AZZ Inc (AZZ) 2009 Q1 法說會逐字稿

Good morning. My name is Michael and I will be your conference operator today. At this time I would like to welcome everyone to the first quarter 2009 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Thank you. I will now turn the call over to Mr. Joe Dorame.

Good morning. Thank you for joining us today to review the financial results for AZZ Incorporated for the first quarter of fiscal year 2009 ended May 31st, 2008. As Michael indicated my name is Joe Dorame with Lytham Partners and we are the financial relations consulting firm for AZZ.

With us today on the call representing the Company are Mr. David Dingus, President and Chief Executive Officer and Mr. Dana Perry, Chief Financial Officer. At the conclusion of today's prepared remarks we will open the call for a Q&A session.

Before we begin I would like to remind everyone this conference call include statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by the Company with the SEC. Those risks and uncertainties include but are not limited to changes in customer demand and response to products and services offered by the Company, including demand by the electrical power generation markets; electrical transmission and distribution markets; the industrial markets and the hotdip galvanizing markets; prices and raw material costs including zinc and natural gas which are used in the hotdip galvanizing process; changes in the economic conditions of the various markets the Company serves, foreign and domestic; customer requested delays of shipments; acquisition opportunities; adequate financing and availability of experienced management employees to implement the Company's growth strategies.

The Company can give no assurance of such forward-looking statements will prove to be correct. We undertake no obligation to affirm publicly, update or revise any forward-looking statements, whether as a result of information of future events or otherwise. With that having been said, I would like to turn the call over to Mr. David Dingus, President and Chief Executive Officer of AZZ. David?

Thank you, Joe, and thanks to each of you for taking the time to join us today for the conference call for the first quarter of fiscal year 2009.

For the three-month period ended May 31st, when compared to the prior year, revenues increased 33%, net income is up 144%, earnings per share increase of 141%. We continued to benefit from strong market conditions, favorable product mix and expanded serve markets. International opportunities continue to play an important role in our growth potential.

Total incoming orders for the quarter were a record-setting $106.9 million while shipments for the quarter totaled a record-setting $100 million. This resulted in a book to ship ratio of 107% for the first quarter. There were no significant international orders received in the first quarter of FY '09.

Domestic backlog increased 19% when compared to one year ago. Total backlog was up 6.9% when compared to the February 29, '08 backlog. 93% of our backlog is expected to ship in the current fiscal year and of the backlog of $141.8 million, 19% is expected to be exported from the U.S.

Quotations activity and project opportunities continue at a very excellent pace. However, as we have said before, the timing of these orders, particularly large international orders, has been slower than desired. We still anticipate that we will have the opportunity to secure an increased level of international bookings in the first half of our current fiscal year.

Galvanizing demand remains strong and tonnage of steel galvanized shipments increased 42% for the first quarter. This increase was partially offset by a 3% price decrease during the first quarter. The acquisition of AAA Galvanizing accounted for 70% of the quarter-over-quarter revenue increase. Operating margins for the Electrical and Industrial products remains strong with margins of 15.3%, reflecting our ability to continue to price to recover escalating costs. Operating margins for the Galvanizing Services segment was extremely strong, with margins of 27.9%, an increase of 1.9% over the prior year. Customer demand remains strong which facilitated minimal price concessions and we benefited from lower costs included in our cost of sales.

As a company, our accomplishments have improved and we continued to double and redouble our efforts to secure more profitable business, and effectively and efficiently execute on that business. Our continuous improvement programs, combined with aggressive marketing programs, have added a very positive impact on our operating results. We believe that these efforts and the leverage gained from additional volume has very positively impacted our operating results.

Subsequent to the quarter end, we signed an agreement to acquire a strategically significant company for our Electrical and Industrial Products segment. We signed an asset purchase agreement with Blenkhorn and Sawle Limited, a privately held company headquartered in St. Catherine's, Ontario, Canada. The acquisition is anticipated to be accretive and to be effective July 1, 2008. The purchase price is approximately $14 million in cash plus assumption of certain current liabilities.

