AZZ Inc (AZZ) 2017 Q3 法說會逐字稿

Good morning and welcome to the AZZ Incorporated third quarter 2017 financial results conference call.

(Operator Instructions)

Please also note, today's event is being recorded. I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead.

Thank you. Good morning and thank you for joining us today to review the financial results of AZZ Inc for the third quarter of FY17 ended November 30, 2016.

As Rocco indicated, my name is Joe Dorame, I'm with Lytham Partners and we are the investor relations consulting firm for AZZ Inc. With us on the call representing the Company are Mr. Tom Ferguson, Chief Executive Officer, and Mr. Paul Fehlman, Chief Financial Officer.

At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the press release, you can retrieve it from the Company's website at AZZ.com or numerous other financial websites.

Before we begin with prepared remarks, I would like to remind everyone certain statements made by the Management team of AZZ during this conference call 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 AZZ with the United States Securities and Exchange Commission, including the annual report on Form 10-K for the fiscal year ended February 29, 2016.

Those risks and uncertainties include but are not limited to: changes in customer demand, a response to products and services offered by the Company including demand by the 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 political stability 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 and employees to implement the Company's growth strategies.

The Company can give no assurance that such forward-looking statements will prove to be correct. These statements are based on information as of the date hereof, and AZZ assumes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

With that said, let me turn the call over to Mr. Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thank you, Joe. Good morning to everybody, and welcome to our third quarter earnings call.

Results in Q3 were quite disappointing as we faced continued contraction in our markets due to the economic fallout of low oil patch activity, lower solar opportunities, and a low level of major refinery turnarounds. Despite these current challenges, AZZ is well positioned to benefit from improved market conditions as our energy and galvanizing businesses are important components in the development and upgrading of new infrastructure projects.

As we have previously discussed, a number of high-value high-organic growth initiatives have been undertaken. And while we are focused on keeping our corporate overhead structure as lean as possible, we made a conscience decision to continue these investments and increase the leadership necessary to accelerate their impact. While we were not overly surprised by the reduced volumes in Q2, we thought we were seeing some improvement as we entered Q3 from our core markets, but this did not transpire.

Our operating teams have proven very effective at managing their day-to-day business. They did recommend and initiated some important realignment actions during Q2 in the face of lower market opportunities. Although the revenue growth and margin improvement have not yet materialized, we expect measurable traction as we enter the new fiscal year.

Finally, the resources we expected to be freed up as part of the NLI divestiture were not since the transaction has not yet closed. As I look at what impacted the quarter beyond the weak market activity, NLI was about $2 million of operating income below our expectations for Q3. But most of this income just moved into Q4 or Q1 of FY18.

The NLI disruption on the team is hard to measure, but probably cost has another $1 million in expenses and delayed closing on three impending acquisitions. The issue from my perspective with closing is not due to any lack of willingness between the parties, but due to the uncertainty of the nuclear market in the United States. We remain committed to the organic growth initiatives in galvanizing and chose not to reduce expenses on these, in spite of the challenging market conditions.

I am pleased we are in the process of introducing a new product which would be manufactured in a repurposed galvanizing plant. AZZ's new GalvaBar is corrosion resistant galvanized rebar treated with a specialized zinc alloy that provides corrosion protection to prevent concrete failure.

With the added benefit of exceptional formability, GalvaBar can be bent or stretched after the galvanizing process is complete without cracking, peeling or flaking. We expect GalvaBar to provide significant greater value for customers, compared to the current competing products that lack many of GalvaBar's attributes. We are also repurposing another underutilized site to support growing demand for our new service offerings.

We have also formed a working partnership with Natina Products to produce Natina Steel, which is ideally suited for our galvanized products. Natina Steel is a surface treatment that chemically reacts with galvanizing to create a rustic brown finish that naturally blends into the surroundings. These activities amount to about $1 million per quarter in expenses, but these initiatives are critical to FY18 and beyond. We also made the decision to keep the Brazil WSI facility open in anticipation of activity at Petrobras in FY18.

