Brinks Co (BCO) 2004 Q1 法說會逐字稿

Good morning. My name is Brian and I will be your conference facilitator today. At this time I would like to welcome everyone to The Brinks Company 1st Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two on your telephone keypad. At this time I would like to turn the conference over to Mr. Scott Dudley [ph] Director of Investor relations. Mr. Dudley, please go ahead.

Thank you. Good morning everyone and welcome to our Q1 conference call for 2004. With us today are Michael Dan, our Chief Executive Officer, and Bob Ritter our Chief Financial Officer. As we normally do, they will each come up with some comments and then we'll take your questions after that. Before we get to their comments, let me just make a couple of quick reminders about the call. First our press release is available on our website, it was issued earlier this morning. Our website is www.brinkscompany.com. And that's also available by fax by dialing 877-275-7488. We will have a replay of our call starting this afternoon, and that will run through Friday, May 14th. The replay number is in the press release. We will also have a replay of the Webcast and that will be available on our website through Friday May 21st.

And now for our Safe Harbor statement. This call, including the question and answer session may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from projected results. Additional information regarding factors that could cause actual results to differ materially from the projected results is readily available in today's press release and in our filings with the SEC, including our most recent SEC Forms 10-K and 10-Q. The information discussed on this call is representative as of today only, and The Brinks Company assumes no obligation to update any forward-looking statements made. This call is the copyrighted work of The Brinks Company and may not be re-broadcast, sold, or otherwise distributed without the express written permission of The Brinks Company. And with that out of the way, let me turn the call over to Michael Dan. Michael?

Thanks Scott. Let me also extend my welcome to those of you who have joined us today. We reported solid financial results for Q1 this morning. They reflect improved operating performance for each of our businesses. This is a good start to 2004, and is testament to our employees for hard work, discipline and focus on service. In short, we're executing the strategic plan we've laid out and we're seeing the benefits. We've also benefited from improving economies here in the US and in South America. Before I comment on Q1 results, I want to remind everyone of where we stood a year ago.

Economic conditions a year ago in the US, Latin America and Europe were difficult. SARS and the start of the Middle East conflict added to the mix of negative issues. Brinks also had more resources than was necessary to meet customer needs. As a result, Brinks posted weak results in last year's Q1, particularly in Europe and Latin America, and BAX continued to feel the effects of low US shipping volumes. During 2003 we successfully worked through the worst of the economic downturn, made improvements in our businesses and exited our natural resource business. We used our strong cash flow from asset sales and operations to address our liabilities, strengthen our financial positioning, including contributing $82m to the VEBA, bringing the balance to $105m at year end, adding $20m to our US pension plan, on top of $35m contributed in the prior year, and reducing net financings by more then $100m. Today our balance sheet and cash generation capabilities are strong. We have both the capability and opportunity to grow each of our businesses and that's where our focus will be.

Turning to Q1 results, for the quarter, revenues were up 18%, operating profit was $34m compared with breakeven a year ago. Brinks, Brinks Home Security and BAX all had higher revenues and much improved operating profit and cash flow. Brinks Incorporated posted significantly improved results led by the international side. Both our efforts to improve operations and better economic conditions had a positive impact. We were assisted with favorable currency translation. Once again, Brinks Home Security turned in an excellent quarter with strong subscriber growth, margins and cash flow, supported by further improvement in both customer retention and service operations.

BAX Global had an improved quarter, posting the first quarterly profit this year, versus a loss a year ago. This is the first time since 1999 that BAX had a profit in Q1. The improvement was driven by increased US freight volumes as well as growth in our international operations. And American operations took a big step on the road back to profitability. Operating profit also benefited from a $5m decrease in costs for our former coal operations.

Now I'll comment on each of our business units starting with Brinks Incorporated. For the quarter, revenue increased 17% driven by international ops. Although a little more than half of the increase in revenues resulted from the weak US dollar, we did see higher constant dollar revenues in earnings in South America and Europe. The effective currency changes on operating profits wasn't significant. International revenues rose 29% for the quarter, while North American revenue was up modestly, about 2%. Brinks' operating profit was up more than 100% to $33m, driven by the stronger performance in our international operations. This compares to $13m in a very weak Q1 in 2003. South America accounted for almost half of the profit growth in the quarter for Brinks. Revenue in South America was up more than 30%, or 24% excluding the currency effects. Venezuela was the primary driver, but Brazil, Columbia and Argentina were also strong contributors in the quarter to both revenue and operating profit growth.

