Barrick Mining Corp (B) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2010 Barnes Group earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Brian Koppy. Please proceed, sir.

Good morning, and thank you for joining Barnes Group's first quarter 2010 earnings call and webcast. This is Brian Koppy, Director of Investor Relations and Communications for Barnes Group and with me this morning are Barnes Group's President and CEO, Greg Milzcik, and Senior Vice President of Finance and Chief Financial Officer Chris Stephens.

I want to remind everyone that certain statements we make on today's call, both during the opening remarks and during the question and answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the financial statements.

Please consider these risks and uncertainties that are described in our periodic filings with the Securities and Exchange Commission, and are available through the Investor Relations section of our corporate website at www.BGINC.com.

We will begin today's call with brief opening statements by Greg, then Chris will provide some financial details and then we will open the call up to answer your questions. Now, let me turn the call over to Greg.

Thank you, and good morning. Today Barnes Group released its first quarter 2010 earnings results, posting positive trends and reflecting our significant push to move the Company forward as market conditions stabilize. Having passed through the most challenging economic climate in recent history, we are now seeing encouraging signs of stabilization and growth in our served markets.

Driven by a continued focus on profitable sales growth and improvements in operational efficiencies we are starting to realize anticipated gains in market share and an overall increase in financial performance.

For the quarter we generated net income of $11.8 million or $0.21 per diluted share with sales totaling $278.1 million. This reflects a sales increase of 6% over the first quarter of 2009. Sequentially quarterly sales were up nearly 9%, reporting the growth in sales was continued improvement in our orders rate. Orders were up 25% overall compared to the prior year.

As we enter 2010, we shifted the primary focus of the Company from driving down costs to increasing sales growth. Our business model is now performing as we anticipated. We are expanding our manufacturing, operating margins and realizing benefits from the significant actions and investments in sales growth opportunities we made last year.

Throughout 2010, we will remain focused on plan execution and capitalizing on opportunities we see in the marketplace. Key to continuing our momentum is remaining diligent on our 2010 priorities, profitable sales growth and continued deployment of lean throughout Barnes Group.

Driving profitable sales growth involves continuing our investments in our sales personnel as well as expansion into key geographies and vertical markets, identifying those platforms that leverage our competitive differentiators and maximizing our infrastructure through the creation of centers of excellence and improving our customer focused processes such as turn around time, supply chain management, and the productivity of our sales force through technology.

While economic recovery is still in the early stages, our focus on profitable sales growth and our aligned lean activities will allow the organization to accelerate forward and enjoy success in the marketplace in the months to come. Now let me discuss our two business segments and the view of their end markets.

For Logistics and Manufacturing Services, results continued to be heavily impacted by the aerospace after market business. After market aerospace activities continue to be adversely affected by ongoing deferred maintenance and lower aircraft utilization. Though recent economic data suggests the passenger traffic is increasing, it has yet to recover to pre downturn levels and, more importantly, has yet to translate into additional repair or spare parts orders.

We are closely monitoring inputs from the original equipment manufacturers, the overhaul shops, and the airlines themselves for signs of activity, but maintenance remains depressed. In no instance have we lost a customer or a contract or lost any type of product line. Simply put, the business activity is not at the levels we have handled in the past.

Regardless, we continue to maintain capacity for an expected 20% to 30% growth in this market. Unfortunately this adds pressure to our cost structure, but the long-term benefits outweigh the short-term costs as it is important for us to maintain our market leading positions and the confidence our customers have placed in us that we will be able to deliver when demand picks up.

We strongly believe in the favorable long-term is prospects of our after market aerospace business and remain confident that the ongoing deferred maintenance along with limited scope repairs and engine canibalization will come to an end. Even though the timing may be difficult to forecast, we believe the upturn in demand will happen at some point in the second half of this year if not early 2011.