Galvanizing was impacted by lower activity in the oil producing states of Oklahoma, Texas and Louisiana, continued weakness in solar, and still muted bridge and highway an industrial spending in many areas. The good news in the quarter was we did a good job of driving price realization as zinc costs increase, resulting in improved margins year over year. WSI was negatively impacted by lower than expected major refinery turnarounds, with projects being deferred to the spring season.

While we had about the same number of projects as last year for WSI, the projects were smaller emergent work jobs that did not result in much incremental work once we were on site. It was just patch and repair type jobs for the most part.

These deferred maintenance projects will have to be done some time in the near future. While we did have some nice projects in nuclear, and completed our first water jet peening project, overall activity was still muted versus prior year.

The electrical platform for the most part had a good quarter, led by our enclosure business which had the benefit of the acquired PEI business. But this was offset by continued weakness in our oil patch related businesses of tubing and lighting.

By the way, the PEI business has been an outstanding addition and is performing very well and brought some great talent into our organization as well. It has offset the impact of low oil patch activity within electrical. We did have a very good bookings quarter in electrical, primarily international projects and high voltage bus which provides us a solid backlog as we enter the next fiscal year. I believe we could have done a better job of forecasting the market activity going into the third quarter.

Naturally, we do a better job on the energy side since we have project based backlog, but struggle more under on the galvanizing side that has no backlog. We have implemented salesforce.com to help us with customer relations, opportunity in management and forecasting, and expect to do a better job of using this tool to drive the discipline around market activity forecasting. The corrective actions we have already initiated based on the issues we faced in Q3 are as follows. We expanded the energy marketing role to include galvanizing and immediately ramp up our market activity indicators and process. Implemented a formal key initiative review process to ensure these activities get the same focus as the day-to-day operations, reduced the number of initiatives to those that are mission critical to our growth in FY18. We brought in some outside help to drive operational improvement across the businesses with greater accountability and effectiveness.

I've personally engaged more deeply in the NLI divestiture process to drive its resolution one way or another, and we've repurposed resources to pursue the acquisitions more aggressively. While it is too early for these actions to have much impact on the balance of this fiscal year, I am intent on setting us up for a significantly improved performance in FY18. We have great people and very dedicated and experienced leaders within AZZ to implement and execute these strategic initiatives. I'm committed to ensuring that that happens.

While we are not renewing guidance due to the ongoing uncertainty around NLI, I do not see any significant opportunities to measurably improve our operating results in Q4 compared to the prior fourth quarter. And with that, I'm going to turn it over to Paul.

Thanks, Tom.

For the third quarter of FY17, we reported net sales of $227.5 million, a decrease of $15 million or 6.2% below the third quarter of FY16. Net income for the third quarter of FY17 was $18.3 million, a decrease of $5.3 million or 22.5% compared to the third quarter of the prior year. Reported EPS fell to $0.70 per diluted share compared to the third quarter of FY16 EPS of $0.91 per diluted share.

Our backlog finished at $347.3 million, which was up 7.1% versus the third quarter of last year, and our book-to-bill ratio for the third quarter of FY17 was 0.98 compared to 0.94 in the third quarter last year. Gross margins fell to 23.7% from 25.8% in the third quarter year over year, as the sales mix shifted a few percentage points in favor of energy and away from galvanizing.

SG&A, which fell by nearly $1 million year over year, finished at 11.0% of sales compared to 10.7% for the third quarter last year. The result was a reported third quarter operating margin of 12.7% compared to 15% in the third quarter of FY16.

Our effective tax rate of 29.7% for the third quarter was up compared to the rate from the third quarter last year of 28% as we were able to recognize certain favorable state tax benefits in the prior year that were not available to us this year. Year-to-date cash flow from operations was $57.3 million compared to $104.2 million at the end of the third quarter of the prior year, mainly on increases in primary working capital year over year.

As for our third-quarter segment results, third-quarter revenues in our energy segment were down 0.3% to $135.6 million compared to third quarter of the prior year, while operating income fell 18.1% to $15.4 million compared to the prior third year quarter. Operating margins in the segment fell from 13.9% in the third quarter last year to 11.4% in the third quarter of the current year, as our market mix shifted to lower margin businesses within energy for the period.

In our galvanizing segment, third-quarter revenues fell 13.7% to $91.9 million compared to the third quarter last year. Operating income fell to $21.3 million, but operating margins rose to 23.2% compared to 22.8% in the prior year.

