Barrick Mining Corp (B) 2011 Q3 法說會逐字稿

Welcome ladies and gentleman, and welcome to the Barnes Group, Inc. third quarter earnings conference call. As a reminder this conference is being recorded for replay purposes. At this time all participants are in listen-only mode. (Operator Instructions) We will be facilitating a question-and-answer session following the presentation. I would now like to turn the presentation over to Mr. William Pitts, Director of Planning and Investor Relations for Barnes Group.

Good morning, everyone. Thank you for joining us today. With me this morning is Barnes Group President and CEO, Greg Milzcik, and Senior Vice President of Finance and Chief Financial Officer, Chris Stephens. If you have not received a copy of our earnings press release, you can find it on the Investor Relations section of our corporate website at BGInc.com. During our call we will be referring to the earnings release supplement slides, which are also posted on our website.

I want to remind everybody 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 BGInc.com. Today's call will begin with some opening comments from Greg, followed by a more detailed review of results and an updated 2011 outlook discussion from Chris. After that, we will open up the call for questions. At this time, I will turn the call over to Barnes Group's President and CEO, Greg Milzcik.

Good morning, all. For the third quarter, Barnes Group delivered solid results once again. Sales in the quarter grew 12%, year over year, with approximately 10% organic growth after removing the favorable impact of foreign exchange, or FX. Operating profit was up 33%. Operating margins expanded to 10.1%, as compared to 8.6% a year ago. These quarterly results were driven mostly by sales volume leverage as our end markets continued to recover, and by further increases in productivity as measured by sales per employee, which improved 14% on a year over year basis. Net income for the third quarter was up 54%, and earnings per diluted share increased 52% to $0.41 per share. We've improved financial performance and we're confident in the long-term growth prospects of our Company. As a result, just last week our Board of Directors increased the Company's quarterly cash dividend 25% to $0.10 per share.

Now let's discuss the industry outlook that supports our confidence. Though what we see and read in the news sounds bearish at times, we have not seen that unfavorable opinion appear in our achieved results. We do see some volatility with regard to orders, however we still believe that our end markets of aerospace, transportation and industrial are exhibiting continued signs of improvement. At the same time, we do recognize there is a level of greater uncertainty for next year, so will continue to closely monitor the market indicators that are most directly linked to our operations.

Our aerospace after-market and OEM businesses continued to benefit from favorable conditions, as both saw double-digit revenue increases year over year. In addition, revenue grew sequentially, as has been the case for each quarter this year. Based on third party forecasts, commercial aircraft build is anticipated to remain strong over the next few years, and our understanding of the continued backlog growth at Boeing and Airbus supports this expectation.

From an order standpoint, we had a very good quarter in our aerospace maintenance repair and overhaul business, and we remain optimistic about the fourth quarter of this year and our trajectory entering 2012. In aerospace OEM, third quarter orders were also strong, outpacing sales and backlog rose from second quarter levels. Regarding commercial aerospace, the demographics of the fleet and after-market activity of platforms in which we participate look favorable, and we believe we will outpace industry growth for a few years.

In automotive, North American auto build forecast for 2011 remains stable. Full-year production is forecasted to be 12.9 million units, up about 8% from 2010, with a sequentially stronger fourth quarter. With respect to industrial market trends, we look to the Institute for Supply Chain Managements Purchaser's Managers index. The PMI for September indicated continued expansion in the manufacturing sector for the 26th consecutive month.

With that background let me discuss the high-level results of our 2 business segments. In Logistics and Manufacturing Services, our quarterly sales results were again very strong, with our Barnes Distribution North American business achieving sequential improvement and realizing its best sales quarter since Q3 2008. Productivity as measured by sales per employee and improved 23% over the third quarter last year. Daily sales average, or DSA, continues to improve year over year. In fact, we've seen improved year over year DSA now for 19 consecutive months in BDNA. Investments made over the past several years to improve sales force productivity and supply chains management are helping us sustain our better performance in this business.

With respect to the offer we received from our Barnes Distribution European business from Berner SE, at this point we are going through the meet and confer and notification process with our relevant trade unions and works councils, as well as antitrust review process. Once we receive their opinions on the potential transaction, we plan to bring the matter before our Board of Directors for further action. Until our Board approves this transaction, we continue to report the results of this business on continuing operations. Chris will provide some additional color on the potential impact this transaction could have on our reported results in his section of the call. As I mentioned earlier, the aero industry is trending in the right direction and that's benefiting the volumes in our after-market business. Aerospace after-market sales grew 17% year over year and are at their highest levels since Q1 of 2009.