In Europe revenues were up 28%, mainly due to currency effects. Operating profit in Europe was up sharply over Q1 of 2003, primarily as a result of significant better performance in France. The improvement comes in part from actions we took early in 2003 to streamline and reorganize our European operations. We also benefit this year from not having severance costs which occurred in Q1 one year ago. However, as a whole, economies in Europe continue to be sluggish, particularly in the UK and Germany. Asia-Pacific again showed a nice improvement in both revenue and operating profit, driven by Global Services. In North America, operating profit was up 19% year-over-year and 2% higher revenues. This reflects better results from Cash Logistics, Coin Processing and lower overhead costs. Our CompuSafe service added installations and increased profits. We now have more than 4500 units installed, we plan to continue rolling out this service in additional markets with more customers.

In the US, our armored car operations, that's Cash in Transit, ATM, posted slightly lower profits due to decreased volume and competitive market conditions. In summary, I'm encouraged by the strengthening of our international performance and the growth of Cash Logistics in the United States. There is room for further improvement and additional growth and we'll be pursuing both this year.

Regarding the outlook for Brinks, in North America we should see continued growth in Cash Logistics and CompuSafe, while traditional Cash in Transit and ATM services should achieve some modest growth with an improving US economy. We will maintain our discipline in managing risk and pricing, which has proven time and again to be the right long-term approach to this business. In Europe we believe the benefits of our cost reductions and organizational realignments in 2003 will help us again in Q2. The comparisons in the second half of 2004 will be much tougher given the improved performance we posted last year. We remain concerned about the pace of improvement in both the UK and Germany.

South American conditions have improved substantially but will remain volatile. We're hopeful Venezuela will continue to experience stability both economically and politically. We still worry about this part of the world, because the situation could certainly change for the worse. Asia-Pacific should continue to grow, driven by Global Services. Cash generation at Brinks should remain strong, all in all, we've already seen margins rebound to over 7%. We can do more to move them up, there's still risks to be concerned with, particularly in South America. With the quarterly comparisons becoming more difficult as the year progresses, I don't expect to see the same level of improvement we just witnessed in Q1.

Now turning to Brinks Home Security. Brinks Home Security had another record quarter. Subscriber growth remains strong, and its industry leading customer retention levels further improved. Financial performance was excellent. New installation volume grew 24% and revenue was up 11% for the quarter. Our disconnect rate was a low 6.4%, down from 6.5% in the last year's first quarter. The improvement in customer retention is the result of our disciplined customer selection criteria, and our success in achieving the very highest levels of service quality from service system installation and activation through ongoing monitoring and customer care. Subscriber growth was 9% year-over-year, we had more than 850,000 subscribers at the end of March. The growth in subscriber base and improved service operations, enabled Brinks Home Security to achieve record operating profits of $19.4m in the quarter, up 16% from Q1 a year ago. Monthly recurring revenue grew 11% to $24m at the end of Q1. Overall, continuing outstanding performance from Brinks Home Security. As far as their outlook, we'll remain focused on our overall strong execution at every phase of this business, including effective mass marketing, a balanced approach to new installation volume and profit growth, while minimizing installation investments, finding ways to stay ahead of the curve on service, and building our marketing channels, including opportunities generated by relationships with major national home builders, through our home technology services, and our very selective dealer network.

But even at Brinks Home Security, I don't expect to see mid-teens improvements in earnings to continue on a quarter to quarter basis. I expect we'll post good growth but not at the robust level we have seen recently. We are targeting 10% top line, growth, 10% bottom line growth, and 10% growth in subscribers. Our goal remains, Customers for Life.

