艾利丹尼森 (AVY) 2006 Q1 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Paxar Corporation First Quarter 2006 Earnings conference call. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Bob Powers, Vice President of Investor Relations.

Thank you, Megan. Good morning and welcome to Paxar's first quarter 2006 conference call. On the line from management will be Rob van der Merwe, President and Chief Executive Officer, and Tony Colatrella, Chief Financial Officer.

This morning, before the market opened, Paxar reported first quarter 2006 results. Management will now provide additional commentary on those results as well as a look to the future. At the conclusion of that commentary, any questions you have may be addressed to management.

Please be advised that certain statements about the future outlook related to Paxar Corporation involve a number of factors affecting the company's businesses and operations that could cause actual future results to differ materially from those contemplated by forward-looking statements. Those factors include general economic conditions, the performance of the company's operations within its prevailing business markets around the world, as well as other factors set forth in Paxar's 2005 Annual Report on Form 10-K. For further explanation, participants are asked to refer to the final paragraph of Paxar's earnings release.

Additionally, Paxar will hold its annual meeting of shareholders on Thursday, May 4, 2006, at 9:30 a.m. at the Grand Hyatt New York at Park Avenue and Grand Central terminal. We invite you all to attend.

Rob van der Merwe will now begin our management presentation. Rob.

Thank you, Bob, and welcome back. And good morning, everyone. I'd like to thank you all for joining us this morning on our first quarter conference call. I'll begin today by highlighting some of our achievements during the first quarter, then provide you with an update on our global realignment efforts as we’ve made significant progress since we last spoke. Tony will then review our first quarter results in more detail, and then I’ll close with a few remarks.

As you saw from our release this morning, we reported revenue of almost $200 million and pro forma earnings per share of $0.18. I’m very pleased with our first quarter performance as we continue to execute upon our strategy on a number of important fronts.

As I discussed on prior calls, our goal is to grow Paxar and to increase operating margins by being the first choice for our customers. To do that, we must continue to rapidly add capacity in Latin America, Eastern Europe, the Middle East and Asia Pacific to capitalize on the continued migration of apparel manufacturing. We’re working diligently to expand our global footprint to make sure we remain the leading player that offers a comprehensive global solution and to further streamline our resources to better serve our global customers.

Concurrently, we are implementing best practices within all facets of our organization to improve customer response time, increasing manufacturing efficiencies and effectively manage our G&A cost structure. Most importantly, we will leverage our financial strength and global footprint to drive growth, both organically and through strategic acquisitions. Through the first quarter of 2006, we’ve taken many positive strides in this regard although, as you know, there is still a lot of work ahead.

Driving our results this quarter was the strength of our apparel business, particularly in Asia Pacific, where we experienced a 30% sales growth driven in large part by the aforementioned migration. This region represented about one-third of our total sales and over 50% of our total apparel sales globally this quarter. The Asian Pacific region continues to be a substantial driver of both revenue growth and profits.

Due to the continued and expected migration of production capacity to other regions who reported sales in our America’s apparel group were down 5.6% compared to the first quarter of last year. We saw some signs of improvement, although there are continued margin pressures which highlight the importance of swiftly shifting capacity offshore and reducing our overall cost base in the U.S., U.K. and Western Europe.

In Europe, we were very pleased with our performance. Excluding foreign exchange, sales increased roughly 4% over the first quarter of 2005, and we made excellent progress on our realignment plans. Setting aside regional reporting, I’d like to add that global apparel sales for our top ten global apparel customers were up 19% in the first quarter of 2006, as compared to the first quarter last year. This is consistent with our strategy to place greater emphasis on growing business within our key customer accounts by continuously driving innovation and providing the highest quality products and services.

One other point I’d like to make on our top line performance. Excluding the impact of foreign exchange rates and acquisitions, organic sales growth was 5.6% in the quarter, driven primarily by strong organic apparel sales. This is very encouraging and a very encouraging shift for the company. A turnaround, if you will, from our fourth quarter when organic sales declined 1%.

Now as for our (unintelligible) and pricing solutions business, sales were relatively flat versus last year or down excluding the impact of our EMCO acquisition. However, our pipeline for machine orders is particularly strong at this time.