Turning to precision components, precision components delivered 15% year over year sales increase in the third quarter, with double-digit growth from our industrial, transportation and aerospace end markets. For the segment, productivity measured as sales per employee improved 10% over last year's third quarter. Operating profit margins expanded to 9.6% in the third quarter from 9.1% last year. We are seeing some good progress here, and while we're encouraged by this margin improvement, we believe we can do better and expect to do so. 1 item contributing to this dynamic includes the ongoing need to outsource some production, given the capacity constraints resulting from the strong growth we are experiencing with one of our European manufacturing businesses. As mentioned last quarter, actions are underway to address the situation. We do see this as a temporary constraint, but for a few quarters we expect to see some incremental costs.

With respect to our European manufacturing operations, to supplement ongoing growth in our nitrogen gas products business, we recently acquired a hydro-pneumatic suspension product line, these products offer advanced stabilization and suspension solutions, and will allow for growth in the global machine and vehicle industries. Though this is a modest purchase for us, roughly $3.5 million dollars, we are pleased to add a highly engineered product line that will allow us to leverage our manufacturing capabilities and existing research and development investments.

To wrap up my comments this morning, we remain sharply focused on driving profitable growth and that commitment has resulted in our sustained improvement in operational performance. Fast call for actions and continued focus on lean activities have contributed to better margins, and while we remain cautious with respect to the global economic market, we believe that our end markets will continue to improve, although lumpy at times, providing additional lift in our ability to deliver financial results. At the same time, we will continue to evaluate our portfolio of businesses while looking for additional opportunities to expand organically and inorganically, all with the long-term objective of delivering increased value, long-term, to our shareholders. For now, let me turn the call over to Chris, who will comment on some of the financial details and provide an update on 2011 guidance.

Good morning, everyone. Turning your attention first to slide 2 of the earnings release supplement, which is available on our website. Net sales operating margin, net income and EPS all improved on a year over year basis. Operating cash flows improved 67%, over last year's September year-to-date results. For the Company, net sales grew 12% to $325 million, up $35 million from the third quarter of 2010. Organic sales were up 10%, as favorable FX benefited sales by about 2%.

Operating margins increased 150 basis points to 10.1%. Margin expansion was driven by the impact of higher sales volumes, pricing actions, and continued productivity improvements from our lean activities. Cost associated with strategic initiatives to support long-term growth in both our business segments partially offset these margin benefits. Net income for the quarter grew 54% to $23.2 million, and EPS was up 52% to $0.41 per diluted share, compared to $0.27 per diluted share a year ago.

Turning now to segment performance. In our Logistics and manufacturing Services segment, we recorded sales of $152 million, up nearly $13 million, or 9% from last year's third quarter, which includes a $2 million benefit from FX. Our favorable sales performance in LMS was driven mainly by 17% sales growth in aerospace after-market. Operating profit at LMS increased 49% to $16 million. The increase was primarily driven by our North American distribution businesses, which were positively impacted by higher sales volumes, improved customer mix and further productivity improvements, and our aerospace after-market business benefited from higher sales levels once again, even after considering higher management fees related to our revenue-sharing programs.

Our Precision Components segment saw continued strength across our end markets, as Greg discussed. Sales were $177 million, up approximately $23 million, or 15%, over the prior year. Organic sales grew $18 million as a result of increases in the North American and European manufacturing businesses. For the segment, FX contributed $5 million, to sales growth in the quarter. Operating profit in our Precision Components segment was $16.9 million, an increase of 21%. The operating profit improvement resulted from the benefit of higher sales levels, combined with productivity and lean initiatives. These improvements were offset in part by added costs for strategic initiatives, investment related to new product introductions and a temporary spike in outsourcing.

For PC, overall orders were up on a year over year basis, driven by higher aerospace OEM, as well as our European manufacturing businesses, where their orders collectively increased 20% on a year over year basis. Segment backlog at the end of the quarter was $461 million, up $6 million on a year over year basis, and up slightly from the end of the second quarter. While backlog is a helpful indicator I would remind you that sales can be affected by a number of factors over time. Including in sourcing decision material changes production schedules and volumes of specific programs to name a few. Moving on to taxes, the effective tax rate for the third quarter of 2011, was 26.1%, compared to 20%, in the third quarter of last year.