For our distribution business, we are seeing signs of renewed activity. Revenues and orders picked up markedly from the fourth quarter to the first quarter of this year. However, we continue to believe customers are actively managing costs and maintaining minimum levels of inventory as they remain cautious regarding economic growth.

Signs of growth in the IPI machinery index and European GDP are encouraging. We are not likely to translate into meaningful growth in our distribution business until the later part of this year. Turning now to precision components.

Looking at the end markets within precision components, demand within the businesses continued to improve during the quarter. Sales of precision components were up 20% over the prior year and improved 12% sequentially. Importantly, orders increased 78% or $72 million from last year and outpaced sales for the second consecutive quarter, posting the highest level since the first quarter of 2008.

The demand activity within North American auto market continued to accelerate through the first quarter. Expectations for auto builds for the full year are now projected to be 11.5 million units. This increase in production is not based on renewed incentive programs but rather are aligned with improving demand levels.

The average age of light vehicles in the US is now over ten years, a post World War II high. This suggests that there could be substantial demand for new cars as the economy continues to improve. However, the European auto industry remains challenging as government incentive programs are due to expire.

Our business serving the industrial end markets showed continued signs of improvement in demand as well. Our European businesses are export driven and are able to capitalize on global growth and have seen a robust order recovery rate.

Aerospace OEM sales were essentially flat year-over-year, but increased nearly 10% sequentially. Order intake increased 46% over the prior year and was at the highest level in eight quarters, helping push OEM backlog to $334 million from $326 million at the end of 2009. Recent data suggests an improving aerospace OEM market in the later half of 2010 and into 2011.

In terms of development programs that are important to us, we believe the 787 with its GEnx and Trent 1000 engines has made significant progress and program risk continues to diminish as Boeing progresses through the flight test with no major issues. The 747-8 with its GEnx engines also continues to progress nicely and has over 100 firm orders plus 50 options which may represent more than 650 engines if you factor in spares.

In addition, the announcement to return the Boeing 777 production rate back to seven per month in the middle of 2011 with component deliveries likely beginning later this year bodes well for the continued long-term success of our aerospace OEM business.

In summary, as we focus on completing our goals for the rest of 2010 we remain guardedly optimistic. We began the year convinced the recovery will take time to develop, and we have not varied from that opinion. Order trends are particularly strong in transportation and industrial manufacturing, while our remaining markets performed as expected.

As the markets recover our cost structure will allow for greater profitability. Although aerospace and industrial markets have shown signs of strengthening, the after market aerospace business, which has the greatest effect on the overall margins, has yet to show signs of improvement. We continue to expect a strong recovery, but the timing remains uncertain.

We believe we are well positioned in our markets for continued growth. We will continue to leverage our expertise and capabilities in new ways to retain and attract customers in new markets. We will continue to look for opportunities to apply lean tools and principles, to reduce waste and increase efficiencies. Together this will enable the Company to build on its success and drive sustainable profitable growth for increased stock holder value.

Now I'd like to turn the call over to Chris, who will run through some of the financial details.

Thank you, Greg, and good morning, everyone. This morning I will provide some additional detail on our financial results for the quarter, and update you on our revised outlook for 2010, which we have summarized on an earnings supplement chart that is available on our website.

Starting with the top line, the Company reported first quarter 2010 net sales of $278 million. An increase of 6% from prior year, and a 3% increase if you adjust for the benefit for foreign exchange. While we believe the overall environment has improved, as demonstrated by increased orders and an improving backlog, activity in the key aerospace after market has yet to emerge.

Operating margins for the Company came in at 7.1% for the quarter, a decline from prior year operating margin of 7.8%. The margin decline primarily reflects the change in business mix as we trade higher margin aerospace sales for automotive sales. Over the short-term, this change in business mix is causing downward pressure on our margins.

However, with the increasing sales expectations in our automotive markets, the margin improvement is expected to be enhanced as we leverage the benefits of the actions we took to improve our cost structure. In addition, we continue to expect a recovery in both the aerospace, OEM, and after market businesses.