Lastly, we continue to believe in the future of RFID and are making the necessary investments to pioneer active level RFID solutions. Our partnership with Marks and Spencers to support their RFID trials has gone extremely well. In addition, the added Crest acquisition we recently made in France will further strengthen our prospects for winning EAS or Electronic Article Surveillance business with (unintelligible) and other important French and European retailers. In addition, our thought leadership in this area is stimulating a very significant level of interest in Paxar from many new companies and customers across a range of verticals.

Let me now switch to talking about our previously announced apparel streamlining program which is intended to shift capacity offshore and further strengthen our ability to meet our customers’ time to market needs around the world. The numbers that we shared with you last quarter are largely unchanged. We remain on track to achieve $15 million in savings in 2007, and still expect to realize an annual run rate savings of $20 million to $25 million thereafter.

In the United States, after months of thorough review of our operations and customer needs, we have started to implement our transition plans and announced shifts in production from the U.S. to our Latin America and Asian Pacific facilities. We’ve worked hand in hand with our customers in ensure their orders are fulfilled in the same high quality fashion they have been accustomed to and that their service will be seamless throughout. This is an imperative and has remained our number one priority. We, in addition, have the necessary backup plans in place during the transition period.

To date, we have announced the elimination of 357 positions over the remainder of 2006, equivalent to at least 30% of our U.S. apparel workforce. We will be phasing out production at our West Virginia woven label facility over the remainder of this year and plan on closing that operation by no later than the end of the first quarter of 2007, this affecting over 200 people. Manufacturing operations for woven labels will be moved to Central America, Mexico and Asia Pacific gradually over this timeframe as our customers dictate. And as I said, we have solid backup plans in place during that transition period.

In our Lenoir operation in North Carolina, we announced a reduction impacting about 112 of our direct manufacturing headcount over the balance of 2006. Selected technology will move to our facilities in Central America and China. Some equipment will also be transferred out of our Huber Heights facility in Ohio to Central America and to China with the corresponding reduction in workforce.

We also announced that our Pumice (ph) Avenue facility in (unintelligible), Pennsylvania will be closing and that our production and employee base there would transition to our nearby Wilcox Street Plant by the end of 2006. Some additional equipment will also be relocated to Central America.

Now in terms of our European operations and the realignment initiatives I shared with you late last year, we continue to execute extremely well. We have successfully relocated all of our remaining apparel production. This is with the exception of a small RFIE capability out of the U.K. into existing Paxar facilities in Germany, Italy, Romania and Asia Pacific. Capacity has been additionally successfully relocated from Germany to our woven label center of excellence in Italy. With the exception of the Romanian facility which is relatively new, the majority of the realignment moves announced late last year have or will shortly be successfully completed and during the second quarter.

I’d like to add that no transition is easy, let alone one of this magnitude. And as I’ve said this before, ensuring that our customers remain loyal to Paxar and that we continuously exceed their expectations is paramount to our success. As such and as part of our realignment initiatives, we are continuing to create world class design and manufacturing excellence centers for our customers around the world. I will provide you with more information on that later in the year when our plans are more advanced.

Last week, we announced some executive level changes consistent with what I had previously said. George Hoffman will focus his full-time efforts on business development and innovation for the global apparel group, reporting to me. And we have appointed Roberta Tourak (ph), previously Vice President of Latin America for Lexmark International, to the position of Vice President Latin America for Paxar, reporting to Susan Garrett (ph).

I’d like to add on a personal note the excellent progress we are making is in no small measure due to the continued hard work and dedication of Paxar employees here and around the world. And I want to thank them all.

With that, I’ll now turn the call over to Tony and then make a brief closing statement before Q&A. Tony.

Thank you, Rob, and good morning, everyone. As Rob mentioned, since our last earnings conference call, we have made significant progress in executing our global realignment plan. While this program is focus on improving our competitive position, which we are confident will generate significant ongoing cost savings, this initiative has been undertaken first and foremost to align our manufacturing and associated customer service support resources for global apparel demand and customer requirements. I’ll provide an update on the anticipated cost benefits and timing for the plan in a few minutes.

From an earnings perspective, we are certainly pleased with our operating results for the first quarter, as the company realized strong top and bottom line growth. In addition, we are realizing the anticipated benefits resulting from the actions taken in the fourth quarter to leverage the company’s balance sheet by better matching the company’s borrowing capacity with its strong offshore cash flow streams. As you may recall, the actions undertaken included the repayment of $150 million of the company’s 6.74% senior notes, establishment of a new $150 million five year multicurrency revolving credit facility and the repatriation of $122 million of foreign earnings. We are pleased to report that we are on track to achieve the targeted interest savings of $4 million to $5 million in 2006.