Blenkhorn and Sawle has been a premier supplier of electrical equipment since 1948. As a customer turnkey solutions provider and certified professional engineering house, they've supplied products to the major utility companies, oil and gas, oil sands, mining, industrial as well as the nuclear power industries. The acquisition will complement AZZ's current product offering and expand our served market. This acquisition should provide additional potential for continued growth and expansion of the Electrical and Industrial Products segment for the growing Canadian market. Revenues for the first full year of operations should approximate $20 million and as we said is anticipated to be accretive from the beginning of consolidation.

The completion of an excellent record-setting quarter, positive market outlook, financial strength of the Company, strategic acquisitions, and a great group of employees results in a very optimistic outlook for our Company. We are keenly aware of the challenges brought about by volatility and raw material pricing, the uncertainty of the U.S. economy and the competitive nature of our business environment. We do believe that we can successfully navigate through these challenging conditions as we have effectively done in our past.

Now with that as an overview of our results, Dana will now review with us the operating results for the first quarter of our new fiscal year.

Thank you, David. I would also like to welcome each of you to our first quarter conference call and at this time I will review our unaudited, consolidated results for the period ending May 31, 2008.

For our first quarter, financial results remain strong as AZZ recorded record revenues for the quarter of $100 million as compared to $75.4 million in the prior year, and net income for the quarter increased 33% to $10.1 million as compared to $4.1 million in the prior year. Diluted earnings per share for the quarter increased 141% to $0.82 as compared to last year's $0.34.

We are extremely pleased with our first quarter results, our strong operating performance in both segments of our Company, combined with lower SG&A expenses, allowed us to record revenue-setting results. We continued to maintain strong quotation activity and project opportunities in our Electrical and Industrial segment helped us to achieve a book to ship ratio of 107-to-1 for the quarter and our Galvanizing segment continued strong demand and good pricing realization allowed us to achieve record-setting results.

Our SG&A expenses were $4.3 million lower this quarter as compared to the same quarter last year, due to decreased compensation expenses related to our stock appreciation [rights] programs. Our interest expense increased due to higher levels of debt resulting from our $100 million note placement on March 31 that was associated with the acquisition of AAA Galvanizing. Our Electrical and Industrial segment generated 52% of our revenues for the quarter while our Galvanizing Services segment generated 48%.

We anticipate that 54% of our revenues for fiscal 2009 will be generated from our Electrical and Industrial Products business and 46% will be generated from our Galvanizing Services segment.

At this time David will give us an overview of the Electrical and Industrial Products segment.

The demand for our power distribution and motor control centers remains strong. The spending related to energy infrastructure rebuilds, expansions and upgrades continued. The demand for our Metal Clad Outdoor Switch Gear products is outstanding. Utility distribution substation orders continued to improve and the growth in this market is most encouraging.

Quotations which utilize our high-voltage bus systems were again at excellent levels and reflect strong domestic and international demand. We continue to operate at record-setting levels.

The power generation market is very encouraging. The announced build schedule of new domestic and international generation plants, domestic emphasis on renewables, such as wind and solar, and the addition of scrubbers to existing facilities has continued to positively impact our market and orders and is anticipated to continue in future quarters. Our specialty lighting products have seen and should continue to see strong results, and orders and shipments of our tubular products to the petroleum market was consistent with prior periods.

Dana will now cover the operating results of our Electrical and Industrial Products segment.

In our Electrical and Industrial Products segment we recorded record revenues for the quarter of $52 million as compared to our prior year results of $40.9 million. Our increased revenues were generated as a result of a continuation of improved market demand. primarily from our high-voltage transmission, power generation and utility distribution and energy infrastructure markets. Operating income was $7.9 million as compared to $6.3 million which resulted from higher volumes as a result of favorable product conditions -- favorable market conditions.

Operating margins were 15.3% for the quarter compared to 15.5% in the same period last year. We continue our emphasis on booking business at specifically targeted margin levels pursuing price increases to recover increased cost of materials.

Our challenge continues to be to expand our markets while maintaining our strong operating performance. We are pleased that we were able to announce the signing of a definitive agreement to purchase the assets of Blenkhorn and Sawle Ltd. on June 26. This acquisition should add in excess of $20 million, as David indicated, in revenues during our first full year of operations and should be accretive to our earnings per share in our current fiscal year.