Turning now to cash flow. During the first quarter we generated operating cash flow of $7.8 million, compared to $5.4 million over the same period last year. In addition, cash flow from operating activities, less $5.9 million of capital expenditures, was a positive $1.9 million compared to a negative $4.2 million last year.

The Company's ability to generate cash from operations, in excess of its internal operating needs, remains one of its financial strengths. For 2010, we continued to maintain our goal of achieving a cash conversion equal to or greater than 100% of net income. For 2010, we expect capital expenditures to be around $35 million and 2010 depreciation and amortization are expected to be around $55 million.

With regards to share count, first quarter diluted average shares outstanding increased 6% from the prior year to $56 million. This increase was primarily due to $1.2 million treasury shares issued in the second quarter of 2009 to repurchase some of our convertible notes. And for contributions of approximately 737,000 shares, issued to pension plans during 2009. For 2010, we estimate our diluted share count will be around 56 million shares.

Moving on to the tax rate. The Company's effective tax rate was 16.8%. This is an increase over the full year 2009 tax rate, primarily due to shifts in our mix of earnings among our global operations.

I would also like to comment on the recent pioneer status extension awarded to our aerospace after market business within logistics and manufacturing services segment. The extension granted an additional two years of pioneer tax status on certain revenue sharing programs which provide tax benefits in exchange for capital investment and employment commitments in Singapore. The financial benefit for the extension is minimal for 2010.

On a separate note, we did recognize an income tax charge of approximately $300,000 due to the changes of the recently enacted healthcare reform.

Turning now to the outlook. We are encouraged by the Company's performance this quarter. In addition, we are seeing real signs of stabilization and growth. As a result, we are raising our outlook for the full year of 2010. Our 2010 diluted earnings per share is now in the range of $0.90 to $1.10, reflecting a $0.05 increase to the bottom and top end of our previous estimate.

The new estimate reflects top line revenues improving 6% to 9% including the impact of a stronger US dollar. Operating margins are projected to be approximately 8% for the full year of 2010, our revised outlook remains dependent on a number of key factors, however.

On the high end of the range we would benefit from a faster recovery in our profitable aerospace after market business, better volume leverage and stronger productivity gains, given the benefits of fixed cost reductions, made over the past several quarters. The lower end of the range takes into consideration the possibility of a slower economic recovery, increased pricing pressure and the time frame it takes us to benefit from our sales initiatives.

In closing, the first quarter reflected solid performance against a backdrop of improving market conditions. Driven by our focus on profitable sales growth and lean enterprise efforts, we generated sales and profitability performance that met or exceeded our expectations. We will continue to capitalize on strong market presence and a more efficient operating structure. And as a result, we expect to continue to position Barnes Group for long-term success. With that, let me now turn the call back to Brian.

Thank you, Chris. We will now open the call to your questions. Operator, first question.

(Operator Instructions). Christopher Glynn with Oppenheimer.

Thanks, good morning.

Good morning.

A question on the PC margins, given the sequential improvement in the sales, would have thought a little more lift in the margins. Was there some cost restoration or some supply chain readjustments there?

Sure, Chris. As we mentioned in the last call, there was going to be some residual cost for restructuring that we had going into the first quarter and we also mentioned that there was still some catch-up on premium freight due to the material issue. Those things had some effect, but we expect that as the year unfolds that will be less and less of an issue.

Great. And you mentioned not a single customer loss or customer loss in the aero after market. I'm just wondering about what additional wins in share might be there given particularly the commitments for fixed investment for the pioneer tax status.

There is certainly a fair amount of investment in Singapore. A lot of it's driven by the revenue sharing partnership, and we also have additional contracts that we are pursuing and have obtained from Rolls Royce, for example, for manufacturing various components in Singapore, and that is a big part of where we are improving the volume of actual manufactured product as well as expanding our service offering and maintenance, repair and overhaul activities.

Okay so that lends itself to increasing content on Trents or --.