Now let’s begin by first reviewing the income statements. Sales were $199.6 million in the first quarter, an increase of 6.6% when compared to the first quarter of 2005. Organic sales increased 5.6% over the first quarter of 2005, while the EMCO and India acquisitions which the company began to consolidate only as of the second quarter of 2005, contributed 2.8 percentage points of top line growth. The strong organic and acquisition related growth for the quarter was partially offset by a 1.8 percentage point unfavorable impact due to foreign exchange.

We continue to experience significant migration of apparel sales from North America and Western Europe, albeit less though than we witnessed in 2005, following the lifting of apparel quotas to emerging markets, particularly our Asia Pacific region, where sales growth in the past two quarters have accelerated at an impressive rate. Specifically, during the first quarter, sales in Asia Pacific grew 30% over the same prior year period. That included approximately 7 percentage points of growth attributable to the previously announced India acquisition which as completed in June of last year. The substantial increase in sales from Asia Pacific was slightly offset by a decline of approximately 6% within the Americas apparel group, as well as an approximate 2% decline in our EMEA region.

The quarter to quarter shortfall in reported sales for the Americas apparel group was due to the ongoing migration of sales to the Asia Pacific region, as Rob mentioned, while the 2% decline in our reported EMEA sales was due entirely to unfavorable foreign exchange rates which reduced sales in the region by $3.4 million or 6.4%. Excluding the impact of foreign exchange, sales in EMEA increased approximately 4%, compared to the first quarter of 2005, which was, in fact, above our expectations.

Gross margin was 37.2% in the first quarter of 2006 versus 37.8% in the first quarter of 2005. Contributing to the unfavorable variance were product mix, specifically related to bar code and our pricing solutions business, as well as the impact of higher freight costs and certain inventory charges recorded in our Asia Pacific business during the period.

SG&A expenses were $63.4 million in the quarter or 31.8% of sales, compared to $60.7 million or 32.4 % of sales a year ago. The favorable quarter to quarter comparison of SG&A expenses to sales was due to ongoing cost containment efforts in the U.S. and EMEA regions, as well as the continuing migration of sales and production from the U.S. and Western Europe to Asia Pacific, whereas I mentioned previously, we enjoy a more favorable cost structure. Adopting of FAS 123(R) adversely impacted the quarter to quarter comparison of SG&A to sales by 0.4 percentage points.

In the quarter, we recorded $3 million in integration and restructuring charges in connection with the company’s previously announced global manufacturing realignment plan. These charges are primarily related to severance, retention bonuses, facility closure costs and program management fees. During the first quarter of 2005, the company recorded approximately $800,000 in restructuring and other charges in connection with the closure of the company’s Hillsville, Virginia facility, primarily due to severance and equipment transportation costs.

As Rob indicated, we made significant progress the quarter in further defining and executing our global manufacturing realignment plans. With respect to the anticipated cost savings, we are pleased to confirm that we are on track to achieve the planned $15 million in cost savings in calendar year 2007. In addition, we remain confident that we will achieve ongoing savings and an annual run rate of $20 million to $25 million by the end of 2007, which will largely result in gross profit margin improvement as the anticipating savings will primarily be realized in direct factory labor costs and to a lesser extent in SG&A spending.

Further, we anticipate one time cash costs related to these restructuring initiatives of $20 million to $25 million, consistent with our previous guidance. Also consistent with our prior estimates, we expect to incur a $5 million to $8 million of non-cash charges, largely related to anticipated asset impairments, some of which, by the way, were taken actually in the fourth quarter of 2005.

Operating income in the quarter was $7.8 million or 3.9% of sales on a GAAP basis, including integration and restructuring costs. Excluding these one time charges, operating income for the quarter was $10.8 million or 5.4% of sales. As indicated in the press release, operating earnings were also impacted by the adoption of FAS 123(R) share based payments. Excluding the impact of FAS 123(R) and excluding the integration of restructuring costs that we incurred in the quarter, operating income for the quarter was $11.6 million or 5.8% of sales. This compares to comparable operating income of $10 million or 5.3% of sales in the first quarter of 2005.