At this time David will give us an overview of the Galvanizing segment.

Zinc costs in the last few weeks has been in the $0.85 price range. Now with overall demand being strong we have been able to minimize the impact this decrease has had on pricing. The average cost of zinc in our [kettles] approximates the current cost of zinc at the end of the first quarter. Our strategy is unchanged and we will continue to resist downward pricing pressures. Revenue dollars will potentially be impacted in future periods if market pricing is required to be adjusted as a result of reduced demand and/or reduced zinc costs. We continue to operate in very favorable market conditions and are maximizing the market share growth that can be achieved by providing us superior level of service and support to our customers.

We are pleased with our initial integration of AAA into our network of plants. Their performance for the first few months is consistent with what we had anticipated.

There does remain concern over the economic impact -- the economic conditions and increased cost of steel and the impact this may have on our customers, and their demand for our Galvanizing Services. This issue combined with the seasonal winter impact on our North Central U.S. facilities may result in lower fourth quarter demand.

Dana will now give us a review of the key operating statistics for this segment and cover the key balance sheet items of the Company.

Revenues in our Galvanizing segment for the quarter were a record-setting $48 million, an increase of 39% compared to $34.5 million recorded in our first quarter of fiscal 2008. Revenues in our first quarter were favorably impacted by the acquisition of AAA Galvanizing which represented 70% of our 39% increase, as well as increased production levels in our existing facilities. Increased volumes of steel ships as compared to the same quarter last year as well as our favorable product mix helped us to maintain our strong pricing levels for the first quarter. Operating income increased 55% to $13.4 million compared to $8.6 million prior year.

This year's increased operating income resulted primarily from higher volumes, primarily due to the acquisition of AAA and lower cost of zinc. Operating margins increased to 27.9% compared to 25% as we have stated before. Increased volatility and future zinc prices could have an adverse effect on future revenues and earnings.

At this time I will cover some of our key cash flow and balance sheet items. For the three-month period cash provided by operations was a negative $1.9 million compared to a positive $7.7 million in the prior year. Our working capital needs have increased to $104 million at the end of our first quarter compared to $60 million at the end of February, due to our increased business levels. Our receivable days outstanding and inventory turns remains strong. Accounts receivable days outstanding were 46 days at the end of the first quarter compared to 49 at the end of our fiscal last year. Year-to-date capital improvements were made in the amount of $4.8 million, depreciation depreciation and amortization amounted to $3 million for the quarter. Our total outstanding debt at the end of the quarter was $100 million and that again was associated with our AAA acquisition.

At this time I'll return the conference call back over to David for closing comments and then we will open for our question-and-answer session.

We are extremely pleased with the results of our first quarter. The aggressive steps we have taken in seeking out marketing opportunities, improving our distribution channels, maintaining or improving our operating income levels, percentages, are all reflected in our improved operating results and has set another record in quarterly sales and earnings.

The signed agreement to acquire Blenkhorn and Sawle and St. Catherine's, Ontario is a result of our continued efforts to execute our stated strategy to seek out additional products which complement our existing product offerings to the Electrical and Industrial customers. The completed acquisition of AAA Galvanizing is a reflection of our stated strategy to expand geographic coverage for our Galvanizing Services segment.

The strength of our balance sheet has facilitated these actions and we believe can support further actions. Our products and services are well positioned to continue to benefit from a strong infrastructure rebuild and replacement market, which includes the aging distribution substation and the transmission grid.

A much-needed [expansionatory] spending in the petrochemical market and the strength of the power generation market has enhanced these gains. While we anticipate the current market demand will continue, the timing of projects and release of orders will always have an impact on the quarterly recognition of bookings, backlogs, revenues and earnings and will result in quarter-to-quarter fluctuations which may be greater than true changes in market demand, and our competitive position and our competitive successes.