Absolutely. We are focused not only on Trent 1000, but a variety of other newer generation aircraft engines. And Singapore is an outstanding location for these because we already have an established manufacturing base for the revenue sharing program.

Okay. And just on distribution. Just wondering, BD Europe has the pathway to profitability and in North America Project Catalyst improvements intact through the downturn?

I think that -- several things. One, the positive trends we have seen over the past several months, we expect to continue. In fact, when we start looking at the IPI industrial index which we correlate very closely to, I think we are going to see continued improvement through the year.

We saw nice improvement, about a 9% sequential growth in sales, and we are starting to add incremental sales representatives. I think the benefits of Project Catalyst are clear with a lower break even point, and we are also looking at, throughout the year, continuing to improve. In fact, March had the highest sales levels in over a year.

On Europe, positive trends again. Improvements in sales and profitability, both sequentially and year-over-year. Favorable order rates, very strong. And most of the system and integration issues are behind us. So I'm fairly encouraged. I think that it will still unfold through the year but I think most of the issues are behind us.

Okay. Thank you, Greg.

Edward Marshall of Sidoti Company.

Good morning. Thanks for taking my call.

Good morning.

Following up on the last question, you said BD Europe positive trends, favorable trends in Europe in both sales and profitability.

Yes.

Is that to say that it was profitable in the quarter?

During the quarter, February was a little messy both in US and Europe, but at the same time we saw good performance in March that looks like it's going to continue through the second quarter.

So, yes.

No.

No, okay. The trends in the after market that you have been talking about, it seems like you are pushing out maybe the potential of the timing a little bit. I sense that your statements are getting a little bit more conservative.

I think so because of the year's unfolding. I think some people who are forecasting a Q2, we never believed Q2 was possible. We have visibility into Q2 now. We are a month into it already, and we don't see that type of activity that would justify optimism for Q2.

Even some of the recent airline reports such as Credit Suisse who has dampened their enthusiasm for a summer uptick in spare parts ordering, I think we share that. We think that the back half of the year, at best, and the good part, I can say some positive things -- there are bits of hope out there in the sense that load factors are very high on a historical basis. Aircraft or passenger air [employments] are increasing. Airlines are getting healthier.

All this tends to lend itself towards an improvement in the deferred maintenance cycle. And I think that it may be late in the year, but there is no doubt in my mind that I personally believe when it goes it is going to go in a big way, largely because there is finite maintenance, repair and overhaul capacity in the world. And when airlines have to start getting in line for that maintenance capacity it will turn into a rush.

What I would add also to that is we have been very focused on the capacity side to make sure that we don't, actually positive ways, prepare ourselves for that upsurge in the after market. So we are incurring additional costs, if you will, headwinds just maintaining that capability and that capacity in anticipation. So we are as hopeful as the next person on that kicking in.

Maybe you can walk me through then the guidance adjustment for the year then? If we are getting more conservative in the after market recovery and accordingly that is the main point to reaching the high end of the guidance range, why raise the top end of the range?

There were a number of things that happened in March in particular -- all of them very positive. It is amazing how things can go your way sometimes. It started with the increase to production, about 40% increase in production for the 777 earlier than anticipated. A lot of that is because of the demand for freighters. But that is mid 2011, which with six months prior for component delivery it will probably impact our Q4.

And the second is the 787 development program is proceeding nicely, and as I anticipated during our last conference call, we expected the tiers to build inventory to protect as a buffer in order to have the capacity for this uptick in production demand and also to protect themselves from potential penalties. That also occurred.

Then you had the 747-8 which they increased production by about 25%, and when you combine all these things and flow them into the back half of the year, it has just been a very positive trend line for aerospace OEM. In fact, if you look at our orders rate for the quarter, it was the best in eight quarters and I think that because of the platforms that we are on we are just benefiting very nicely.