For the quarter, net interest expense was $1.2 million, compared to $2.6 million for the first quarter of 2005. As earlier mentioned, the reduction in interest cost was due to the refinancing activities completed during the fourth quarter of last year. A net impact of both initiatives reduced the company’s debt position from approximately $167 million to $111 million, and our weighted average interest rate was reduced from 6.2% in the first quarter of 2005 to 4.75% for the current quarter.

In the quarter, we provide a income (unintelligible) rate of 25%, broadly in line with prior guidance. When compared to the first quarter of last year, the effective (inaudible) adversely impacted by adoption of FAS 124(R), which some of you may know, just allows (unintelligible) a tax deduction for qualified incentive stock options, the effect of which was an increase of approximately 1% in our effective tax rate.

Turning quickly to our balance sheet, we finished the quarter with $52.2 million of cash and cash equivalent. That’s compared to $48.2 million as of December 31 of 2005. Total debt at March 31, 2006, was $110.9 million, an increase of $10.2 million compared to December 31, 2005. The increase was primarily attributable to borrowings under the company’s revolving credit facility which were used to fund capital expenditures as well as fund the acquisition of the Adhipress business. Our ratio of total debt to total capital increased slightly from 18.1% at the beginning of the year to 19.2% at the end of the quarter, but compares favorably to 27.5% as of March, 2005.

Focusing now on cash flow. Cash flow provided from operations was $300,000 for the first three months of 2006. That’s compared to $11.5 million in the same period last year. For the quarter, we experience as increase in working capital requirements due primarily to higher accounts receivable and inventory levels to support increased sales and order activity, resulting from, in fact, a very strong March sales level.

Depreciation and amortization was $8.4 million in the quarter versus $7.8 million in the same period last year. Capital expenditures for the quarter were $6.9 million versus $7.9 million in the same period of 2005.

Now turning briefly to our 2006 guidance. For the year, we are projecting sales of $830 million to $850 million, an increase of $10 million from our previous guidance. This increase is essentially due to the strength of our first quarter sales, as well as the addition of the Adhipress acquisition which, as earlier mentioned, strategically strengthens our electronics article surveillance business with key European retailers such as (unintelligible). The acquisition offers great promise for the future, but it will not have a material impact on earnings for the current year.

While we are certainly encouraged by our strong Q1 performance and are confident about the balance of the year outlook, we also feel it’s simply too early at this juncture to consider raising our full year earning guidance. As many of you know, the second quarter is the company’s most important in terms of its contribution to top and bottom line results. Thus, we first need to see how the business unfolds over the ensuing months before making any changes. Furthermore, the recent spike in oil prices, if sustained a current levels, could adversely impact apparel demand and place upward pressure on the cost of certain raw materials, as well as utilities (unintelligible).

We have developed action plans to mitigate the impact of higher oil prices, and we are working very hard to control costs throughout the organization. With that said, we feel it’s only prudent at this early point in the year to maintain our pro forma earnings per share guidance, excluding FAS 123(R) and the impact of integration and restructuring charges at the previously announced range of $1.13 to $1.23. Including the impact of FAS 123(R), earnings per share are projected to be in a range of $1.07 to $1.17, again, consistent with prior guidance.

As Rob indicated, we have a very strong balance sheet and believe the company clearly has the resources and financial flexibility to successfully execute an aggressive growth plan, focused on both organic as well as acquisition growth.

That concludes my prepared remarks on the first quarter financial results. Now I’d like to ask Rob to present his concluding remarks.

Thank you, Tony. Notwithstanding the strong results this quarter, the market remains challenging and, of course, our transitional work is underway. Apparel migration to low cost countries continues, although this year, there seems to be a little more predictability as compared to the tumultuous changes that we witnessed during 2005. Pricing pressures remain. Of course, that’s an issue in all our businesses and due to customer consolidations and intensified competition in the retail space.

As Tony said, and as with most companies, are not spared the impact of increasing oil prices on raw material or shipping costs. Accordingly, we have instituted very strong discipline to either cut or control costs globally to offset the increases.

With that said, I am very encouraged with the progress made over the past six months. To reach our growth goals and out bottom line goals, we’re going to have to both grow organically and pursue acquisitions so they are not dependent upon one another.

As you said this quarter, we had realized the highest level of growth in over a year and believe the changes we are implementing this year and into next will position us for sustained profitable growth.

Finally, we remain focused on driving long-term sustainable shareholder value. And I’ll come back and stress that every single quarter.

Thank you. And with that, I’d like to now open up the call for questions.