Now moving onto BAX Global. I am pleased with the improved performance we saw this quarter. Typically the first quarter is not a strong one for BAX, and we've not reported a profit in Q1 for several years, so it's very encouraging to post a modest profit. Revenues were up 20%, 15% excluding currency effects, driven by growth in Asia-Pacific, as well as higher US freight volumes. BAX posted a worldwide operating profit of $3.1m in Q1 compared to a loss of $5.5m a year ago. This positive performance reflects continued strength in Asia-Pacific and improvement in the Americas. Results in Europe were flat. We're beginning to see the positive affects of leverage on our business structure, including our efficient fully integrated domestic transportation system and our broad service offerings, combined with BAX's superior service levels. On the international side, the Asia-pacific region was again the growth driver, with a revenue increase of 35%, or about 30% excluding the currency effects, reflecting a strong increase in air and ocean export and increased supply chain management activity.

International operating profits were up 23% in the quarter, mainly due to high tech export volumes from China and Hong Kong. Although Europe also showed higher revenues, the increase was all related to currency exchange rates. Excluding these impacts, revenue actually fell and operating profit was flat due to sluggish economic conditions and competitive market pressures. In the Americas, revenue increased 12%, reflecting encouraging volume growth on the freight side, and continued expansion of supply chain management services. The Americas reported a loss of $1.9m, but a significant improvement over the loss of $9.7m in the prior year period.

Our domestic operations benefited from a 13% increase in revenue with a nice piece of that growth coming from the wholesale, freight forwarder service we launched last summer. Revenue from standard overnight and second day products was down. However, this is more than offset by the incremental revenue from the freight forwarder service. Volumes have been growing steadily for our wholesale freight forwarder service and we now have more than 70 freight forward customers using our airport to airport service. In addition, revenues from our BAXSaver and guaranteed overnight products were each up about 20%. US export revenue grew by about 10% as well. ATI increased its revenues and profit contribution reflecting higher charter activity for the US government. Overall, I'm encouraged by the progress we have made at BAX in the Americas, but we still have a way to go.

Turning to the outlook for BAX, as always, BAX is sensitive to the global economies. The European economy hasn't shown any signs of solid growth. We expect growth in Asia-Pacific to continue driven by export volumes and supply chain management. In the US, we are seeing positive signs. Certainly the data shows the economy is getting better. We are seeing this in the freight volume pickups from our customers, as well as the growth in the freight forwarder network. Meanwhile, supply chain management is growing nicely.

In summary, I'll wrap it up by saying that overall we are pleased with the results for the quarter. There's more work to be done, and opportunities exist for further growth in all three segments. We are feeling more positive about the US economy. We're keeping a watchful eye in Venezuela where Brinks has its largest operation in South America. The European economy is still soft but we believe that the situation is beginning to improve. At Brinks, we'll maintain our focus on aggressively pursuing new business in both Armored Car and value added services, especially Cash Logistics. We'll do that while maintaining our high service levels, safety standards and as always, our pricing discipline. Brinks Home Security continues to have impressive growth and rock solid financial results. Given our market leadership and strong execution, we expect this business will continue its excellent performance. For BAX Global, the focus will be on growing the successful logistics business, maintaining effective cost controls, and excellent service quality, as stronger US economy leads to growth in shipping volumes, and we enjoy more of the positive leverage from our integrated transportation network. Asia-Pacific will continue to be a strong growth area.

Overall The Brinks Company's financial position, including our balance sheet, and cash generation capability is strong. We are in a position to pursue growth in all of our businesses and continue the momentum of 2003 in building shareholder value for the long-term. Now for some additional comments on our results and financial position, here's Bob Ritter.

Thanks, Michael. I'll begin with a couple of comments on operating performance to help put the quarter into context. Then I'll cover a few points about below the line issues which may be helpful in thinking about the balance of the year. Then we'll wrap it up with the usual cash flow and financing information.

I'll start with Brinks. As Michael said, the first quarter was a really solid one with margins running about 7% due to improvements in Europe and South America. But our year-to-year comparison was against a very weak 2003 Q1. For the next few quarters it's unrealistic to expect the same year-over-year improvement and even the sequential improvements we saw last year, since our performance in both South America and Europe was improving as the year progressed. We should have a good year, but the year-over-year improvement we just saw this quarter isn't typical. Brinks Home Security also had a solid quarter. But the 1st quarter is normally a good one since household moves are generally low. Remember that the 2nd and 3rd quarters normally show seasonal increases in disconnects related to household moves. In addition, it's unlikely that Brinks Home Security will be able to squeeze out as much improvement in costs during the next few quarters as they have over the last four. BHS will still do well on a year-over-year basis, but it's hard to see a continuation of earnings growth rates in the mid to upper teens.