Based upon the evaluation of information currently available to management, and accounting for the favorable 11-month impact of AAA Galvanizing acquisition and the [favorable] accretion anticipated from the eight months of Blenkhorn and Sawle acquisition, we're pleased to project an increase in our revenue and earnings guidance.

We are now projecting that fiscal '09 revenues will be between $410 million and $425 million and earnings per share will be between $2.95 and $3.05. We continue to build upon the success we have been able to achieve and continued to strive to enhance the performance of the Company. Our estimates assume that we will not have any significant delays in the delivery or timing and receipt of orders of our Electrical and Industrial products or there will not be any significant change in galvanizing demand prior to the fourth quarter of fiscal '09.

Again, thank you for your participation today and we would like to open it up for any questions you may have at this time.

(OPERATOR INSTRUCTIONS) Ned Borland with Next Generation.

Good morning, guys, and great quarter. Just a couple of questions here. On the guidance, what has shifted most favorably in terms of taking your guidance of roughly $0.60? Is it more optimism about perhaps some stability in the galvanizing market because it seems like that is the biggest delta here from the beginning of the year?

That would be the largest contributor, Ned, and as we said based upon the information provided to us from the customers of the strength of their business, our ability to date to hang on to price despite the change in zinc, I believe, gives us a pretty solid outlook for second and third quarter. As I indicated, our question now is to what will that impact if steel cost increases beyond demand? And then you have to factor in some factor for the seasonal impact of our northern operations, which we believe that what we have been forecasting will begin to show up in the fourth quarter. That's delayed from our previous guidance.

And then on, I guess, competitive factors here, given that zinc has fallen below $1.00 and that's sort of a level where you start to get some resistance from customers on price, I mean pricing only coming in 3%, that is sort of surprising. Are you seeing any other competitors reducing prices in line with that or even more than that or what are you seeing out there?

The published results of some of the public companies show them to be as high as 5.2%, but we believe that is pretty consistent. And we have not seen any widespread decreasing of price because of the demand on the galvanizing industry itself which is continuing to hold up that pricing level.

Okay and then on a demand side, are there a lot of large galvanizing projects that you are associated with or is there a specific end market out there, say petrochemical, that is really driving this tonnage volume?

Petrochemical is extremely strong and when we factor in all of the distribution of the customers on AAA, petrochem is now going to be 21% of our total projected volume. Now the Electrical and Telecommunications remains very strong and that's about 24% of our business; and then when we factor in the OEMs, which is a heavier piece of the AAA, that's going to be about [21]% and that is holding together very nicely. So we still think we've got about 29% of our total volume tied in the Industrial side and we think that is the first place we will see some weakness. Because those projects tend to be -- have to go out to rebid if steel increases pretty significantly, and that could impact the fourth quarter and that's incorporated into our guidance, Ned.

Okay and then switching over to the Electrical side of the business, you mentioned last call that there were roughly five international projects out there; and you kind of alluded to them in your comments. I'm just wondering what -- you said you were, last quarter you were confident about three of them. Has anything shifted there or are you more optimistic about some of those projects?

We are pretty optimistic on two of them. The one I'm going from 3 to 2 again on the timing issue, not because of loss of potential, but we think we have an opportunity to book two nice international orders yet in the first half of this year.

And then the remaining three or so, will that be maybe second half or maybe next fiscal year?

They could -- due to the size of a couple of them, it wouldn't surprise if they slid all the way to the next fiscal year.

Fair enough. That's all I had. Thank you.

Brent Thielman with D.A. Davidson.

Good morning. Congratulations on a great quarter. I guess my first question, I was a little surprised to see the electrical revenues up as much as they were. Was that just a function of pricing or volumes or any sort of color you can provide there?

Well if you recall what we talked about in the fourth quarter, we said that some of the lower projections they were not a reflection of the market. They were just timing differences that were going so we had some business that slid from the fourth quarter into the first quarter. And then we didn't have any significant slides from the first quarter to go into the second quarter.

So it is more of a timing and the shipment of the backlog and not really a reflection in the change in demand upon us.

Okay, great. Then on the Blenkhorn acquisition, I'm assuming you are going to be using the excess cash from the private placement. I mean is there any additional financing that you need to do here for that acquisition?