As we discussed in the prior quarterly call, we have now executed on a modest share repurchase for the quarter of 100,000 shares at an average price of $52.82 per share. The purpose of the program, once again, is to counteract the dilutive effects of share compensation and employee share purchase programs.

With that, I'll turn it back to Tom for concluding remarks. Tom?

Thanks, Paul.

To summarize, I believe we have the capability within AZZ to perform better as we execute on our strategic initiatives, positioning us as a leader in infrastructure protection. We have been focused on a lot of great things in terms of organization development, training, improving our talent and bench, and setting ourselves up to grow.

We have some great growth initiatives underway, and are committed to driving them faster and more effectively to generate significant top and bottom line growth in FY18. While FY17 is a challenging year, primarily due to weak market conditions, we believe we have taken the steps necessary to address these shortfalls and will see the positive impact in FY18.

We also anticipate a much better turnaround activity level in the spring season, improved markets for galvanizing by the second half of FY18 if not sooner, since we are finally seeing significantly higher levels of petrochemical project activity being moved forward. And we will benefit from an improving mood among industrial manufacturing companies.

More importantly, we are not leaving FY18 to the vagaries of market activity, so our focusing on margin improvement and accelerated M&A activities. Additionally, if new infrastructure initiatives are undertaken by the incoming presidential administration and congress, our energy and galvanizing businesses should be positively impacted. We know that these projects, should they be greenlighted, will take some time to commence, but when they do we will be ready to play an important role to move these projects forward.

We feel fortunate that we generate strong cash flows, do not have any broken businesses, only a couple that are not achieving optimal performance against the backdrop of weaker markets. We are working towards issuing guidance for FY18 within a few weeks, we'll update our FY17 full-year outlook at that time. We also hope to announce resolution of NLI one way or another by the end of this fiscal year.

Thank you, and now we'll open it up to questions.

Thank you.

(Operator Instructions)

Today's first question comes from John Franzreb of Sidoti & Company.

Good morning, Tom and Paul. Tom, your last comments about a much better spring turnaround season. Could you just put that in framework? Is that relative to recent results, or would you think be better on a year-over-year basis and inclusive or exclusive of NLI on both fronts?

Yes, I think for the most part, NLI isn't dependent on the nuclear outages. They are more just pure maintenance type spend. So outages help them a little bit, but they really aren't as dependent as say WSI.

And what I'm talking about is I think that it should be positive year over year. It will definitely be positive versus the third quarter with what we see pushed into the spring -- mostly the spring turnaround cycle.

In terms of nuclear outages, I think we're seeing some activity and I think that will be roughly similar to what we saw this year. So I'm really looking for the refinery turnarounds to be significantly improved, and we're hearing that from a lot of different sources. To the level of I think some of the refineries are worried about whether they are going to have enough people to be able to do the work, because we are also concurrently seeing that petrochemical project activity finally start to take off.

So would there be any concerns about a more difficult price environment ahead or do you expect pretty much being through the pricing trough of some of the jobs you've worked for?

I guess it depends on which segment of the business you're talking about. On the WSI and NLI business, it's not so much pricing environment it's just really been, for WSI particularly, just volume. And then they didn't have any of the really big international jobs which are usually very attractive to us from a margin perspective.

So the pricing environment for WSI from my perspective is fine. The pricing on NLI stuff I think has been fine. While the nuclear industry is really trying to ratchet down their costs, for the most part what we're providing, we had already seen those price levels deteriorate probably 18 months ago and they have stabilized.

In terms of galvanizing, as zinc costs are starting -- have started back up, we've actually had price realization. And part of that's because of the low project activity, low big project activity. But generally, we're seeing, not that it's not competitive because it is, but I think we're very, our folks in galvanizing, are very focused on continuing to drive on value and provide high levels of service so that they can maintain their price premiums.

Okay, yes. My question is really just on the energy side of the segment, but since you mentioned galvanizing just one more question. On a year-over-year basis, galvanizing is down an awful lot. You called out the West Texas and Oklahoma regions as being particularly weak, it's also down on a sequential basis.