BAX Global benefited from an increase in volumes, particularly here in the Americas. We hope that economic activity in the US continues to grow and that Europe begins a long-awaited move. Cost of former coal operations declined significantly in the quarter, from those of a year ago, as we'd expected. The benefits of the Medicare Reform legislation lowered the charges associated with the post-retirement medical plan by $1.5m during the quarter. With the allocation of the VEBA to pay only costs associated with the plan, the accounting for it mirrored the pension plan. As a result we will book investment income at the expected long-term rate of return or about $9.2m for the full year 2004. Finally, with the sale of almost all of our former coal sites, we have substantially reduced the costs of maintaining these idle sites. Those costs ran through much of last year.

There's one more thing to keep in mind as you look ahead. We currently expect to record over $8m in gains on the sale of former coal properties with an operating profit as an offset to costs of former coal operations. You can see this in the detail of Note 2 of today's release. There was about $1.5m of that in the first quarter, there will be at least $2.5m in the second, and the balance should be recorded by the end of the year. Of course this is not something you should expect to occur after 2004.

Now for those of you who have prepared detailed models of operating performance, I'd like to make a couple of comments about the quarter's below the operating profit line results. I'll start with interest expense. The $5.8m of expense for the quarter was pretty normal based on current levels of debt, as well as current interest rates and foreign currency values. Although it's been mentioned a couple of times in the earnings release, and will be covered again in the Form 10-Q which we expect to file soon, don't forget that there is a one-time pre-tax gain of $4.4m in the 2004 quarter related to the previously unrecognized gains in the VEBA on the date we allocated it to the post-retirement medical plan. That gain is not repeatable.

Finally, is the effective tax rate. The quarter's rate was 40.6%. But when we take everything that we currently know into consideration, we expect the full year to be about 40% even. And this includes the first quarter's provision. Now just a quick comment about the balance sheet before I move onto the usual comments about cash flow and debt. With the restriction of VEBA to pay only the benefits of the coal related post-retirement medical benefits, the assets which had a carrying value of about $108m at March 31, is now a direct offset to the plan liability. $105m at December 31, 2003 didn't disappear, it just moved down the balance sheet to reduce the level of liabilities. You can see its effect on Other Liabilities in the condensed balance sheet in today's release.

Finally I would like to make a few comments about the company's cash flow and debt position. As a result of foreign currency fluctuations and the growth at Brinks Home Security, we expect the full year 2004's depreciation and amortization to be a little higher than we last estimated. We currently expect it to be in the range of $175m - $185m divided among Brinks Home Security at $55m - $60m, Brinks at $75m - $85m, and BAX Global in the $45m - $50m range. As for capital expenditures, spending came in at just under $50m for the quarter. For the full year CAPEX on continuing operations still looks as though it will be in the range we noted during the last call, $210m - $230m. We expect Brinks Home Security will take a slightly larger share at $110m - $120m, as we continue to build a subscriber base and value of the business. Brinks investments should run in the $70m - $80m range, while BAX should run at roughly $30m - $40.

As for financing, we ended March with outstanding debt of approximately $265m. Combining this with roughly $140m in cash, the company's net debt was approximately $125m. This compares with a net debt figure of above $145m in December. Receivables sold and the asset securitization facility were $73m at March 31st, down from the $77m in December 2003. In summary, financings net of cash were just under $200m at the end of September, down about $25m from the year-end level. To wrap up, this quarter was a good start to the year. The company's businesses are continuing to demonstrate their cash flow generation capabilities and our solid balance sheet position got stronger. That's all I have for now. Brian, we're ready for questions.

At this time, I would like to remind everyone if you would like to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the q and a roster. Your first question comes from the line of Michael Hoffman with Friedman, Billings, Ramsey.

Good morning.

Good morning.

Question with regards to the 404 expenses and then on BAX in Asia and China's intent to slow down growth. Should we look at the 404 as $7m a quarter going through the rest of the year or have you-is some of that front loaded as you do your testing and planning?