No, there is not. Funds are available from the $100 [million] private placement.

Got it. Okay. Any sense you could give on the margins and maybe the backlog profile of the business? I mean is the backlog sort of -- I mean you don't have to give me an exact number, but is it better or worse than a year ago? Sort of any sense there on what's going on with Blenkhorn?

Their backlog is greater than a year ago and their margins are improved from a year ago.

Okay and are they sort of similar are margins to your Electrical products business?

Yes, they are. They are very similar because the products match up very closely to our distribution substation products to our power distribution center and the motor control centers. But they meet all the Canadian standards. They are enjoying a very favorable market right now. So all of the factors are pointing toward that and very strong operating margins and a very strong backlog.

That's great. Then on the guidance, does that include any impact from some of these impending international orders that you could book?

The pending international orders are going to impact the first quarter shipments of next fiscal year.

Okay.

So it's more an issue of building our backlog for 2010 than it is impacting '09.

Okay. And I guess just last question here, as you await some of these impending electrical orders, are you seeing other types of projects flow in here that you are looking at to 2010 that look interesting beyond just the five that have sort of been discussed over the last couple of quarters?

Yes we are.

Okay. Sounds great. Well, congratulations again.

I appreciate it.

John Franzreb with Sidoti & Company.

Good morning, guys. Quick question. When I was looking at the Electrical margins you had a great quarter in earnings revenues, but the margins sequentially dropped from the previous quarter. Can you talk us through what happened there and why you had the weaker margins despite the strong sales?

It's just nothing more than mix within quarter to quarter. We are as I said in my statements we are still recovering our escalating costs in that. There was nothing of a surprise on any single order that shipped in that quarter. The margins came in exactly as anticipated.

So it was just a mix between products. A little heavier, quick turn stuff in the previous -- the year ago and there was in this, but no fundamental change in our cost price relationships at all.

Yes. I was not really referencing the year ago, I was referencing the February compared to May.

Right. And again the same applies to both. There's not been any fundamental structure changes. It's just literally the mix that went through.

Could you talk a little bit about the pricing environment out there? Has it stabilized? Is it firm? Can you talk a little bit about pricing in the electrical side of the business?

The pricing is up, but it's only up because of the impact of increased componentry. So I don't think the competitive conditions have improved nor have they worsened. I think they are pretty consistent with what they were in the prior quarter, but the actual product price has gone up for all of us simply because increased cost of copper, aluminum, steel and all of the components associated with it.

And Blenkhorn, when I looked at the Company's products it seems to me like they are very similar to what you do already. What do they bring to the table that you don't already have?

First of all, they are a local manufacturer and a major supplier to the Canadian market. All of their products carry the Canadian standards and specifications. They meet all the requirements of the local utilities and just give us a real foothold from being a local supplier to a very dynamic market.

So it's about --

We've talked about before, John, the products that these are are our most difficult to export because of their bulk and size. And we've said all along that if we are going to expand some of these great products into these international markets, we are going to have to do more local content because -- local production because they just don't lend themselves to a high level of export.

Got it. And then your earnings, the increase of your earnings forecast, how much of that represents contribution from Blenkhorn?

$0.05 from Blenkhorn, yes, it's up. In total accretion from both acquisitions will be $0.20 and we expect about approximately $0.15 from AAA and $0.05 from Blenkhorn. Of course the AAA was in the previous guidance and that is attributing a portion of the interest cost to that. So that's net of interest.

Great. Excellent. And one last question, you kind of raised the band of what you call the historic margins in the galvanizing. I mean 2004, 2005 was 18%, but you kind of raised it now to 18% to 22%. Are you essentially putting a floor now on your galvanizing expectations of 22%?

No. What I was attempting to say is what we consistently said for the last four or five years, John, is that if you take the last 10 years of operating force and you had to say what's a historical number, it's been in the range of 18% to 22%.

If I average out the last 10 years that's what I would get?

I'm saying if you take out the onetime gains associated with the zinc cost change we've talked about on and on and on, we believe that a historical measurement of this business -- not only from higher numbers, but from industry numbers -- that it is in true definition an 18% to 22% number.

