AZZ Inc (AZZ) 2010 Q1 法說會逐字稿

Hello, and welcome to AZZ Incorporated's first quarter 2010 financial results conference call. All participants will be in a listen-only mode for this event. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note, this event is being recorded. I would now like to turn the call over to Joe Dorame. Please go ahead.

Good morning. Thanks for joining us today to review the financial results for AZZ Incorporated for the first quarter of fiscal year 2010 ended May 31, 2009. Again, my name is Joe Dorame with Lytham Partners, and we are the financial relations consulting firm for AZZ Incorporated. 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'd like to remind everyone this conference call includes 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 hot dip galvanizing markets. Prices in raw material costs including zinc and natural gas which are used in the hot dip galvanizing process, changes in the economic conditions of the various markets the company serves, foreign and domestic, customer requested delays of shipments, acquisition opportunities, currency exchange rates, adequate financing and availability of experienced management employees to implement the Company's growth strategies. The company can give no assurance that 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, future events or otherwise. With that having been said, I'd 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 for the conference call for the first quarter of our fiscal 2010. The first quarter ended on May 31, 2009. Despite the economic in our served market conditions, the company is pleased to report another excellent quarter. For the first quarter, revenues were $95.5 million compared to $99.9 million in the same period last year. Net income was very strong at $9.9 million and down only 2 percentage points from the prior year. Earnings per share of $0.80, the backlog of $150.1 million is up 6% when compared to one year ago. While quotations and opportunities have improved over the fourth quarter level of fiscal 2009, incoming orders have been slower than desired due to increased customer deliberation on the release of new orders pertaining to projects that are already in process as well as those that are in the planning phase, particularly in the petrochemical and the general industrial markets. We continue to see increased competitive pricing pressures on our large international quotations, particularly in China, which has also had an adverse impact on our incoming order rate.

We are pleased that to date we've only seen isolated cases where customers have requested delays of changes in delivery or orders which are in our backlog. Additionally, any cancellations have been very minimal. Backlog at the end of the first quarter was $150.1 million compared to $174.8 million at the end of our fiscal quarter -- or the fourth quarter of our fiscal 2009 and $141.8 million at the end of the same period one year ago. Incoming orders for the total Company for the first quarter were $70.7 million while shipments for the total company totaled $95.5 million, resulting in a book to ship ratio of 74%. There were no significant international orders received in the first quarter of our fiscal 2010. Based upon current customer requested delivery dates and our production schedules, 91% of our backlog is expected to ship in the current fiscal year and of the backlog of $150.1 million, 39% is to be delivered outside of the US.

We still anticipate that our backlog will level out at the end of the second quarter and believe we have the opportunity to see modest increases in the last half of the fiscal year. Despite the improvement in quotation levels, we anticipate a further deterioration of our backlog in the second quarter of 10% to 15%. Competitive conditions in some of our international markets could improve, allowing us to secure additional business, which would offset the projected deterioration. Galvanizing demand in some of our served markets did soften further during the quarter, but the demand that is being driven by the infrastructure work related to electrical generation, transmission and distribution and renewable industry remained at a good demand level. Shipments for the first quarter did decrease 12%, but selling price decreased only 3% when compared to the prior year.

Operating margins for the electrical industrial segment were very strong in the first quarter, due to continued pricing discipline, improved product management, and pricing discipline, improved product management, and assisted by favorable cost of key commodities. Operating margins for the first quarter were 19% and compare favorably to the 15.3% in the first quarter of last year. Operating margins for the Galvanizing Services segment were very strong, with margins of 32% for the quarter compared to 28% in the prior year. Despite pricing pressures and lower demand, our strategies of maintenance and margins combined with lower commodity cost allowed us to maximize margins in these challenging market conditions. While we do not believe these margin levels are sustainable at this level going forward, we do believe that they will remain very strong. Zinc cost has increased over the past several weeks and without some price recovery, we may see an adverse impact on our margins in the fourth quarter of fiscal 2010. The impact of the decrease in the petrochemical demand has been greater than our expectations. However, increases in the electrical transmission and distribution and renewables energies has been stronger than we anticipated.