And then I would just pick up on Greg's comments to also add that on the automotive side, especially I would say a positive surprise for us is all the third-party data talks about North American automotive production being roughly around 10.5 million units, that's the way we --

In terms of build

Yes, is now increasing to an 11.5 million number. So that increase also provided some top line reason for our movement of 4% to 7% now to 6% to 9%.

So are you saying that if the aerospace after market comes back kind of third quarter, which is I think what you said in the previous conference call, mid summer, you would exceed the top end of that guidance?

It depends on how hard it comes.

Yes. And I would say we would be more towards that higher end, but I wouldn't say we would exceed it in terms of when it -- to Greg's point, when it hits.

And then my last question happens to be on the 78% increase in orders. I think you said in PCS. That is year-over-year, correct?

Yes.

Do you have quarter over quarter?

Sequentially are you looking for?

Yes.

It's a 21% improvement in orders for Precision Components.

So the backlog in aerospace jumped maybe $4 million or so. Is that mostly related to automotive? And if so, is that quick lead time business? I don't know.

As far as the backlog, yes, the automotive orders usually anywhere from 30 to 60 days (multiple speakers).

So most of that order increase was related to automotive, since there is a small increase in the backlog for aerospace?

Yes, there was an increase in backlogs for aerospace which was primarily 787 driven, and that will be delivered, you are usually talking about roughly 60% of that within the next 12 months.

And Ed, this is Brian again. It was really an across-the-board increase in orders, both the automotive, industrial, and then the aerospace OEM when you dive into precision components.

And geographic. European manufacturing ticked up nicely as well.

Okay. I'll get back in line. Thank you.

Thanks, Ed.

Matt Summerville of Key.

Good morning. A couple of questions. I want to make sure I understand what is going on in your distribution business. Did both Europe and North America -- were they both in the red in the first quarter? And then organically, backing out currency, how much were distribution sales down?

Both of them were in the red for the first quarter. We expect them both to be positive in the second quarter with a continued trend through the rest of the year.

And then in terms of organic performance and distribution in the quarter, ex-currency?

Yeah, basically flat, Matt. I would say not much change there.

That's for Europe.

Yes. For Europe for the year.

For [BB&A], North America was a 9% sequential growth.

Greg, when I look at that sequentially I went back when you guys used to report the three segments, pretty much every year your distribution business ticks up Q1 versus --

We have more data than that in the sense that we did a lot of work on correlation to the IPI industrial index and we actually show a trendline on days sales average that is correlating very nicely with it. So we are fairly confident that it is going forward nicely. March had a significant uptick and was profitable and we expect that to continue, that profitability through the second quarter.

The order rates or the uptick you just mentioned in March, I would assume you have a couple of weeks of data in April.

Yes.

Has that been sustained?

We are confident that statement holds.

Okay. And then I guess if I look at kind of the performance of your North American distribution business on the top line, relative to some other general industrial distributors, I guess I'm surprised you didn't see more organic growth there. So maybe you could comment on that. Is there share shift occurring here?

A lot of what we had occur last year had to do with the customer mix that we had. For example, we had a fair amount of auto dealerships that were in our mix, et cetera. So I think that a lot of the work that we are gaining right now is new workload.

In fact, when you talk to most of the sales reps out in the field you will find that they have many more new customers and it's largely because some of the existing customers, not that they lost them but some of them disappeared and some of them simply are not ordering at the same rate.

Okay. And then just one final one on distribution. How has sales force attrition kind of looked in that business post Project Catalyst here in North America and some of the improvements you have tried to make in your --

Actually, it has -- mid 2008 it stabilized after we made some changes to the compensation plan, but it was very healthy through the later half of 2008 all the way through 2009. In fact, I think it's some of the lowest we've had in ten years as far as attrition, and we've had the net adds in both North America and in Europe as far as the sales force count.

Thanks, Greg.

(Operator Instructions). Peter Lisnic of Robert W. Baird.

Good morning. This is Josh Chan filling in for Pete.

Hi.