As long as we are able to have the high demand that we do, the high volumes that we do, hang onto price, yes, it will exceed that historical number. But what I'm saying, trying to say is there's not been, we don't believe, a permanent structural change to the margin generation of this business.

Great. And just remind me, the -- I guess it's about 12% organic volume growth, what was the number one driver in galvanizing?

Well, I mean 70% of our change was due to AAA.

Right, ex that.

All right. Ex that it was very strong petrochem, very strong Electrical and Telecommunication and our OEM business has been outstanding.

Great, thanks a lot, David. Good luck. Keep going.

[Fred Wonocor] with CJS Securities.

Good morning and great quarter. Just wanted to touch base on the Blenkhorn acquisition again. Just to be clear, so margins on the acquisitions are higher than the current company if I caught that correctly? And also have you identified any synergies that could bring those margins even higher?

What I said is the margins have improved over prior periods for the current periods and they are very similar to the margins that were generated in the U.S. which is encouraging for us because we believe that is very sustainable.

The ability, the contribution that we might see is our ability to continue to grow the volume. As we've talked about before we think that maybe some leverage points there, but the synergies are going to be on our ability to provide a more complete product to the total market from the combination of U.S. supply [than] to Canadian supply. So we are more optimistic about ability to impact the topline than we are any synergistic impact on margins.

Got it and then on the galvanizing side. Have you been hedging natural gas or are you basically managing the rising cost of that gas in long-term contracts? How are you handling that?

Most we do six- to 12-month contracts.

Six to 12-month contracts.

About 50% of that, the part that isn't is just in the local area there. There is not a supplier which will offer you a contract. So the bulk of it is we are under six to 12-month supply (inaudible).

Very good and then not to beat the galvanizing margin range to death, but can you talk about that historic 18% to 22% range? And clearly the quarter was significantly higher than that. How should we think about -- you know how much higher it could stay throughout the year or --?

Our guidance assumes that the margins for this year will be between 23% and 24%. We anticipate them to be stronger than that, and then we will see the correction we think in the fourth quarter due to, what, a little lower volume so we lose a little bit of leverage there, a little more pricing pressure, if there is the demand decrease that we anticipate and zinc stays in that below $1.00 range which we anticipate that it is going to do. So, but for the total year on a blended rate, we think it is going to be 23% to 24% which is pretty close to what it was last year.

Very good. That's all I have. Thank you.

(OPERATOR INSTRUCTIONS). [Noah Steinberg] with Intrepid Capital.

Great quarter. Just wanted to ask another question on the galvanizing operating margin. I was under the impression that AAA was operating at a lower operating margin than your business, and seems that you are able still to grow the operating margin in the quarter. So wanted to know whether you were able to find synergies ahead of expected timelines and whether there's more to come in the coming quarters?

Again, yes. There's been some modest increases, but the bulk of the increase in the margin is due to our ongoing operations. We had anticipated more pricing pressure which we haven't seen. When we talked last time we expected AAA Galvanizing margins to be in the 14.5% to 15% range in the first few months. Yes it is averaging 16%, 16.5% or so, but we've still got a lot of work cut out for us to bring it up to on par for that, but we're, as I said before, very pleased with the progress to date and we still believe confidently in our ability to bring that up to historical -- traditional levels.

Great. Thank you.

J.D. Padgett with The Boston Company.

Very impressive results. Question is on the international orders you are pursuing. Could you remind us what end markets those are again?

They are in the power generation and the high-voltage transmission line, primarily into the Chinese market, the Middle Eastern market, the North -- the Canadian market, and to a lesser degree, in the South American market.

Okay, and those are something that you could manufacture and ship from plants domestically or do you need some strategy to have manufacturing partnerships or capabilities on the ground there?

We believe that we can continue on our power generation and on our high-voltage transmission products to continue to export those. As we mentioned earlier with the Blenkhorn and Sawle, we've always had difficulty in exporting our distribution products which that's facilitated, but we don't think right now that that will require any foreign-based manufacturing.