I think that's going to be fairly consistent throughout the year. Basically what we're doing is we're doing the early preparation work now, and then we'll start moving into the auditing phase, so it'll probably start to trend down a little bit towards the end of the year, but it's going to stay at fairly close to the levels we saw this quarter.

And then with regards to your Asian operations across your two businesses that are there, Brinks Inc. and BAX, any concerns with regards to China's intent to slow things down for the moment?

Michael, no, I don't have those concerns. Most of our customer base in China is US based customers, and they're fulfilling demands based in the United States, and throughout Asia, and so I don't think the Chinese government policy, if that does take effect, will have any effect on us at all in this year. And I just returned from China, in fact, this weekend, and had quite a thorough review of our businesses over there, and growth rates and investment are still going very, very strong, so I don't think we'll see any of that effect in 2004.

Okay. And then, do you think based on what you're seeing in the economy that Brinks Inc. has the potential to hit an 8% margin in '04?

I'm not in the prediction business. I think Brinks had a great start for the first quarter, but as you know we had a great 3rd and 4th quarter at Brinks last year, so the comparisons are going to get a little bit tougher. I always said this business should perform at 7-8% in a normal economy, and with some breaks we can get up to the 10% margin levels. Brinks' management is focused on keeping their nose to the grindstone. There are some competitive pressures that we're feeling in the United States, but we've benefited from some competitors collapses around the world, when the markets got too competitive and people didn't maintain their pricing discipline. I suspect that some time that will also happen in the North American marketplace, but we're just going to have to wait and see how it develops in our 50 countries around the world.

You are modifying your free cash flow guidance at all? Given the strength of the first quarter.

We haven't been giving explicit free cash flow guidance this year, so, I would say, it's basically going to work off the operating performance that we have in the company, and we just gave you the depreciation and amortization in the CAPEX side.

Right, thanks.

Okay.

Your next question comes from the line of Jeff Kessler [ph] with Lehman Brothers.

Thank you, and obviously congratulations on a good quarter, Mike. I just want to say that we chastised you and probably rightly so the first quarter of last year on Brinks operating margin, but you obviously deserve some compliments on getting this margin back to what you could be more termed as normalized, and because this is obviously the vision that's somewhat historically close to your heart. I just want-I do want to follow up on this margin question with regards to Brinks. Given that to get down to a 7.5% type of margin for the year, we would have to scale back the margin, particularly for the 2nd quarter well back into the 5.5% to 6% area, and then keep it down obviously in line with previous year in the 3rd and the 4th quarter. And that seems to be pushing it a little bit on the side of conservatism.

Well, Jeff, I'm not going to do your job, but I will tell you that some of the reasons we're having this is we had such a strong recovery in Latin America which you know we've been suffering with for a few years. First through large currency devaluations, and the effect on the earning capacity at Brinks in that part of the world, and now we've had a pretty strong recovery in some of those economies down there. We constructed this company-we always talked about the investments in Europe, South America, North America, and growing in Asia-pacific, and having one out of bed with the problem but the other ones were supported. Unfortunately we had some problems in Europe and we had the Latin America-we had two areas out of bed. I'm very pleased with the recovery in Latin America, which has helping drive these results. We still have work to do in Europe. And we face come competitive pressures in the United States, which we know how to deal with, we know how to handle. I would suspect that the margins will stay in our historical range, and we'll have to see how the economies develop for the rest of the year around the world, and whether we can see some of the improvements that we normally see in the Brinks business model as the year goes on.

Okay. Now are these competitive pressures in the United States anything analogous to what you'd seen in Canada over the last several years? It's probably not as intense as that, but is it something that we should worry about given the fact that you have experienced some pretty biting price pressure up in Canada?

Yeah, it's a little different situation in Canada where you only have really 5 customers that represent 80% of the business market up there. But in the United States, you know, these banks are becoming larger and larger and the competitors are under a lot of pressure, and people tend to drop price to try to build density and volume, and we just know historically that that's not a smart move to make, and we work in front of those pressures, sometimes we back away from the market. That's one of the reasons we're having trouble growing revenue in the US.