The increase in the effective tax rate was driven by a projected shift in the mix of earnings attributable to higher taxing jurisdictions and the effect of an increase in the repatriation of a portion of current year earnings to the US. For the full year, we now expect an effective tax rate between 26% and 27%. We had a solid third quarter in terms of cash generation, net cash provided by operating activities for the first 9 months of 2011 was approximately $78.5 million, up $31.5 million or 67% from the first 9 months of 2010. Free cash flow, which we define as year to date operating cash flow reduced for capital expenditures, increased 117%, over 2010, primarily as a result of improved operating performance offset in part by higher capital expenditures. For the full year, we continue to expect 2011 capital expenditures to be approximately $40 million to $45 million, and forecast free cash flow conversion of 90% plus for 2011.

During the quarter we announced our new 5 year $500 million senior unsecured revolving credit agreement. Under this new facility, we will pay a fee on the full amount of the facility ranging between 15 and 30 basis points, and loans drawn under this facility will be charged an interest rate of LIBOR, plus a spread of between 1.1% and 1.7% in each case depending on our leverage ratio. This new financing agreement replaced our previous $400 million facility that was set to expire in September of 2012. The ability to attract a large syndicate of banks increased the size of our credit facility, and on paying a competitive rate structure, are all positive indicators of our financial strength and stability and provides us with the financial flexibility to support our global growth plans.

With regard to share count third quarter diluted average shares outstanding were 56.4 million which was up slightly compared to the prior year. Through September of this year, we have been an active buyer of our stock, spending $22.4 million to repurchase approximately 1 million shares and fully exhausting the remaining shares available under the board's 2008 repurchase program. On October 20th, our board authorized a new repurchase program for up to 5 million shares of the company's common stock. We plan to repurchase shares in the open market, or through privately negotiated transactions at prevailing market prices from time to time, depending on market conditions and other factors.

Closing out my prepared remarks, let me end with a few comments about our updated 2011 outlook. As you can see on slide 3 we now expect our net sales to increase about 13% for the full year, including the favorable impact of FX. We forecast operating margins to be 9.5% to 10% and EPS to be in the range of $1.43 to $1.48 per diluted share up 51% to 56%, over 2010. This guidance reflects the following items. Interest expense, is now expected to be approximately $10.5 million for the year as a result of lower average effective interest rate combined with the reduction in debt discount. Our lower interest rate reflects the shift from fixed rate debt to lower variable rate debt due to the retirement of senior notes, redemption of 3.75% convertible notes that we executed in the second quarter, and the maturity of interest rate swap agreements that we had last year. Appreciation and amortization are expected to be between $57 million and $59 million. 1 clarifying point here is about $38 million of that amount reflects depreciation.

Similar to last quarter's outlook, key factors in our updated 2011 guidance range include the following. To the upside, we would benefit from faster ramp in aerospace aftermarket. Better volume leverage or flow through on increased sales, and stronger productivity gains giving our focus -- given our focus on lean and quality. On the downside, we would negatively be [impacted] by a slow down in the global economy, timing of expected benefits from our investments in strategic initiatives, and commodity price inflation that may be difficult for us to offset either through pricing actions or productivity initiatives.

Before I make my closing comments, I do want to take a minute to discuss the impact on continuing operations results if we were to account for Barnes distribution Europe as discontinued operations at December 31, 2011. In our August press release, we projected that our continuing operations earnings per share would not be meaningfully impacted by a move of the Barnes distribution Europe business to discontinued operations. Based on our latest analysis of the potential transaction, we would expect to record a pretax loss of approximately $20 million, inclusive of non-cash impairments of long live assets and subject to changes for various factors such as FX, transaction costs, and other closing adjustments. As noted on page 3, of our third quarter earnings release supplement slides, after adjusting for transaction costs and results of BDE reflected in our current guidance of $1.43 to $1.48 per diluted share we would expect to improve results from continuing operations by approximately $0.10 per diluted share, if we were to account for BDE as discontinued operations at year-end.

In closing, another very respectable quarter in terms of financial performance, with solid earnings growth, good cash generation and a strong balance sheet. We continue to emphasize prudent capital utilization, so as to position our Company to execute on our long-term growth plans. We've set in place our new credit facility to provide additional financial flexibility, acquired a new product line, and our growing nitrogen gas products business that provides us access to an adjacent market, and we invested in higher level of capital expenditures within our businesses. All of these factors should lead to further growth, sustained operational and financial performance and expansion in long-term value to our shareholders. Operator?