Okay, and just because of the reputation for quality, you are able to compete for those orders against indigenous suppliers that probably aren't as well regarded?

In most of those markets, they are not there are not indigenous suppliers for our products.

Okay. And the other question was with respect to the acquisitions that you've made recently, and maybe more so on the galvanizing side. Is there an appetite on your part to continue to pursue those or these -- the last one you made was just an opportunistic fit for you?

It was a very strategic targeted account. There are other opportunities which we have strategically targeted for galvanizing. There's other projects that we have strategically targeted for Electrical Industrial. We do not believe that we have exhausted our balance sheet powder in order to go after some, and we would enjoy the opportunity to expand both of those further.

And on the galvanizing side, when you make an acquisition is there room to take out some of the SG&A costs at the company that you acquire or is that stuff pretty much left alone?

We pretty much leave it alone and in fact, in some cases, we actually increase the estimate coverage because of our heavy emphasis on sales marketing and a little tighter financial controls. But our success has always been on adding more volume and then just sharing best practices from our existing location.

I guess the final question is, are there areas that you would like to broaden the E&I product portfolio into or acquisitions from here and more to bolt on in strength in what you already do?

I think it is just how do we participate more in the power generation, the transmission and distribution markets. Where we would like them all. As we stated, some require a little different strategy than the others as evidenced by our Canadian acquisition, but we are encouraged about the long-term outlook for all of those markets and want to find ways to --- as we've always said sell more to the existing products and the opportunity to expand the customer base to which we have the opportunity to sell the AZZ products. So we think it is a great time and we are encouraged about our commitment to those markets.

Would any of the acquisitions the designed to get a foothold with the manufacturing base internationally? Or you are happy with the configuration now?

As we've said before, the additional acquisitions related to distribution products would more than likely be the acquisition of a foreign-based company.

Okay. Thank you very much.

[Jim Schwartz] with [Harvey Partners].

Quick question, just curious if you could just go over wind exposure and where you guys see that going? Just alternative energy, in general, for you and where we are in wind right now?

We don't see anything that's lessening the desire to generate a 1-% to 20% of our energy long-term from renewable resources. There's a lot of issues related to that. [Nationally] we are dependent on tax credits at the current time and there's some restraints on some of the wind projects and the ability to get it into the grid and deliver it to the others, so we think there's going to be naturally growing pains and some starts and lumpiness initially.

But we are pretty optimistic and we like the market that is going on. Any time that we are developing more domestic sources for our long-term energy needs, it is encouraging for us. So I -- it's not anything that we believe is just going to be an escalating ramp that is just going to turn the industry upside down.

Now of you talk to a turbine manufacturer, they will tell you that is not the case. But I think as it settles down and it becomes more of an accepted part of the long-term source of power for us, I think it's a good news for AZZ. I think it's good news for the country and I think it's good news for our industry.

But specifically, [like you said], I mean is it a piece for backlog, is it something you guys are seeing some upside in orders from?

Yes and it's been a consistent thing for probably about the last 24 months that we've seen that. And it continues to be very encouraging, some of the -- the order stream has continued probably about the same pace probably increasing 5% to 10% a year. But the announced projects has built up exponentially. That's not converted into backlog yet, but we believe it will be.

Great. Thanks.

Brent Thielman with D.A. Davidson.

Sorry, just one more follow-up. On the recent quarter in some of the bookings that you had there in the domestic market, was that more on the Utility side or in the Industrial area, Oil and Gas area?

I'm sorry?. The increase in domestic backlog that we had in this?

Yes, the new bookings you had in the U.S.

It was spread very nicely between the two. It wasn't geared towards one or the other which was most encouraging to us, Brent, because it came across, nicely across utilities for distribution, transmission and generation and then, yes, there was a continued strength in the Oil and Gas side on the Industrial for our Electrical. So very balanced and real encouraging.

Thank you very much.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. I will now turn the call back over to Mr. David Dingus.

Thank you and thanks to each of you for participating today. It is a pleasure and we look forward to talking to you in three months. Have a great day and a great weekend.

Ladies and gentlemen, thank you for dialing in for today's conference call. You may now disconnect.