Okay, as I see it, your traditional cash in transit business, which was well, you know, obviously the vast majority of the business at point in North America has come down to about 50% of the business with the growth in the Logistics and the CompuSafe businesses. Given that the way you described the US business just in your presentation today, that US business was essentially up just slightly with all of the growth coming from Cash Logistics and the CompuSafe business, is it fair to say that that's becoming the majority of the revenue base in the US at this point.

Jeff, it's real hard to describe it that way because Cash Logistics also services our ATM line of business, and more and more touches all our lines of business, which makes it really hard sometimes for us to divide it up into nice little buckets on the product side. I think the whole solution selling device, bringing complete cash logistic solutions to our customers is the future of this business and industry. We're putting some dedicated, and increasing the quality of those resources as we go forward, because the customer base is becoming more demanding and more sophisticated and that will play right into the strengths of Brinks' service network and Brinks' strategy. And I'm very confident that we've got the right strategy, and I'm just not going to play the price game.

Okay, just really a quick question for Bob. Clearly in the corporate line, corporate costs, Sarbanes-Oxley has cost you, what looks to be going from $7.9m to $9.1m so that maybe everything else being equal, you're talking a $1m - 1.5m type of dollars here. Can you kind of quantify what the effect will be and how we should be modeling the corporate cost for the year?

Okay. In fact, I'm just trying to think, I think we may have given guidance on that. We've said it's probably going to be in the $4m - $5m range, but that was a couple of phone calls ago, I guess. That's what our expectation is for this year. Right? So if you want to model that out you should be sort of expecting to see the level that we hit for the first quarter in terms of total corporate expense running through the year. Up and down a little bit, but pretty much at that level.

All right. And final question on BAX. Can you quantify the mix shift that you're getting between your wholesale side of the business, the ground based business and the air business in the US? Clearly the growth, at least that you're-any growth you're getting in the US looks like it's coming out of your ability to offload less than, less, we'll say, a smaller [whole] types of business onto these trucks.

Jeff, there's a lot of things running through that. The freight forwarder product is helping us "fill up the airplanes." We still have capacities left to do, and we're holding our price discipline, which you can see in the figures that we released today on the yields. In fact they showed it up a little bit but that's a little deceiving because of fuel surcharges run through there. But the BAXSaver product, our ground network continues to grow. Each of those are contributing to the improved performance in the Americas. I would tell you that the overnight product was actually a little bit flatter, actually a slight bit down in the 1st quarter year-over-year because more and more is going onto trucks. So, we have a strategy, we want to fly this network, we want to be able to be a complete service offering to our customer base, and this freight forwarder product is helping I think make that a reality, and we're going to steer this course, and I believe that's the right future for BAX in the Americas.

All right, great. And again, thank you, a good start to the year.

Thanks, Jeff.

Your next question comes from the line of Jerome Land [ph] with Milburg Capital [ph].

Hi. Good morning and congratulations on the quarter. First of all, a reporting question. Why do you report corporate for BAX as opposed to the other divisions and what's in there?

Hi, well the Corporate and Other for BAX, the reason being is that there was a lot more intercompany transactions that take place at BAX, because we're shipping from many different companies-or countries to other countries. So there's a lot more elimination there than there is in our other businesses.

Okay, so it's really eliminations not actual corporate costs.

There is a little bit of corporate costs as well. It really is going into the managing the global network as opposed to managing an individual country.

Okay. D&A for Brinks Inc. was down sequentially but up significantly for year-over-year. Can you explain that?

Well, we had some retirement of assets that took place as we went from the 4th quarter into the first quarter, so that will take care of the sequential explanation. Year-over-year a good chunk of that came about because of the changes in currency this year versus last year. In addition we had some newly capitalized IT projects which have a fairly rapid amortization schedule associated with them.

Okay. For fuel costs, both in BAX and diesel costs for Brinks Inc., can you characterize the total proportion of your cost structure that's tied up in fuel, and do you have a hedging policy on one or both?

I don't have those detailed figures in front of me on fuel. Obviously BAX is more fuel intensive in the US where it flies its own fleet. We do have a hedging policy in place for a portion of that. At the same time we have a mechanism in place to pass on those costs to the customer base that's built into the vast majority of our contracts. On the international side of BAX it's a little more difficult, sometimes there's a delay in passing on cost increases to some of our larger international customers. At Brinks Inc., it's a very small proportion of the costs compared to BAX Global and we usually just run it through our normal rate increase programs at Brinks Inc., and it has a lesser affect on that operation.