I wonder if the problems in the oil and gas market or the solar, has that spread to other regions to you? Can you talk to why it's down so much year over year and sequentially?

Yes, I think we saw it has spread to -- it's within those regions and keep in mind we've got a lot of concentration of facilities in Texas or North Texas by the way has been fine. The economy is fine. So it's South and West Texas. It's Louisiana, along the Gulf Coast, and Oklahoma, I think that it has impacted us some as you go over to Mississippi.

So that spread a little bit. But more importantly, it's spread to other sectors of the economy in terms of industrial and non-res construction. So we're just not seeing that activity, and a lot of the bridge and highway spend in those areas is of winding down as well.

And then solar has been a big impact. That's been a very nice piece of business for us in several of our sites, and that's really slumped. And part of that's going to depend on even though they have subsidies approved, I think they're looking forward in the next year they have to decide how does solar, how does wind fit into the overall power generation schemes.

So I'd say solar has had a -- and that's why I continue to reference that. Because it affects more than just our western facilities because there was solar production and fabrication work being done in the Midwest as well. So it's affected several of our facilities.

Got it, thanks. I'll get back into queue. That was very helpful.

Our next question comes from Jon Braatz of Kansas City Capital.

Good morning Tom, Paul.

Morning.

Can you add a little bit of color to the new galvanizing product? If I'm not mistaken, most rebar is already galvanized. And I'm curious as to really what sets it apart and what the market opportunity might be for this -- for the new rebar product.

I've got Tim Pendley, our COO of Galvanizing sitting here and I'm just going to let him answer that.

Yes, no problem. Just on hot dip galvanized rebar, the advantage that we have with the GalvaBar is its formability. Current traditional systems do not allow for or permit the bar to be bent or processed in any way after galvanizing. And this typically creates a problem in the field by doing just straight bar that then can be bent and fabricated after galvanizing, really opens up the opportunity for growth in that market.

Okay. Any way you can quantify what that opportunity might be?

Yes, I'm going to be cautious just because I know we probably have some competitors sitting on the line. I'll just say it's significant and would involve -- we've got one site ramping up. We would anticipate needing several sites dedicated to this process as the activity grows, so of course we can talk more about it once we get the first one up and running in March.

So that facility will be solely dedicated to the rebar galvanizing?

Yes it will, and we would see that normally as we repurpose sites we did repurpose it or we're in the process of repurposing another site but that's for a different process. The other comment and I'm not sure it was mentioned, but right now the majority of where they have high corrosion problems on bridges and highways for rebar they are using epoxy coated and that's a bit more problematic.

So the majority of rebar is not treated to any extent at all, but we're really after the portion that's currently epoxy coated. And we can envision multiple scenarios in this case because it could be just purely continuous galvanized rebar, it could be continuous galvanized rebar with epoxy coating over it. There's a number of different scenarios and we see ourselves working with -- working pretty significantly in this industry as we go forward.

Okay. Is this process more expensive than the Epoxy coating?

No, it's not. It's very competitive, and should offer better benefits. Significantly better benefits.

Okay.

As Tim alluded.

Okay, and then one last question Tom. Given the -- it seems like there's a little bit of uncertainty that has crept into the NLI transaction. If you were handicapping it, would you say you're less certain that it might be completed today than two months ago?

And you mentioned it was more of a concern about the future of the nuclear industry. Did I understand that correctly?

You did, and I'm going to resist the temptation to handicap it just because I think we're in the final stages, and within a few weeks we'll resolve it one way or another and announce it as quickly as we can. But I think there's -- you can read in the news, there's the two new plants that are starting up, there's no new ones on the horizon.

It's hard to know how nuclear is going to play, and just like with solar how is it going to play as the new administration comes in and is it going to more clean coal and natural gas going forward? Is it going to continue to be a lot of renewables, and where is nuclear going to play in that?

So I just look at it, it's a complex situation. As I noted, I think both parties would like to get the deal done. It's not a lack of desire, it's just a tough time in the market and it creates complexities in the transaction.

Okay, thank you, Tom.

Our next question comes from Noelle Dilts of Stifel.

Morning, Noelle.

Oh, hello, good morning, thanks. Yes my first question, I just wanted to better understand the back half 2018 improvement you're looking for in galvanizing. To what extent is that dependent on just petro chem project activity improving maybe more industrial activity versus some of these Trump related infrastructure projects coming through?