Competitive forces on pricing continue to be mixed with some deciding to maintain production levels regardless of price and others deciding to follow a more disciplined approach. For the most part, within our served territories, the industry has resisted massive price discounting, despite reduced demand. As a company, our accomplishments have continued as we double and redouble our efforts to better position the company for a market recovery and to continue to effectively and efficiently execute on the businesses that we do have. The strength of our balance sheet, our strong cash position combined with access to borrowing under our existing banking agreements should facilitate the execution of our business strategies. The completion of another excellent quarter, the financial strength of the company, the successful identification and assimilation of strategic acquisitions and a great group of employees is reflected in our strong operating results and the high confidence that we have in our future. We do believe that we are structured for sustainability and we again -- as we again navigate through challenging waters in this period of economic uncertainty and to continue to fully execute our strategies. Now, with that as an overview of our results, Dana will now give us a review of the operating results for the first quarter. Dana?

Thank you, David. I would also like to welcome open 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, 2009. For the first quarter, financial results remain strong as AZZ recorded revenues for the quarter of $95.5 million as compared to $99.9 million in the prior year. Net income for the quarter was $9.9 million, as compared to $10.1 million, resulting in earnings per share of $0.80 as compared to $0.82. Given the economic environment we are operating in, we are pleased with our first quarter results. Our book to ship ratio for the quarter was 74% as compared to 107 cents -- 107% for the corresponding period last year and we ended the quarter with a backlog of $150 million. Our backlog at the end of our fiscal year, again, was $174.8 million.

While our quotation activity levels have increased, we have not seen a corresponding increase in our incoming order rate. But we do anticipate the backlog will level off at the end of our second quarter of our current fiscal year and should start to show a modest improvement in the third and fourth quarters. Our interest expense associated -- increase was associated with our $100 million note placement that we put in place March 31, 2008 to facilitate our acquisitions during last fiscal year. Our electrical industrial segment generated 58% of our revenues for the year while our Galvanizing Services segment generated 42%. We anticipate that 62% of the revenues for fiscal 2010 full year will be generated from the Electrical and Industrial products business and 38% will be generated our Galvanizing segment. At this time, David will give us an overview of our Electrical and Industrial products segment.

Industrial and petrochemical demand for our power distribution motor control centers has slowed when compared to the third and the fourth quarter of fiscal 2009. The timing of new projects and release of orders related to energy infrastructure, rebuilds, expansion and upgrades remains an issue and is impacting incoming order rates. We believe that most of the projects will eventually go forward, but we're unable at this time to fully assess when these projects will be released. Low utilization levels of existing manufacturing capacity is also having an impact on new industrial orders. Demand for our metal clad outdoor switch gear products did see a continuation of good demand during the first quarter. While this has definitely reached a plateau, it does appear to be holding at current levels. Quotation and orders for our high voltage transmission bus deck products were again at strong levels and reflect strong international demand. However, as we have indicated to you before, pricing has become a major challenge on the very large, high profile orders, particularly those in China. Some of our competitors have opted to lower pricing to secure business and offset softness and downturn in some of their other geographic markets. Increased US infrastructure spending on the grid would provide additional opportunities for years subsequent to our fiscal 2010 and help offset reduced international orders, should pricing in these markets not recover.

The power generation market remains strong and while some schedules are shifting, overall we believe that the market is relatively stable. Domestic emphasis on renewables such as wind and solar energy and environmental upgrades should continue to positively impact our market opportunity. Our specialty lighting products, sales were down due to reduced petroleum and industrial demand and we do not anticipate any additional volume improvement until there is market recovery. Our product development efforts continue and we will continue to very positively position ourselves for market improvement. Our tubular products for the petroleum market is operating at reduced levels, primarily due to lower selling price of natural gas. We believe that they will remain at these levels until we see increased pricing in the oil and in particular, the natural gas market. Our Canadian operation assimilation is progressing. We still anticipate that the opportunity to jointly quote on our US operations on projects will increase. We continue our efforts to increase our participation in the Canadian utility market and seek pull-through opportunities for other AZZ products. Dana will now cover the operating results of this segment.

In our Electrical and Industrial products segment, we recorded revenues for the quarter of $55.4 million as compared to the prior year results of $52 million. Operating income was $10.5 million as compared to $7.9 million, and operating margins improved to 19% for the quarter compared to 15.3% in the prior year period. Our operating margins and profit improvements for the quarter are attributable to the leverage gained from our increased volumes as well as favorable commodity pricings. At this time, David will give us an overview of the Galvanizing segment.