(Operator Instructions) Edward Marshall, Sidoti & Company.

So PCS, if I could spend a second there. Looks like the incremental is clearly not as strong as LMS on a year-over-year basis, and intuitively it makes sense with the puts and takes of summer shutdowns, etc, but my question is, have you squeezed as much out of that business as you are going to get through this cycle? Or is there other investment things that are going on in there that may be affecting the margin?

You hit it right on the head. As we mentioned last quarter we have a number of things that we're correcting in Precision Components. We've had some new product introduction transfer work issues, and we expect that another quarter or 2 will be required before we get that back on line. In addition, we had outsourcing due to rapid expansion of one of our European manufacturing businesses. Those 2 things should be cleared up within the next 2 or 3 quarters. So in the first half of next year, we should continue to see improvement in the margin in PC. So I think we have some room to improve the margins there.

The new product introduction, would that have anything to do with, let's call it 787, since there's 2 separate engines there.

There is actually a number of platforms. In fact, in my time in aerospace, rarely have I seen so many new platforms coming out at the same time, it's just incredible. It's more than just airframes, when you look at the number of engine platforms, because there is multiple engines on aircraft airframes sometimes, but a lot of it has to do with that. We are working hard on the A350 right now. It's too early to come up with a content-per-aircraft number because it's so far out still, but it is growing rapidly.

It's amazing the effort that Rolls Royce is putting into that program and we are very much aligned with Rolls Royce's effort. There is a variety of other platform and expansion of content on various platforms. So it is a big task right now. But I think the reviews I've been involved in, in the past quarter, I'm happy with some of the progress we are making on getting a handle on it, and making sure that it turns into profitable work long-term.

You mentioned backlog for the business as a whole, did you give the aerospace backlog, and if not, could you provide that?

The aerospace backlog ended, this Barnes aerospace OEM, ended at $355 million.

$355 million? Has there been any change to the engine contents that you reported in previous quarters?

Not for this year, for next year it's about, I think the 787 is about $300,000 right around there.

And that's from?

It was about $350,000 previously. And that can change from moment to moment.

It is lost content or is it just in-sourcing?

It could be a variety of things, it could be everything from material changes to in-sourcing to resourcing. It varies all over the place.

Maybe going from say, inconel to titanium?

More likely titanium to aluminum is a more common trend in [some of it].

Finally, LMS, you mentioned some strategic initiatives in the press release. Is that related to consulting fees for BDE or what might you be discussing of that may have affected the margin a little bit?

The way to think about it is just the transaction costs, Ed, associated with the Berner offer as we work through the completion of this year. So it's just a revised look at what the impact would be if we were to strip out those costs -- if and when we were to strip out those costs, from continuing operations. So we try to provide some color on a stand-alone basis, excluding BDE from the portfolio, what that full-year outlook would look like. But again, this is dependant on a lot of things in front of us still. So we are going through the process, teaming with Berner, going through the works council process and other regulatory filings. Hope to be able to bring that opportunity to the Board in the near-term, but still got some work to do.

Can you quantify the order of magnitude of the 2 fees you mentioned, the strategic initiatives and the higher management fees related to the RSPs?

We haven't narrowed down the RSP fees because it's difficult to gauge the number month or quarter-to-quarter because some of them are variable. But the way it was established initially was, because the demographics of the fleet when we first started the programs, we would have $0 management fees for a period of time and then they would ratchet up until a fixed number. So there is overlapping management fee increases over the past several years, and we are almost through any increases. From I think next year on, probably it will be all absorbed, and it will simply be increased sales based on volume and price increases.

Over the life of the programs, that's right.

I'm assuming BDE is $0.10 annually not quarterly?

That would be the annual.

Peter Lisnic, Robert W. Baird.

Chris, just a quick question on 2012, the free cash flow conversion. Any reason to expect that would be any different in 2012 versus 2011.

We are going through the planning cycle now, obviously, but I would say in general we look over the long-term of driving 100%- plus cash conversion. This year we do see an expected spike in capital expenditures, which is drawing that down a little bit. But I would comment that we looked at third quarter cash flow performance, which we are obviously very pleased with, we would expect fourth quarter to continue to improve. But on an annualized basis, 100%-plus is typically what we try to target for planning purposes. And any anomalies, just like we had this year, in terms of higher capital expenditures, may bring that down somewhat, but 100%-plus, Peter, is the way to look at that.

