken down headcount? And how much is there yet to come out? And I guess as far as restructuring charges, what would be implied in your $1.80 to $2.10 guidance?

I will answer the last one. The restructuring charges are in there. It is not really restructuring, it is headcount reduction. So you are not going to see us calling it restructuring.

But we have taken out almost 1,000 people since the first of the year worldwide. Some of those costs obviously hit in the first quarter. Some others will hit in the second quarter. That is in our guidance and we will get the money back. We will save more than we are spending relative to headcount reductions as the year unfolds.

The majority of the headcount reductions were just literally, 15 people less than 1,000 since the first of the year. The majority of that has been in Mexico. So we are not talking about a huge cost from elimination of job -- or job elimination.

I think, Terry, you had quantified your hedging hit as $2 million roughly in Q1. Based on where FX rates and spot prices are right now, how should we be thinking about that hit in the second quarter?

Given where we are at in the volumes, we usually talk about our hedging positions. With volumes down significantly, we are probably a higher percentage hedge than we might normally be.

So as we look ahead, I think you'll see some additional -- of course certainly depends upon the price of copper, but as we look ahead we will see some additional hits in, I think, future quarters.

Relative to quantifying it, the -- the $2 million represents the excess pages we cells that we had to sell on the marketplace at a loss which were excess hedges in -- .

Matt Summerville They were excess because of the

That's right because of the volume. That's right.

That's what the $2 million represents is those sales, that impacts our selling.

Have you seen, Paul, as the quarter unfolded any material improvement in the factory utilization rates on the part of your HVAC or pump motor OEM customers? And I guess when we think about the motor business overall, is there any reason we see a sequential volume improvement Q2 versus Q1?

Well, we will have to see. We -- it was really weak the whole first quarter and far weaker than we had thought. And a lot of those were just quick decisions based on the economy and our customers' access to capital and being able to build up inventory. And a whole lot of them, most in fact, have elected to not build inventory or if they do, it's only slightly.

Common sense tells me that that will pick up. But I am not ready to predict that. Our guidance is assuming a very, very conservative volume from Electrical Products for this year. And like I say, I hope we are wrong. I hope the volume comes in stronger and if it does, we are ready for it.

Can you talk more about the dynamic you are experiencing in your China Water Heater business? It sounded like January and February were pretty soft. March a little better.

And how I guess did that trend, relative to the new products, particularly the lower price point products you mentioned you've recently launched? And is that -- it sounded like that was in response to adverse market share trends. Are you seeing customers over in China begin to trade down more meaningfully?

Yes, that happened in the first quarter. We tracked the different price points of our products and we are at the high-end. We sell to the new new, upper and middle class has been our market base.

And as you know, China GDP over the last several years grows 8 or 10%. We've been growing 25 to 40%. It's been a very, very good market segment for us.

But based on what we saw in the first quarter, we had the products on the shelf ready and we have introduced, late in the quarter, three products that go down a price point, because we are seeing some customers that are price-sensitive that before would have bought our products are now living down. And we are now there when they move down.

Plus we have some new energy-efficient products coming out. And, a little editorial comment here, the China stimulus package is a terrific one from our standpoint. It is very focused. It is focused on infrastructure.

It is also focused on housing formation or household formation. And that is very good for us. Because every time a household is formed, we sell a water heater. Somebody sells a water heater.

Are these lower price point water heaters materially different from a profitability standpoint? Now, historically, you have pinpointed pretty exactly what your revenues in the China water heater business has been on a quarterly basis. Can you provide that for 1Q '09?

The new products just went into the marketplace late in the quarter, but they are going to be units with a little bit lower price. But we are pleased with the margins.

You know, we can do a little bit of defeaturing over there. There's a whole lot more features on a water heater than you have in the US.

And then, the China revenue number?

In the first quarter?

Matt Summerville Yes, please.

(Multiple Speakers). About 10%, yes, $40 million.

Great. Thanks a lot.

[Brian Myer] with Robert W. Baird.