Our strategy to provide a premium level of service and quality to our customers has continued and will continue as we resist downward pricing pressure. Revenue dollars will be impacted in future periods if market pricing is required to be adjusted further as a result of reduced demand. A significant portion of our business is reflective of the GDP as well as the infrastructure buildout. We are striving to maintain market share without sacrificing price, a strategy that worked well in the first quarter and we intend to follow in subsequent quarters. There remains concern over the impact of economic conditions. We do anticipate that we will see some additional bridge and highway work as a result of the stimulus package. And renewable energy projects which could provide some increased demand. Dana will now give us a review of the key operating statistics for this segment and cover the key balance sheet items for the corporation.

Revenues in our Galvanizing segment for the quarter were $40.1 million compared to $47.9 million recorded in our first quarter of fiscal 2009. First quarter revenues were negatively impacted by a reduction of volumes of steel produced in the amount of 12% and a reduction in our selling price in the amount of 3%. Operating income was $12.8 million compared to $13.4 million in the prior year, and our operating margins increased to 31.9% as compared to 27.9% in the prior year. This was a result of cost reductions implemented during the quarter as well as lower zinc cost. As we have indicated before, results for this segment have fallen closely, the condition of the industrial sector of the general economy and will continue to do so. At this time, I will cover some of our key cash flow and balance sheet items on a comparative basis.

For the three month period, cash provided by operations was $13.7 million, compared to a negative $1.9 million in the prior year. While our working capital increased for the period due to increased business levels, our receivable days outstanding and inventory turns remained good. Accounts receivable days outstanding were 52 days as compared to in our first quarter as compared to 51 days at the end of our last fiscal year. Capital improvements were made during the quarter in the amount of $3.7 million and depreciation and amortization amounted to $4.2 million. Our total outstanding bank debt, again, at the end of the quarter was $100 million and our cash balance stood at $57.7 million. At this time, I will turn the conference call back over to David for closing comments, and then we'll open for our question-and-answer session.

We are extremely pleased with the operating results of our first quarter. Our primary concern, as we have shared with you in the past and discussed previously is the incoming order rate and the potential impact this might have on the latter part of the current fiscal year as well as fiscal 2011. Our products and services are extremely well positioned to benefit from any market improvement and/or increased infrastructure emphasis spending and programs. Our lead times are shorter and should provide for more expeditious benefits of any improved market conditions. The timing of the projects and release of orders will always have an impact on the quarterly recognition of bookings, backlog, 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 successes. On April 3, 2009, the company issued projections for fiscal 2010 that revenues would be in the range of $395 million to $415 million and that fully diluted earnings per share would be in the range of $2.75 to $2.95. Based upon the evaluation of information currently available to management, we are revising our guidance for revenues to be in the range of $370 million to $390 million, and fully diluted earnings per share is projected to be in the range of $2.70 to $2.90. Achievement of these projections would be our twenty-third consecutive year of profitability and the second best year in the history of the company. Our estimates assume that we will not have any appreciable change in our current market conditions, competitive activity or significant delays in delivery or timing in the receipt of orders of our electrical industrial products and demand for our galvanizing services. Again, thank you for your participation today, and we would like to open it up for any questions you might have at this time.

We will now begin the question-and-answer session. (Operator Instructions). We will pause momentarily to assemble our roster. Our first question is from John Franzreb of Sidoti & Company. Please go ahead.

Good morning, David and Dana, how you doing?

Just fine, John, thank you.

David, you had a -- you talked a little bit about the pricing in the electrical business. On a geographic basis, I wonder if you could just expand upon that discussion and tell me what you're seeing.

Yes John, basically, we're pleased with the rational and the stability that we've seen in these markets. There's been pockets of some irrational behavior but in total, with the exception of China, we've been pleased. That market has seen more erratic pricing than any other market that we serve and has been very disruptive to our programs, but we again have not reacted to it in our hopes that it will return to some level -- more reasonable pricing levels. But in total our business in the Middle East, our business in the Canadian markets, our business in the US market, in the South American markets, we're really kind of pleased, considering the depth and reduction in demand that we've seen.

Is the pricing coming from the local competitors or other foreign competitors?

They're primarily, they're your large western European based competitors who do have a local presence in China, but the strategy is being driven by the European based parent company.