On the order trend you talked about some volatility in the quarter. I was wondering if you could give us a little sense as to what the day-to-day trends were in the North American and European distribution operations, a flavor for the orders from a month-to-month basis would be nice.

North American distribution just has been marching along steadily. We've had DSA improvement every month for 19 consecutive months on a year-over-year basis, so it's continuing on. I expect that North American industrial production, which is closely aligned to the distribution business, is going to continue to improve slowly. It is good in the sense that we are seeing the flow-throughs out of the business we expect. I think all of the improvements we've made prior to downturn as well as during the downturn are paying off now. So I'm pretty happy there.

When I look at our European manufacturing businesses, we had moments where we thought there was a trend going on, but it snapped back quickly and so I don't see anything that I can say is a trend as far as a down-tick in orders. It's more been we are hyperly sensitive to it perhaps. Right now I'm pretty bullish on our European manufacturing, largely because it's export-based, a lot of it. So it's global production that we are more concerned with.

So if I'm reading into your comments right, there has really been no pockets of softness here in October, either, correct?

Not so far. There is little bits here and there, but it doesn't sustain itself. So I can't point to a trend at all that's negative.

One last question if I could, you mentioned some of the productivity initiatives to drive margins higher, I'm just wondering how that translates into incremental margins in 2012 and what sorts of further leverage you might have in both of the segments to drive margins or incremental margins higher next year versus 2011?

The first thing you should recognize is we will probably gain nearly a percentage point in margin with the divestiture of Barnes Distribution Europe. In addition to that, between the productivity initiatives and the sales increases, etc, and I might add I'm very happy with the productivity we've gained throughout the year, and we probably should take foreign exchange out of that for a more clear translation, but still double-digit productivity. So we think we will get to record, or I shouldn't say record, pre-recession highs, fairly soon, within the next couple of years.

Is it reasonable to assume that maybe you can get double-digit productivity growth next year as well?

That's what we are pushing for. It's hard to sustain, but that's one of our goals.

Thanks for the color, nice job.

(Operator Instructions) Matt Summerville, KeyBanc Capital.

Couple of questions. Maybe could you give a little more detail on the magnitude of inefficiency that you are being burdened with right now in Precision Components related to, I believe it's outsourcing in your nitrogen gas spring business, if I'm not mistaken. And then it sounds like there is other production-related inefficiencies that you are encountering as you're maybe relocating manufacturing. So can you give us a little more of an idea of order of magnitude, 2011 versus 2010? How much of a headwind that is so we can build out the operating leverage view that business next year.

When I look at it, we should be able to improve our flow-through substantially through next year. Like I said, probably first half of the year, we will still have some burden, but it will be coming down through the first half. In other words, some of the operating inefficiencies associated with capacity will take probably 3 quarters, but some of the other things I expect to take less than that. So I'm using 2 quarters as an average, that would put us into mid-first-half. When I look at the flow-through rates, we should be able to improve them substantially. To give you a time on the back-half of the year, it's difficult because looking at the mix and all the rest of those things.

Matt, I would add that we are trying to drive both businesses to 12%-plus type of margins. And when you think about PC's performance in term of the top line and what it has faced, right, in terms of the outsourcing activities and other things that Greg mentioned, we would expect this business to be nearing approaching that level. So when you think about quantifying it, roughly I would say around $2 million headwind that we think would go away as we improve on the activities we commented on and look into 2012.

Could you guys also talk a little bit about the performance you saw in aerospace after-market? I believe in the past you've been willing to comment on the MRO sides, did x, the RSP side contributed this kind of growth. Can you give us a little more color there?

The maintenance repair and overhaul continues to improve solidly, well into double-digit growth. The RSPs, we have a little distortion. Even though we had growth, it was distorted because of a contractual relationship between General Electric and Aviall, so I don't think it would be meaningful in this quarter. That is they are having inventory builds at Aviall because they are now a buffer on certain engine components between General Electric and the end customer, being the airline. But in general what we are seeing across the board on after- market, which includes both spare parts and the maintenance repair and overhaul, is solid growth, and the feed back we are getting from the OEMs as well as from our own field surveys is continued strength for the future.

I would comment just quickly, too, that roughly one-half of our profitability for the business as a whole comes from the aerospace industry. Right now we look at the aerospace industry as both after-market and the OE side as being -- we're extremely bullish. Rarely have you seen so many platforms and so much of a ramp-up in the OE side and the demographics of the fleet for the after-market, it's just a great time to be involved.