When you talked about your aerospace after market recovery in the 20% to 30% range, is that sort of a one-time step-up in activity level or is that kind of an annual run rate that you think can be sustainable for several years?

It's a step up that we think is sustainable, largely -- especially when you look at the historicals. We have done a lot of analytical work looking at the engine shop business forecast before and after the deferred maintenance cycle and also looking at the shop visit forecast going forward.

There is a difference in some people's opinion on whether it's going to be a sharp uptick or if it's going to be a longer ascent. I think either case, there is going to be an uptick of some sort that is significant simply because of the magnitude of the deferred maintenance.

The reason for my opinion that it is going to be sharp is simply because of the finite amount of MRO capacity in the world, and once airlines figure out they have to get in line, there is going to be somewhat of a rush for it and that has been a historical pattern. If you look at post 911 there was about a two year deferred maintenance cycle and then we had a 30% uptick in sales that was sustained for an extended period of time.

What we learned from that and other cycles is what is driving our desire to maintain excess capacity right now, because we need to be able to provide the service when it is available. And if you clamp down too hard on it, whether it's inventory of spares or just general industrial capacity, footprint et cetera, you won't be able to hand that surge.

Okay. That makes sense. And then on your -- taking a look at your sales sequentially, usually the second quarter ticks down a little bit, but given the improvement in orders could we possibly see a different pattern this year?

I think we're going to see year-over-year improvements, sequential improvements through the year.

But you mean every quarter from Q1 to Q4.

Yes.

Okay.

Josh, I would add that you are going to see -- typically the first half of the year is a stronger year, we'll run into some of our European businesses in August, a little bit of downtick and then we will have the normal kind of distribution headwind in the December time frame.

But I would say how we ended up in the first quarter is a pretty good indicator of how we think we are going to profile the second quarter, with a little bit of softness right focused on the second half of year. But that may change given Greg's comments and our comments on the after market aerospace business.

And we had said during the last conference call that we expected the first half to be roughly equivalent to 2009. I think we now believe it will be slightly better.

Okay. And then finally, one more question on the dividend, Greg. Is it the intention to ultimately restore is back to the early 2009 levels or what do you and the Board look at to determine the appropriate level of dividend?

First of all, it is the prerogative of the Board to determine the level of the dividend, and I won't comment further than that since we have a Board meeting coming up and we have to discuss those things as well.

Fair enough. Thank you for your time.

Thanks, Josh.

Fred Buonocore of CJS Securities.

First, I just quickly wanted to clarify, did you say then sequential improvements through the course of the year. Is that the way to think about it?

That and year-over-year. And the reasoning is if you look at the uptick in aerospace manufacturing work in the last quarter, we are hoping that will compensate for the seasonal declines that are traditional in some of the other businesses.

Got it, okay. I understand. And then can you kind of just go through your business and talk about your capacity utilization and your different areas of your business? Clearly on the after market side you are intentionally very underutilized. But how do you think about that across the business?

That is a very good question. One of the things that we used 2009 -- there is a saying, never waste a crisis. And we spent most of our time in 2009 looking at the long-term of the business, being able to have capacity of brick and mortar, to be able to get beyond $1.5 billion in sales without additional footprint. We may need some additional capital and things of that nature and additional manpower, but that was one of the hallmarks of the way we did the restructuring.

We also focused on centers of excellence where we could gain economies of sale in particular product lines by focusing essentially focus factories in various areas based on skill set expertise and capital equipment, et cetera. We are very pleased that our capacity expansion for the next several years, it is pretty solid. It is unlikely that you're going to see us doing a greenfield site or even additional leases of plant space.

Okay. That's helpful. And then in terms of the -- I think you said 46% order increase in aerospace OEM. So is that largely attributable to 777, 787?