Okay. You mentioned that quotation activity's picking up. Can you identify which end markets on the electrical side of the business that quotation activity looks most appealing?

It's everywhere, John, except petrochemical and not much in industrial. So it's good in generation, it's good in transmission, it's good in distribution and then in particular, it's good -- it's picking back up in the renewable energy side. So the only one that we haven't seen an appreciable improvement in is the petrochemical market. We weren't expecting an increase in the industrial due to the overall utilization level's down. But that's been our slowest one to recover. But we've seen some nice quotation activity. Again, we're seeing budgetary activity as well as firm quote activity, but we're pleased with the trend, simply that there's a delay before we start seeing that as a result in an increased level of incoming orders, but in total, we're encouraged.

Okay. Good, good. Now, I gather the pricing that you're giving up in the galvanizing side is more a function of the volume than anything else. Two-part question here. Is the volumes in your geographies significantly different, or are you down uniformly here in the States? And secondly, given that zinc is north of $0.70 a pound compared to $0.50 a couple months ago, do you have or does the industry have an ability to increase pricing, given that the commodity cost has gone up?

Dealing with the first question, John, I think we saw more softness in our southern region petrochemical market than we had anticipated. So I think now with that -- it's still strong, but it was down a little bit more than we expected, and I think we're starting to see some more opportunities evolve in the northern region faster than we are in the southern region, so it's coming into balance. I think it was more of a timing, and we don't think overall we're going to see much of a difference in total, exclusive, as we've talked about before of those where we were -- one or two operations which were serving the automotive industry. We don't see that change. But it's leveling off and over the last six months, it's down pretty much equally.

Now, on the increased cost in zinc, naturally, that gives us additional leverage to resist more pricing pressure on us right now. At least we have a talking point. Demand ultimately drives it. But there's probably not much opportunity, John, in the near term, in the next six months. We think in the first and the second quarter of fiscal 2011, overall demand is going to come back up that we can start putting that pressure back on. But at the same time, if we came out of the first quarter at 31.9, we can absorb a little delay in that cost -- the increased cost of sales that's going to hit us in the fourth quarter and then really put the pressure on to recover it in the first and second quarter of next year.

Okay. Fair enough. Thanks a lot, David.

Thank you, John.

Our next question is from Ned Borland of Next Generation Equity Register. Please go ahead.

Good morning, David and Dana. I have a question here on the electrical and industrial backlog. Is your commentary surrounding the stability of the backlog in the second half, is that contingent on you winning some large international orders?

Well, some of our business and naturally -- like lighting and the tubular products, those operate on a month to month basis. But the required amount that we have to ship this fiscal year to meet our projections is significantly less than we normally forecast. I think it's -- if you did the calculations, you're going to see that we need to book and ship about 15% to 20% of our projected volume. Normally, we would be looking at having to book and ship about 25% of our guidance. So we have adjusted that number downward, Ned, because of the market conditions.

Okay. And then you commented about some softness in the energy related markets and electrical and industrial. At what level does oil or natural gas have to be in order for these guys to really start quoting again?

Ned, we heard 70 for months, all right, and then as we get exposed to that, nothing happens.

Right.

I wish I knew. It's just the level of cautiousness is greater than we expected. Traditionally, we see a completion of projects that are in motion. We're seeing lots of just putting a lot of things on hold, greater than we anticipated. And there's just no true signs that we're able to read in the tea leaves as saying when we thing it's going to turn. We thought it already would have, but it hasn't.

Okay. Fair enough.

That is factored into our guidance and factored into my comments on backlog that I just -- we don't see anything positive happening that tells us that we're -- we think we bottomed, but we haven't seen any sense of increase the way we have in generation transmission, distribution and renewables. So that's the lagging one for us, Ned and I really thought we'd see it by now, and we haven't.

Okay, and then --

And our assumption is we won't see it in this fiscal year.

Okay. And switching over to Galvanizing, following up on John 's question about zinc. Approximately, was your kettle cost in the quarter -- how is that relative to today's spot price of around $0.70?

It was still slightly above that, Ned, but it was down from the fourth and down from the third. Okay? So if you would say, all right, then the price that we're currently paying is still slightly below where you are in the first period, then all things equal, it's not a factor in the fourth period. Okay? So we think our opportunity is to use that increase in the zinc to resist further price decreases and if we can, then we'll be okay. Now, if it's going long enough and it keeps appreciating, which we think it will, and my comment was more geared towards that, I don't believe it's topped out from where it currently is, so in answering John's question, it was more that we anticipate a little more strength in the zinc cost market as we go through, which would then require price to offset.