I'm actually not counting on -- Tim Pendley is sitting here and he's nodding along with me. But I'm not, I'm counting on these new initiatives taking off and that we're going to get the growth in the second half as those ramp up. And if the markets do improve, that will give us some tailwinds.

So to me this is much more self help. Let's not -- if the markets are the way they are in the latter half of this year or have been, that's just fine with me as long as our new initiatives take off. I'm looking for growth.

Okay. And then shifting over to energy, you're expecting a stronger spring turnaround season. I guess what I would -- I would respond to that by saying, seeing this continued deferral of work we've been dealing with this for awhile now throughout the industry. My question is really what do you think is changing as we move into calendar 2017, do you think there's something fundamental that's changing refiners behavior or is it simply a timing issue?

Yes, I think there's a couple of things. And I think one, they've been deferring for a long time. We saw a lot of patch it type of work.

When you start as we did in the third quarter, there was the same number of projects as we normally have. The issue was there were many emergencies, many patch it, fix it, keep the refinery online or keep it safe. So that's an early signal that says okay, now they got to start doing the planned major turnarounds, because they are having to do too much patching and fly.

So to me that's the first indicator. Because the activity level was high, but not large.

So second thing is our bidding activity is very high as well, and so we're bidding a lot of jobs and they tend to be larger in scope than what we had seen coming into the quarter. And I do think now because they've deferred maintenance for so long, when you do get into the full turnarounds, we're going to see more incremental work as once we're on site with large crews. That's what's giving me confidence as we go into the next season, and like I said we're bidding more jobs and we're bidding larger jobs.

Okay. And then my last question, I may try and squeeze another one on. But my last question is, when you -- think you mentioned that the delay in the NLI closure disrupted three deals that you were looking at. So I guess my first question is one, can you give us a sense as to whether those deals were on the galvanizing side or the energy side?

And then I look at your balance sheet and you aren't overly extended, it looks like you still have room to make acquisitions. You're at 1.6 times trailing 12-month EBITDA I think on a net debt basis. What would prevent you from maybe moving forward with those deals even if NLI is a bit delayed?

A couple of things. One, all three of them are galvanizing related. They aren't all exactly galvanizing, but they're related to the services we've talked about wanting to get into.

Our holdup has not been related to the balance sheet or cash or anything else. Its been related to the very -- we have a very small group of resources that focus on business development of these things. We don't chase processes for the most part, we do relationship deals/

And those relationships are with the people that are doing the business development for us. So those resources have just not been freed to go close these deals, which is quite often going and spending time with the owners of these businesses until we can arrive at a final agreement and move forward.

And that's been the impact. We've now, I won't say we've repurposed the resources we just said we'll continue working on this from a on the NLI deal from a how do we get everything done, but let's go focus on these other deals. But the balance sheet is absolutely fine, Paul can comment on that.

The balance sheet is fine, Noelle, and we do have dry powder there. And you know how the agreement works in general that we do get to use the EBITDA we pick up, so that's not been a limiting factor.

Okay, thanks.

(Operator Instructions)

Today's next question comes from Andrew Storm of Cortina.

Hey, guys. So I'm curious, can you just help me think through the lag time on the economy and how it flows through to you? We're seeing rig counts starting to pick up again, we're seeing the ISM surveys for industrial demand positive for base the first time since 2007, but conversely, galvanizing sales look to be about as bad as they've been in the year-over-year decline since the 2008/2009 downturn. So how long does that take to flow through?

On the galvanizing side, it's going to take a while. From -- just because, it took a while for the impact on the economy to flow in and turn down. It will take a while for it to ramp back up.

And all they are doing right now is using rigs that were stacked, so it's not like there's any new rig construction or anything like that which would help our lighting business and help our tubing business. So those we don't see much turnaround there, they're going to have to go -- they've got some initiatives underway on the tubing and lighting side to go drive their own growth.

But on the galvanizing side, that's why -- it's normally an 8 to 12 month cycle before you see that. Which, once again, is why we're saying it's the latter half of next year, because we're seeing those same signs. So that activity will start to flow through, but not until the latter half of this next fiscal year.