No. It's actually mostly the 787. And I should also mention that is GEnx and there may be some 747-8 because it is a shared engine. But nonetheless, it is primarily that air frame. And as I mentioned during last call, I thought we were going to get a stocking effect in the sense of an inventory build just to protect the ramp rate on the production schedule. The 777 order uptick we expect maybe beginning in Q2, but certainly by Q3 we will see an order increase for 777.

Okay. And then on the after market, just to clarify how that sort of builds into your guidance. You think you could potentially see a 30% step-up. Is there a certain chunk of that you look to that your guidance right now implies getting somewhere in the second half of this year?

Largely flattish. We are not counting on a huge uptick in the current guidance for aerospace after market.

And then --

Some uptick, though to get to the upper end.

Yes. Kind of sequential improvement, but not dramatic. We are seeing these depressed levels as we saw for the past several quarters kind of continue and it will steadily improve as we go forward throughout 2010.

Okay. And then finally on the cost reduction actions that you took through 2009, can you quantify how much you think you recognized or benefited from in Q1, and what that should look like in Q2?

On that one we have got improvements -- as you saw the margin expansion out of our PC business, and that is mostly where we spent the restructuring dollars on right sizing that business through the downturn, we will continue to see that improvement in PC margin. So it is pretty much reflected, not only the volume leverage they're getting, but also the productivity gains they are generating as a result of that fixed cost reduction. We will see that in margin expansion.

Okay, great. Thank you very much.

Thank you.

Holden Lewis of BB&T.

Thank you, good morning.

Good morning.

You mentioned residual restructuring costs. Can you talk about what that number was and which segment that fell into?

It would fall into the PC business in terms of the precision component side as we have restructured most of those businesses there. We are closing off on some of those projects here in the first half of the year, as we talked about. Incremental cost is less than $1 million, and we will have that behind us here in the second quarter. The first half we'll be through the restructuring efforts and we don't anticipate any additional actions for the rest of 2010 as markets obviously continue to improve and we continue to benefit from that upturn.

Okay. But in the quarter, the Precision Components market was actually burdened down by $0.5 million to $1 million in costs that you won't have going into Q2 and beyond?

I would say it is actually pretty consistent from a dollar point of view. And you're right on them, that is a good general number to use going into the second quarter. But then that will be behind us. The first half activity will be behind us and we would expect margin improvement in PC as they continue to benefit from top line improvements.

Okay. And then you also sort of made quick mention of pricing and sort of where that may fall with respect to your guidance. What are you seeing on pricing, where are you seeing it? Is that still a pressure area? Is it to any greater degree than it was? How are we viewing pricing at this point?

It is not an issue and this continues to baffle me because of the excess capacity in the world. We understand the automotive side where they are concerned more with the viability of the vendor than they are with price, at least for the time being. But most of the other markets we haven't seen price.

The area that we have a little more concern with is material or commodity costs. It's two things. One, availability and there are some issues here and there and we are seeing other companies facing the same issue as the raw stock suppliers are taking their time spooling up. We expect some commodity price increases over time and we have anticipated that and we built in passthroughs in our industrial and automotive to a very high level and aerospace has been traditionally a passthrough business.

Where we might have some impacts there are two things. One is, in some cases the passthroughs have a delay effect. In other words, there is a normalizing over a period so you will have an impact before it gets the uptick in price. And the second is where we have less passthrough and we need to have price elasticity with the customer and that's one before the things we are focusing on. But neither one is a major issue right now. We are trying to be proactive.

And then I guess -- I'm also still trying to get a better feel for the profitability and margins in your Logistics and Manufacturing Services business. I recognize the margins in Q1 stepped up over Q4. But let's fact it, if you go back historically, for whatever reasons margins in Q4 always seem to be far lower than the balance of the year.

I guess more interestingly is if I go back again I think to 2005 I just -- outside of a couple of Q4s there is not a 6.2% number posted in Logistics and Manufacturing Services over that history. And it seems like we have spent a fair bit of money sort of restructuring this business as well. I would imagine that the mix of -- aero after market certainly of late has been weak for awhile, so I'm not sure that the mix is necessarily causing all of the erosion.