Okay. I guess I was just sort of going off the assumption that you generally pass through zinc cost from a few quarters ago, maybe like six months ago and since zinc has appreciated, you're seeing lower zinc cost to you guys.

And that is a true statement in total, but it is still not below current market pricing. It's very close.

Okay. And then finally, on -- you had a pretty good cash generating quarter, $57 million, $57.7 million in cash on the balance sheet, what are your plans for that? Is there anything out there in the acquisition front that you're perhaps looking at?

Well, based upon current projections, Ned, we believe that that will grow to about $75 million by the end of the fiscal year. That's a little stronger than what we had previously said, simply because the electrical is not going to be as strong, so we're not going to be using as much in working capital. The corporate strategy remains our number one priority for the utilization of those funds, is expansion of our company through mergers and acquisitions. There's nothing at this point that is that close, but I can tell you our activity and searching has never been greater.

Okay. Thank you.

Thank you, Ned.

Our next question is from Fred Buonocore of CJS Securities. Please go ahead.

Good morning, David and Dana.

Good morning, Fred.

First question, related to the EIP revenues. If you take out the contribution from Blenkhorn and Sawle, if I'm not mistaken, it was actually down slightly organically; correct?

As compared to the prior year?

Yes.

I -- let me look for it real quick.

Okay.

No, it was up.

Oh, it was?

Very, very modestly. Got it, okay, great.

2%, Fred.

2%?

Yes.

Great. And then just kind of getting back to the expected declines in backlog as a result of the slowdown in orders. If we look at that, putting the orders in China where you're experiencing the competitive pressures from European competitors versus what's going on in the petrochemical industry, if you look at the trend in your backlog, would you say that it's very, very heavily weighted towards what's happening in China? Or is it kind of a combination of both factors?

It's a combination of both factors. It might be, and allow me to estimate here, Fred. It might be 60% China and 40% petrochem.

Okay. That's helpful.

It might be two-thirds. It's going to be right in that range.

Right, right. No, that's helpful. What I'm getting at is trying to get a sense for what needs to turn or what we need to look for to see the pace and degree of your backlog recovery if it's just a couple of really big projects in China or if it's just consistent improvement eventually in petrochemical, and what I'm trying to get at is how this flows through to fiscal year 2011, because if things go as you expect right now, all things being equal, how -- can you give us some sense for how this would translate into results for 2011, realizing that we just started your fiscal 2010?

Much of that answer, Fred, is so reliant on competitive behavior.

Right.

And I'm still not ready to roll over and play dead on this, and we're still trying to find out ways to improve our competitive positioning, but I think it's too early to read that. Some of the jobs that we lost were such high profile and so large that I need to monitor the more traditional level of orders in the China market before I just say the market pricing is destroyed and therefore, it's going to have a longer impact than we thought. Now, what our hope is, naturally, is that with the increases and the emphasis on the grid related to the wind energy, the continued emphasis on the upgrading of the grid, that we're going to start seeing a little more domestic demand than we had and I had hoped that that would be accretive to the process, instead of of substitutive of the China market. It might be. It's just too early to tell.

Right. So in other words, what the potential domestic opportunities could offset or more than offset what's happened in China, potentially?

Right, which I had hoped we had originally -- and if there is a recovery in China, then that's a growth thing rather than a substitute thing. So that's how we're kind of balancing it. But I still think the jury's out on the China market. I do hope that we can say six months from now that that was related to very large, very high profile jobs and overall behavior has improved and allowed us to get back in there, because we still believe that you should take -- only take orders that you make money on.

That makes sense. And then just one additional question, on the Galvanizing side, then, it sounds like, unless I'm kind of misinterpreting what I'm hearing, sounds like that's sort of stabilizing from a demand standpoint, that maybe the volume declines, if we think about it just on a sequential basis, have maybe gotten towards a bottom, assuming that industrial markets don't get worse? Would you say stabilization is the right way to think about that and maybe we can think about the galvanizing demand actually starting to improve within the next few quarters?