Just 1 more final one on Barnes Distribution Europe with the potential divestiture there. I want to make sure I understand this $0.10. So does that $0.10 include the absence of any transaction in legal fees, normal stuff, that you would be burdened with now. And if you were burdened with that in Q3, was it a meaningful number? And is the remainder of that $0.10 the absence of what I assume are operational losses in that business, although if I think back to the second quarter call, I was under the impression BDE was operating near break-even. So could you help me reconcile those things?

I would say most of that $0.10 is related to just transaction-related costs. You are right, in terms of a stand-alone business, BD Europe is about break-even. So most of that is going to be transaction-related costs, incremental efforts we have put in place to progress on that particular transaction. So what we try do is, for what we know in terms of our guidance of the $1.43 to $1.48, if we were to strip out those costs at Dec. 31 and account for the business as discontinued ops, roughly $0.10 would be attributable to what is already in our current year numbers or projected to be in our full-year numbers, if you will. But I would say most of that is related to transaction-related costs. That's the way to look at it, you are right.

Holden Lewis, BB&T Capital Markets.

So I guess on that, originally you didn't expect the $0.10 in transaction-related costs. Those would be relatively new I think in Q3 and Q4. So you raised guidance even though you are being burdened with $0.10 in transaction-related costs? Does that suggest that operationally things were even better?

You got it. Holden, we definitely had a terrific quarter, and as we look to the full year, it's first driven by operating performance, without a doubt. I made the comments related specific to the transaction, but overall we are very pleased with how we ended the third quarter and how we even project the fourth quarter compared to prior year, it gave us confidence. Even with BD Europe in the portfolio at Dec. 31 to raise overall guidance to $1.43 to $1.48. So, you're right, clearly driven by just improved business performance that we've seen in the third quarter, and what we are projecting for the fourth to close out the year. Related to the costs, we look to, as we strip that out, more of on a continuing basis.

I would comment a lot of that improved performance came from short-cycle businesses, which are difficult to forecast. That being the aerospace after-market and Distribution North America.

But in a world where you were not looking to sell this business, I mean conceivably you would have bumped your guidance. Instead of where you put it, you would have bumped it another $0.10, essentially.

That's a simple way to look at it, that's right. We would have had an even better performance.

The question then comes, just to understand the numbers, how many pennies of that fell in to Q3 and how many are expected in Q4?

Holden, sorry, say that again?

How many pennies of that $0.10 was in Q3 and how much do you expect in Q4, just to understand how it falls.

A simple way of looking at it is a majority of that is second-half-loaded. We had very limited amount in the first half, it's mostly second-half-loaded.

So if I look at your gross margin, your SG&A, in the quarter, at least compared to Q1 and Q2, it looks like, SG&A is actually down I think $6 million in revenues. I would have thought that's where these costs would come in. So I'm trying get a feel for why you had such a drop in gross margin when your mix between the 2 businesses didn't seem to change that much, and why you had such a drop in SG&A, particularly when I would think you would be having these extra costs starting to come into the model.

That's a lot of granularity. Given -- just given the portfolio and complexity of the business and the puts and the takes, and as Greg mentioned before, where we are getting the performance short-cycle versus long-cycle businesses, I would say overall we are pleased with the performance clearly in the third quarter, and as we project the full year, the $1.43 to $1.48 all-in is providing strength in our year-end projections.

I guess the point I'm making is if you look at your mix between Precision Components and Logistics, it really didn't change that much. But you had a dramatic -- your gross margins are running 36%, 37%, they came in close to 35%, and your SG&A was running $86 million to $87 million and it came in at $82 million. I'm just trying to understand, it looks like they're offsetting, I'm just trying to understand what the shift was from.

Recognizing that the performance, the improved operating performance, if you will, in terms of the bottom line is driven by what is in the segments themselves, as well as what we saw below the line. So lower interest expense, we're benefiting from the fact we repurchased shares in the quarter, offset a little bit by the higher tax rate. That is the way I would answer. We are just feeling good about the performance out of PC and LMS. As we got through this quarter, projecting for the full year, looking at our year-to-date results, that's the way it is shaping up.

We have no further questions at this time.

We want to thank all of you for joining us this morning. We look forward to speaking with you next quarter, and we'll conclude our call. Thank you very much.

Ladies and gentlemen, we thank you for participating in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.