Can you just give us some insight? You mentioned some issues maybe in February. it seems like there's always an issue here. Can you give us some color into what those issues in February might have been, what your thinking is about this business and its sustainability of margins? It seems to be the area where we keep on stubbing our toe.

I think that actually I'm most optimistic about long-term for LMS. I think it's got an incredibly bright future. One of the biggest things, and it is in real terms and percentages, is the aerospace after market even year-over-year it is down significantly. That has had clearly the biggest impact. It is not DD&A. In fact, our Barnes Distribution Europe had a dramatic improvement year-over-year. So it is purely driven by aerospace after markets.

As I mentioned, both Barnes Distribution Europe and Barnes Distribution North America were profitable in March and their April numbers are looking like the trend line is continuing. So I'm optimistic on the distribution business. It is until the after market business gets really moving, which has a tremendous effect on the margins. That is where it is going to have the real improvement and that may be later in the year.

I guess I'm just as interested in -- I understand it was profitable in March and April so far, but why was it unprofitable in February? It sounds like the trend was somewhat worse in February than what you were seeing before. I think distribution Europe has sort of stabilized and obviously Project Catalyst and those benefits were still there, though volume was a little weaker. What happened in February?

A big Part of February was weather. A lot of our businesses in the Midwest, and if you remember we had some of the worst weather on record in the Midwest. And our business tends to be, we have sales representatives and service representatives going location to location and if there is 3 feet of snow on the ground it is hard to do, so it had a disruptive effect but we saw a nice recovery in March and that's continued through into April.

Okay. All right, thank you.

You're welcome.

Thanks, Holden.

Edward Marshall of Sidoti & Company.

Thanks again, guys. 787, 747 in backlog, did you give that number? You did last quarter?

I think we did. I think it is about $40 million or something like that.

For the GEnx backlog it was around $40 million?

Got a good memory.

So it's stepped up there, that's good.

Oh, yes.

And then thoughts on kind of the roughly $100 million in debt that rolled current is quarter. We expect that should get rolled back into long-term?

After February.

Okay. Thank you.

You're welcome.

Matt Summerville of Key.

Greg, you mentioned that your European manufacturing businesses were pretty robust in the quarter. Can you talk about some of the end markets that are driving that performance? You mentioned a lot of that is export business. And then also within your European manufacturing area, have you actually started to see auto begin to roll over already over there?

There are several things. One, we saw it broad based through all our European manufacturing businesses. For example, the ventures (inaudible) products which is largely based on capital investment was very positive. I take that as a very good indicator because usually the capital investment is the predecessor to new platforms and new programs being rolled out.

So that is a very positive trend, if you want to look at a macro economic indicator. Also, our other businesses which are much more diverse in their end markets were very positive as well. When I say export a lot of it is automotive, fuel injection nozzles, for examble, a lot of the transfusion components that our [Segar] business goes into and that has been very robust.

And then with regards to M&A, can you just comment on if you have a pipeline what it looks like, if your balance sheet is kind of to the point now where you are ready to start doing deals again, would you be disappointed if you didn't do some deals this year? Can you talk about that?

Sure, obviously there are various things we can do with the cash we are generating. We think that the forecast that we have currently shows an improving balance sheet through the year so we are pretty pleased with the forecast that we currently have. We are looking at a couple businesses out there that are very preliminary.

We are intentionally being very tight in our criteria for acquisitions, so there is nothing on the horizon that I see as imminent. At the same time, as our balance sheet improves we are going to start looking at a wider range of businesses, and they will largely be like we have done traditionally, bolt-on acquisitions, nothing too dramatic.

Thanks, Greg.

At this time we have no further questions. I would like to turn the call over to Mr. Brian Koppy for closing remarks.

Thank you very much. If there are any additional questions about any matters discussed this morning, please feel free to contact me. Once again, thank you for joining us today.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. And have a wonderful day.