I think that's a very fair assumption, Fred. We describe it as we're bouncing along the bottom. Couple weeks, we'll see a little uptick and it will come back down, but we think -- now the mix, as I said, is a little bit different. Where it's coming from is a little bit different. But no, I think that would match our assumptions and match our thought process, is to say yes, we are bouncing along and so anything that does happen should be -- show some increases. We think it's more in the third quarter than the second quarter, but we're pleased with where we are.

Very good. Thank you very much.

Thank you, Fred.

(Operator Instructions). We will pause momentarily to assemble our roster. Our next question is from Brent Thielman of DA Davidson. Go ahead.

Thanks, good morning.

Good morning.

Just one last question from me and just kind of curious what you guys are seeing in the planning side and the power generation area, are you seeing more interest in gas-fired? Is it wind? How are you positioning yourself for that?

I think, Brent, that we're a little surprised by how strong the quotation and budgetary activity is in the solar market. That's coming on stronger than we had thought it was going to. We always have believed in it, but I think the timing is coming through. Wind seems to be getting its momentum back. It was impacted by the credit crunch and it was impacted by a number of consolidations going on in the industry, but in total, that's showing some life. And then of course, we still believe that nuclear will play a role for us in the more distant future. So basically -- and the domestic market, it's a replacement market, with the exception of the new renewables. Internationally, it's expansion or new generation capabilities. So it's a nice mix going forward. It's just not one factor, and that's very pleasing to us.

Okay. Thanks, guys, great quarter.

Thank you.

The next question is from John Emrich of Ironworks Capital. Please go ahead.

Thanks. A couple quick questions, I apologize if you covered them and I missed it already. The tax rate was higher than I was looking for. What should I model for the rest of the year or for the full year?

37.5%.

37.5?

Yes.

Next one is the SG&A level, obviously impacted by acquisitions. Is this the right -- it's probably not what you're hoping for on a percentage of sales basis because sales aren't coming through, but on a dollar basis, is this a level that makes sense also for the rest of the year?

It should trickle down as we go through the balance of the year.

Okay.

Little bit heavy in the first quarter.

Got you. And last question is in the press release, your comment about margins for the balance of the year above the historical level of 18% to 22%. That's for -- it's in the Galvanizing Services segment of the press release but you're talking about the entire company after SG&A and operating margin.

No, as we talked about before, John, if you do over a 10 year window in Galvanizing, that appears to be the range of 18 to 22. For the last four or five years, we've been operating above that, so we're saying that's going to continue. But I'm referencing the Galvanizing segment.

That's the Galv -- thank you very much.

Thank you.

(Operator Instructions). Our next question is from Fred Buonocore from CJS Securities. I'm sorry, sir, please go ahead.

Hello again. On the Galvanizing margin side, I'm not sure if you're putting out revised segment guidance, I'm not sure if you've got a presentation out there yet that shows changes to your guidance by segment as you sometimes do. But from the Galvanizing margin perspective, what would make it go down materially? Obviously, it's not something that could stay at 32% from what you're indicating, but what would make it go down, say, to even 25% over the next several quarters from the level where it is now? Thank you.

Right. Okay. As we talked about earlier, if the zinc cost would increase above what we're currently experiencing coming off of our P&L and you couldn't get any price recovery in the market, or if there were -- you could have a mix change within it, but more than likely, it's going to be demand will soften a little bit more, competitive behavior would change and then zinc costs would go even higher than at the 70 plus/minus $0.70 level that it's trading at now with no ability to increase pricing.

Got it. And just to clarify, because I know you did touch on this earlier, but what's the lag between where the spot price is and what winds up being in your costs when you're --

Six months.

Six months.

Six months.

Okay, great. That's very helpful. Okay, thanks very much for that.

And we will be putting -- Fred, we will be issuing the guidance margins for each segment and updating that from the previous one that's actually out there. It's actually out -- will be coming out today that will show that.

Oh, great, I'll look for that. Thank you very much.

Thank you, Fred.

(Operator Instructions). We show no further questions at this time. I would like to turn the conference back over to Mr. Dingus for any closing remarks.

Again, we appreciate your participation today and look forward to speaking to you at the end of the next quarter and I do believe that you will continue to hear from us our continuing message of how we are operating the company through these troubling economic times, and we definitely look forward to when we're talking about increasing business levels again. Thank you and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may disconnect.