Good morning. Just a few questions for you here. First just on the pricing here, can you give us how much you contributed by segment, this quarter's growth?

No, we can't give you that. It is getting too much information to some of the other people listening to this call.

Fair enough. Okay, then if I look at -- if I just look at the month-to-month trends then, within North America as opposed to China, did you guys see any kind of stabilization in the level of declines in either segment or has it been consistent throughout the quarter?

It has been pretty stable. It hasn't gotten worse as the quarter went on and I guess that's the good news. It is stable at a lower rate than we had originally forecasted.

And that's the case for both segments?

Yes.

Got it. And then if we can switched gears to the customer inventory -- I have a question here. Clearly, they have been depleting now for two straight quarters and I guess we are starting to wonder is there a point maybe in the second quarter or maybe even beyond that where you think that may be coming to an end? Is there a light at the end of the tunnel here?

We think so. Every piece of analysis we do says that the end selling rate is higher than what we have been selling. So -- and it has been below the replacement level in certain areas. So we believe that that will pick up, but as I mentioned earlier we hate having to adjust this early in the year. And we are doing everything to make sure we don't have to come back again.

So we have done a very conservative -- we've been very conservative in our outlook.

And then one last one here just on the guidance. Listening to what you have said about the Motor segment, in particular, is it fair for me to assume that your guidance basically assumes that the conditions you saw in the first quarter carried through the remainder of the year?

Well, there are a lot of things that will be different as we go through the remainder of the year. We do think there will be some pickup in volume. Because of the decline of volume, you heard Terry talk about how we didn't use all of the copper that we had purchased for the quarter. Steel, we still have had some very high-priced steel flowing through both businesses due to the volume decline.

As those things work their way out and the people cost reductions that we've done, we anticipate that earnings will pick up as the year goes on. As a matter of fact we are quite confident that will happen.

I think that's it. Thanks a lot, guys.

Thank you.

Ted Wheeler with Buckingham Research.

Good morning, all. I wondered if you could put some color on the guidance on the revenues just for the year?

Overall what kind of revenue delta are you looking at? And maybe if you could give a little color on the wholesale and retail water systems revenues, what those are for the year you expect? And also for the air-conditioning and distribution markets in electrical.

I can't go into that much detail Ted, but I -- .

Couldn't you just do a ballpark on what --?

Yes. I mean, our first quarter volume was down 16%. We see the year being up closer to down 10% to 12% as the year unfolds and that is, as I said, a conservative look as we look at it through the rest of the year.

As far as retail and wholesale, the ratio is holding on Water Heaters. The ratio is holding about the same. There is still a slight trend towards retail, but as far as the HVAC and -- I think that's the one you asked about -- air-conditioning. On the motor side, we believe that the current sales rate is below the replacement rate. And we believe that will pick up whether they'll will be buying complete HVAC units or moving towards a repair, that is one big question.

We think that then we put it into our planning that there will be more of a movement to repair the outside condenser unit, put a new blower on it or put a new compressor in it versus replacing the whole unit. Obviously the things we have done over the last several years to pick up significant share and distribution is going to help us there. But when we sell the whole unit, we sell three motors and when we sell a repair we sell one motor.

So that's factored into our assessment, but we think it will pick up from the rate that we saw in the first quarter. And we are planning for it to be a modest pickup, not as significant as years past.

Okay. That's very helpful. And for the year I think you mentioned in the water systems pricing is higher. I don't know where pricing was for Electrical Products, but for the year do you think you will have pricing -- what you think pricing will be in -- impact on revenues for water and for Electrical Products?

We still have steel higher than last year and although it is getting back to that number, but -- and we have some contractual agreements with the majority of our OEM customers. Almost all of them on the motor side.

So we are still running with higher prices this year than we had last year at this point in time. How that will play out over year, we -- .

Yes, that's the question.

It is hard to say what the steel companies are going today. They have shown a remarkable ability to all move in lockstep from time to time and while I wouldn't -- I'm not saying that will happen. I'm not saying it won't either. And we are ready if they do. We will be doing what we need to do to make sure we maintain the relationship between cost and price.