Thank you, sir. [OPERATOR INSTRUCTIONS]. Our first question is coming from Bob Labick of CJS Securities.

Good morning. Congratulations on a strong quarter, and welcome back to Bob.

Thanks, Bob.

The first I wanted to ask was related to your strong organic growth. How much of your organic growth is related to the shift in assets to Asia Pacific and other growing regions and out of the slower area versus change in demand versus Q4? And if it’s shift related, should we expect more of the same or how should we look at this going forward?

Okay, Bob. Well, we don’t have that precise number in front of us. But suffice as to say with organic sales down, as we expected in the Americas apparel group and with - - although there was some group in EMEA, when you put the two together, relatively flat when you look at our legacy businesses, it pays to say that the growth that we saw, the organic growth, was really focused on our Asia Pacific region which is where we’ve been investing heavily in the last couple of years.

Great. So we should see a sustainability of growth as you continue to do this.

Yes, we hope so.

And can you give us some milestones to look out for, from outsiders, over the next six months? Things we should be judging you on in terms of you outlined some of the plant closures now and shifting of assets, etc. Just tell us what we should be looking for in the next six months as well.

Bob, this is Rob. I think the outlook we’ve given you for the year included a series of moves. We can’t come out into the open market with those until we’ve either confirmed them with customers or we’ve worked through the detail with our various organizations around the world.

At this point, I’d just say we’re on track to deliver the number we committed for the year and in 2007. The first and one of the most important moves that needed to occur in North America or in the U.S., if you will, has started. And each quarter, when we’ve made progress and we’re comfortable that progress is secure, we will announce those. So we will give you information, as we did this quarter, each quarter during the year so that you can see exactly where we are.

Terrific. Just in a broad sense, could you discuss the acquisition landscape? I understand that will be a big part of getting to your billion in sales in the near-term. Obviously, I don’t expect you to say we’ll acquire “x” company tomorrow. But could you give us a sense of the pipeline and the landscape and how things are there out there for you.

Bob, we’ll come back to you during the year with that, too. As I’ve said before, it’s very, very important for us that we stimulate organic growth first as a priority. Acquisitions, there are plenty out there and you know that we have a very strong balance sheet. And as I’ve said before, what I don’t want to do is start making acquisitions for the sake of growth. We need to make them strategically, correctly and do them in such a way that we can cope with them.

More than that, I wouldn’t comment on our acquisition strategy. You know that we’re a growth proposition. We’ve got a strong balance sheet. We’ll tell you that there are many very exciting prospects out there, both as bolt on a tuck ins and at the more strategic level. And to truly answer your question, you’ll get an answer a little bit later in the year. We’re not ready for that at this point.

Okay, great. Shifting gears, could you just give us a little more information regarding the trial with Marks and Spencers? It looks like, as you said, your sales of tags were a bit ahead of expectations. Have they shared the results with you or how is that going? And then I have a follow up after that.

The program with M&S is going exceptionally well and ahead of our expectations. That have confirmed internally, I believe, that they are very satisfied with their results. And, accordingly, and I believe this is in the open market, they will continue to expand to more categories in the stores during the year. Just how many and when, we’ll have to wait for them to announce that. But in the wake of Mr. Wilson’s departure, the new team is on board and they are committed to seeing this through. So all we can say at this point is that we’re excited. We’re delivering on schedule, and we’re excited.

Great. And has their success had any impact on other retailers in adopting the program or is it still really in the hands of the early adopters? How is the adoption phase going for other retailers?

There’s a lot of work underway with many retailers and the closed loop as well. My personal view is that we’re going to have to wait for M&S to come out and make announcements which they have not done as to their internal results before the others really catch on. Marks and Spencers is not only a thought leader, but they’re the most advanced in this type of solution among closed loop retailers in the world. So I think they are the one to watch, and I suspect that during 2006, as their results are proved out, the market will start to see that and I expect others to accelerate their plans.

Great. Well congratulations, again. I’ll get back in queue. Thank you.

Thanks, Bob.

Thanks, Bob.

Our next question is coming from Ajit Pai of Thomas Weisel Partners.

Good morning, and congratulations on a very solid quarter.

Thanks, Ajit.

A couple of questions. The first one is, going back to the organic growth and the fact that he said it’s driven by Asia. But also, I think you mentioned in your earlier commentary that it was better penetration into your top customers. Could you reconcile that? What’s happening with your top customers and is it (unintelligible) that they’re actually driving that shift from the U.S. to Asia and the sales eventually are driven by your top customers?