So when we came out of 2008/2009, just looking at your sales, you weren't negative for that long and then you rocketed out. And I don't think it's any one market rider, was there one thing that really did it?

Yes, I think it was solar took off and that's nice work for us, and that was probably the biggest piece. You had zinc going up, so you had price realization and you had a, not necessarily a culmination of multiple things, but it was primarily solar and zinc.

And once again, it's why we do think this next time we anticipate growth as we go into next year. We're going to ensure that growth by making sure we have got some additional services to leverage across our asset base.

Okay. Is there short cycle work that could pick up and make a meaningful impact? If we just saw general more construction HVAC, all that stuff starting to improve, does that flow through pretty quick?

It does. It flows through very quick. So once again, this mood of -- this improved mood among industrial manufacturing, non-res construction type activities is good news for us. We feel it, it's just now we're into a new budget year and folks will start spending.

They weren't spending at the end of last year, because they either didn't have the money in their budget or they had been planning on a different outcome in the election. So some of that, we anticipate we'll see it pretty quickly as we get into the new year.

Got it. So we could see a pretty fast recovery on general business if things start to improve, and then the big ticket things we talked about, that's the upside down a year from now, six months, nine months?

That's right.

Okay, got it. (Multiple speakers)

And our next question comes from Bill Baldwin of Baldwin Anthony Securities.

Okay, thank you. Good morning.

Hey, Bill.

Couple items. Good morning, good to hear you guys talk about your business here.

Thank you, Bill.

On the initiative front, we've talked about initiatives in the galvanizing area. Are there any other initiatives in other sectors that are part of your growth initiative program that you could offer any color or insight on?

Yes, absolutely. I think we've announced and initiated a joint venture for on the electrical side in Saudi Arabia. We are working on a -- we've got to support the large orders we've booked over in China. So we're looking at expanding some operational capability, manufacturing capability in China either through joint venture or partnering.

On the WSI side, we are looking at actively growing internationally and teeing up more opportunities internationally because they do tend to be so attractive. And many cases, it's the same customers as the Shells. It's the Exxons, it's the BPs and Chevrons.

So yes, we've got continued expansion initiatives on that side which doesn't take a lot of capital which is why we usually don't talk about them a whole lot. And then on -- I'm trying to think of anything else. That's really it. It's organic growth.

Anything in the legacy E&I area, the high-voltage bus, medium growth bus?

Absolutely. We've got new -- I'm not going to -- we've got new initiatives for each one, and high-voltage bus is where we form the joint ventures and we've booked a lot of business in China and the Middle East. So we continue to feel good about that business, we've just got to do a better job of supporting it operationally locally.

And medium-voltage bus has their service opportunities that they are pursuing, they've done well with some of the nuclear service opportunities. They're continuing to expand on those and drive growth through that.

On the enclosure and switch gear side, they've got new initiatives, pursuing new markets. And I'm not going to mention them because we just don't want to tell the competition where we're going with that right now. But we've got some nice growth initiatives underway with not so much new technology but call it new applications of the existing technology.

With your joint venture agreement that you announced over in Saudi Arabia, when do you expect that to be up and running with local manufacturing content and this type of thing?

I think we're really targeting toward the latter part of this year, this calendar year, to be fully up and running. As with a lot of things and internationally they can move a little bit slower than we would like. But we feel good about getting it up and running and in production towards the latter part of this calendar year.

Are you pursuing other joint venture agreements in the Middle East other than Saudi Arabia, Tom?

We are on the medium-voltage bus side still looking to figure out how to do something there. We've tried with a couple of different partners and it hasn't worked out and we're being cautious.

So but we are still looking to -- because that's another big market for medium-voltage bus. They've had a lot of nice orders over there over the last few years, and we want to be able to support that locally. On the other hand, we want to make sure it's the good -- that it's the right long-term partner.

Has the strong dollar impacted your ability to export some of those medium-growth -- medium-voltage high-voltage products? Is that affecting (multiple speakers) do you think?

It has -- it really hasn't at this point. We haven't seen much impact. On the other hand, the orders we won in China recently, some of the big things that we'll be able to announce once we put some formal announcements out and tell you who it was. But we had some really nice large orders and some still pending, and so far we've not seen any fall out from the stronger dollar versus the yuan for instance.