For the outlook that you have now, do you expect the mismatch of costs flowing through costs of goods from commodities to taper off, and become neutral during the year? Or do you think you'll have some of the historic cost mismatches still impacting numbers all year?

I think it will taper off and be okay to slightly positive as the year plays out.

The second half might be positive? Is that --?

Yes. You know from now on it might be positive where we can maybe expand the margins. 8.6% margins in water heaters is not what we expect for the year.

I guess, yes, that would be implied in your forecast. You think it gets back to 10+ by the end -- sometime during the year?

That's the goal.

Appreciate the color [(multiple speakers).

I guarantee you that's the goal and we've sure got a lot of people working to implement all of the actions necessary to do that.

Great. Thanks for the detail.

Paul Mammola with Sidoti & Company.

Is there any further restructuring embedded in the $1.80 to $2.10?

No. It's just headcount reductions.

It won't be called restructuring, Paul, but there will be headcount reductions as Paul mentioned that will occur. The 700 or the 1,000 plus that he talked about and this year, it is 700 of them plus in the second quarter. So you will see those costs. But they will hit the EPC line rather than show up in any kind of restructuring.

Yes. They will be above the line and the savings, of course, will start right away.

We will be getting those savings from those very quickly and certainly we will end up positive for the year on the margins from doing these actions.

Great. Thanks again.

Matt Summerville with KeyBanc.

You had provided some detail on the outlook for the commercial portion of your Water Heater business. Can you provide a similar overview as to what you are expecting in the commercial portion of your Motor business?

The commercial business has been off a little bit more in Motors than in Water Heaters. Our commercial business in Motors is largely global. You know I am thinking about the high-voltage hermetic product out of Yuyang.

And we have seen a significant falloff in that business. Our -- as we look at our model going forward, we are frankly not anticipating a pickup in our model although common sense would tell you that, as liquidity starts flowing back to the marketplace, we will start seeing a modest pickup there. But our guidance does not include that. But we think that will happen.

How much of your commercial motor business is outside the US would you estimate?

Over half. Over half, yes. You go to China and look at the roof top units, I smile every time I see them because almost every one of them that I can see out of my hotel window have our compressors in them.

Do you think the Motor business makes money in the second quarter based on what you're seeing?

Yes.

And then lastly can you just review how your commercial comps evolve as we move throughout 2009 relative to '08? When you see the high water mark?

I think our year-over-year -- I'm going to talk Water Heaters. Year over year, we are still predicting it will be down single digits. Whether that is low single digits or high single digits, I'm not ready to predict that right now.

But we think it will be down year over year. A lot of people are predicting a pickup late in the year. Obviously our model doesn't include that, but we are ready for it if that happens. I personally don't think we are going to see a pickup this year in the general economy, especially in North America. But I sure hope I'm wrong.

I guess, Paul, what I was more looking for is when are your commercial accounts the toughest?

Probably right now.

Okay. Through what, the third quarter?

Yes. Second quarter will probably be the toughest comps.

Great. Thanks a lot.

(Multiple Speakers). -- lead into the third quarter.

There are no other questions at this time.

Well once again, we appreciate everybody's attention. We really feel good about what all is going on in the business. It is almost a bit coy to say it, but it is just volume. Our business will be doing very well if we had a stronger marketplace we are selling into and it will come back.

So we are frankly feeling good about the Company. We are continuing to do all of the things that we are capable of doing and we are continuing to invest in new products. Stay tuned for some exciting products we are going to be bringing out this year.

And we appreciate your time and attention today. Operator, do you want to give them the callback information?

Ladies and gentlemen, this conference will be available for replay after 11 AM Eastern today through midnight April 18, 2009. You may access the replay service by dialing 1-800-475-6701 and entering the access code 995704. International callers may dial 320-365-3844. Those numbers again -- 1-800-475-6701 and 320-365-3844, access code 995704.

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