You’re correct, Ajit. We report sales by region, as you know. So all the top global - - many of the tope global customers are based in Europe and the U.S., and that’s why I wanted to put that top ten growth factor out there. The way they execute, of course, in the supply chain is in Asia Pacific and that’s where we report the sales. So our sales teams in the United States and in Europe, in particular, have done an outstanding job this past twelve months in turning the business around and starting to drive positive results. And you’re seeing that manifesting itself in Asia Pacific.

Right. So we’ve got your growth by the different regions and by your top ten customers, but if you had to break down your overall growth and divide it up as in share gains relative to what the end market is growing at, do you think that you’re growing - - the end market is growing at the pace at which you are growing which is the apparel market? Or do you think that you’re growing slightly faster?

It’s difficult to answer that one. As you know, particularly in the apparel industry, because of lack of data. But in some areas, we believe we’ve gained market share. In others, we’re moving according to the category. And there are one or two areas where we’re not satisfied with results and we’ve probably lost. But in the lane, I believe that we moved slightly ahead of category overall this past quarter.

So the end market growth or core growth at the market is probably a little slower than what you folks are growing at. Is that a fair assumption?

That’s my guess. But, again, it’s made up of many different businesses, and each one is moving at a slightly different pace. It’s a gross generalization, but I’d say, yes, you’re right.

And if you had to divide it up between higher end brands and lower end brands, would you say that both of them are growing at an equal pace? Or is there a market trend towards certain segments - - the higher end segments doing better or worse?

Ajit, I’d say, again, if you look at the individual company reports that are coming out around the world, it’s very, very mixed. I don’t know that we could give you a clean answer on that.

Okay. Then just moving on to one, the Mark and Spencers’ deployment, and also your - - Paxar’s approach to EAS overall, the moment that you start looking item level apparel ID tagging, one of the things that a number of companies and even retailers have talked about is having an integrated chip for EAS and (unintelligible) ID and the cost benefits of doing that. So what it your take right now? What is Marks and Spencers’ plan to do on that front? And are you looking at getting more actively into the EAS market?

On the first point, Ajit, we can’t really comment. I think Marks and Spencers will have to put that segment out there for themselves as to what their strategy is. On the second, I’d say, yes. At the RFID level for item level tagging, as well as electronic article surveillance, we’re involved and we see those both as opportunities. And the recent acquisition of Adhipress should signify that.

Okay. Thank you so much. And congratulations, again, on a very solid quarter.

Thank you, Ajit.

Our next question is coming from Jerome Lendy (ph) of Melbourne Capital.

Good morning. One of the things I’m concerned with is the margin in the quarter. And not so much this quarter as the guidance for the year where you have higher sales and same EPS target. I understand that you have headwinds and I’m just wondering how much concern they’re causing you and are you backing off in any way on your 10% operating margin target? And if not that, is it going to take longer to get there?

This is Tony Colatrella. I’ll try to answer that question. First of all, within the quarter, there were a couple of unique items that impacted our gross margin. We didn’t get into too much detail, but the fact is we implemented a new Oracle system in a couple of our large Asia Pacific operations. And there were a few things that had to be flushed out as a result of that, that we don’t expect will repeat in the second or third or fourth quarters.

Separately, it’s fair to say that when I first arrived here last year, I was in the unenviable position of having to explain really relatively poor growth margin performance in our latter quarters of last year, particularly the third and fourth quarter. So while - - and we are seeing the benefits starting to evolve from our restructuring initiatives, both in the U.S. and EMEA. So when I look at the full year, we’re so optimistic and believe we can and will achieve at least twenty to thirty basis points improvement in gross profit margin, which is what I guided to before.

And I guess that’s really all I want to say about it right now.

Okay. And what about the 10% longer term target? I understand you’re not going to say when you’re going to do that, but would you say it’s further off now than it was?

No. Jerome, this is Rob. No, I’d say we’re still on track.

Got it. Thanks very much.

Alright.

Gentlemen, that was all the questions for this morning’s conference.

Thank you, Megan. We once again thank you for you interest and participation in today’s conference call. We’re very excited about our prospects in the future. I look forward to speaking with you for our next quarter’s conference call.

Thanks very much.

Ladies and gentlemen, for participating in today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.