Interesting.

But it is why we have to localize, because we have to be able to produce some of this equipment in local currency to stay competitive.

Right. I think the last time we talked about capacity, I think you indicated your medium-voltage plant capacity is pretty well utilized. Is that being expanded or are we still running up pretty tight there?

Its loosened up a little bit, they are still relatively full. They just did a little bit of reorganizing, mostly in project management engineering side to try to be able to develop more capability, more throughput.

So it's more (inaudible) debottlenecking, ops improvement. We've made some small investments in a little bit more cranage and floor space and stuff like that to reposition some stuff. So they have actually got a little bit more capacity, and we'll look to fill that as we get into next year. And the closure business -- (multiple speakers).

So a little room for growth there then? That's good.

There is. We've probably freed up 10%, 12% of capacity to be able to take on more.

Super. Okay, well best of luck and thanks for your time.

Thanks, Bill.

Our next question is a follow-up from Noelle Dilts of Stifel.

Thanks. Hello, again. Just given the upcoming change in the administration, can you give us some thoughts on if we do see a major Trump infrastructure build move forward where you think you might have exposure there? And any other thoughts you might have on proposed deregulation and these impacts would be interesting.

Yes, I'll let Paul talk to the tax situation. But I think as I mentioned, what we've sensed from our sales folks is that there's a better mood among some of our galvanizing customers just in terms of how they are looking at capital spend going forward. Unfortunately, I think some of them got into the budget cycle for already into this calendar year, and so we may not see a whole lot of impact until late this year or even as we get into the next into 2018 calendar.

What I anticipate is just bridge and highway would be the best place for us to get benefit. Partly because of our existing galvanizing business, but especially the new products and services in the continuous galvanized rebar. We would really look forward to some nice highway spend helping us there.

Because normally, bridge and highway isn't that large a piece of our galvanizing business. But with this new product, we think it's going to be a much more significant piece.

And then on the energy side, I think we'd just like to see some clarity. I think as there's clarity in terms of what kind of power generation sources are going to be preferred going forward. I think we'll see some movement.

The good news for us right now is there's a lot of sub station upgrades and opportunities out there that are helping us on our electrical side as well as to some extent a little bit on the galvanizing side. And we see that continuing for the next four or five years, regardless of what the administration does. So for me it's just clarity, I think a lot of our large customers are looking for some clarity and then they will make some decisions.

Noelle, it's Paul. We're -- what was your -- where were you going specifically with the tax question?

Just if you have any comment on if we do see a lower corporate tax rate, I guess what are your expectations, your thoughts? Do you have any expectations here on what we might see or just how you're thinking about potentially the benefit there?

Sure, okay. Again, I'm going to follow up with what Tom said on clarity which is there seems to be a lot of rhetoric in the market right now. Of course not to be captain obvious, but we would applaud anything that would support US manufacturers especially US exporters like ourselves where we do a lot of the work here.

And we're keeping a very close eye on his commentary on other things like cross border tax, border tax. But I think you and most of our analysts have a pretty good handle on our cost flows where the -- a lot of the stuff that we put into these projects comes from. So I'd say most of our stuff is export, and we aren't importing nearly as much as we're exporting.

Okay, thank you.

Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Tom Ferguson for any closing remarks.

I think we've said a lot on the call and the questions were good, so I'm going to keep this very short. I'm very -- I think we'll continue to finish out this year. We've only got a few weeks left in this fiscal year.

All our businesses are focused on finishing as strongly as they can. But as you can probably tell from my comments, we are far more focused now on FY18, getting started well in the first quarter of FY18. And turning that into a very good, not only comparative year, but a very good year that we can be really proud of as we move forward.

And we've got a lot of things going on, I know I say that a lot. We've trimmed back a little bit, but our focus now is on the major growth initiatives but also on those ops improvement initiatives and driving best practices and starting to get that margin benefit with a lot better predictability than we've been able to so far.

So I'm feeling very optimistic as we get prepared to go into our next fiscal year. And with that, I'll thank everybody for your attention and look forward to talking to you on the next earnings call.

Thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.