But does it appear to customers as a fuel surcharge, or is it just hidden within your planned price increase.

At BAX it's a fuel surcharge, at Brinks Inc., as a rule, in most countries it's just part of our normal price increase policy.

Okay. Can you tell me, what is the portion of BAX fuel cost that is hedged and can you give my just an order of magnitude on what, you know, 'less significant' is for Brinks?

First of all, Brinks is a small fraction of the expense, Brinks fuel. At BAX Global we have internal hedging policies that we don't publicly disclose. And we are very conservative in those and we usually go out about 15 months and-but we're not into disclosing that level of detail.

And there is additional information about the hedging for the jet fuel that's in our annual report for last year. And there's been no need to update that because there hasn't been a material swing.

Okay, thanks very much.

Your next question comes from the line of Gary Steiner [ph] with A. Watt Asset Management [ph].

Hi, good morning. I had a number of questions I guess. First congratulations again. I know you spent a lot of time and effort on Brinks and certainly the results have followed. At BHS in the prepared comments, you had indicated that the 1st quarter is the seasonally stronger quarter. But I guess as I go back and look at the numbers from last year it looks like it was the weakest quarter of the year from an operating income standpoint. What am I missing there?

Gary, first of all, Brinks Home Security is a much easier company to model and to watch go forward, and obviously we're growing the business, quarter after quarter after quarter. So it tends to get a little bit better. What we're referring to is in the first quarter, usually the disconnects and moves are at the lowest level of the year, which can have a financial impact on the company due to disconnects and charges that run through. You don't see much of that in the first quarter, it starts to pick up in the second quarter and the third quarter as families relocate around the country.

Okay. At Brinks, can you just talk about, domestically you had some nice margin expansion, is that a mix issue, or I mean, I guess you were referring to difficult competitive conditions with [inaudible].

I think, we weren't pleased with the 1st quarter last year, so the comparison is a little bit easier. One factor. The second factor, don't forget we closed our Darien headquarters last year, and took I think over $5m worth of charges for that. I mentioned to everybody that had less than a year payback, so some of that is coming through and being reflected. And there were some operating areas that performance has improved in the US on a year-over-year basis, accounting for that increase in profit.

Okay, great. And then at BAX, could you talk about, I guess you were just saying that the traditional overnight product really hasn't shown any significant improvement on the revenue side. I guess my impression was that the big margin improvement is really going to come from that business coming back. So, you're getting volume from other avenues, and that's great. I'm just wondering, what kind of impact the change in mix is going to have on the ultimate margins of that business.

Well, don't forget, we're still talking about the 1st quarter here. A marked level of improvement in the 1st quarter which is usually a disaster. The question has been the last four or five years, is how big is the hole that we have to dig out of in the first quarter. What I'm pleased about is there's not a hole we have to dig out of and we're very, very close to breakeven at BAX in the first quarter. So if the normal seasonal improvements go on in the second and third quarter, we should be able to, because of that leverage, have a positive outcome in the Americas for BAX hopefully by the end of the 2nd quarter, and we'll see where we go from there. But it will be based upon the economy and those shipping volumes.

Are you hopeful, or maybe that's not the right word, but do you think that if the economy continues to be reasonably strong for the remainder of the year that this will be the year that we can say BAX has really begun to help things out?

No question BAX is ultra sensitive to the economy. If the economy continues to be as robust as this, or continues to grow, and more importantly the strategies that we laid out at BAX with the BAXSaver product, our freight forwarder network, our sales initiatives that we have, and the other initiatives we have are all contributing to that improvement, we should be able to see a good improvement in BAX's performance. But once again, BAX didn't have much of a performance in 2003, so it doesn't take a lot.

Sure. Okay, great. And again, great job.

Thank you.

Your next question comes from the line of Rob Norfleet [ph] with Davenport.

Hi Guys, everybody, a great quarter. Just a couple of quick questions, I think most of the have been answered. Bob, just real quickly looking at cost of former coal operations for the quarter at $12.5m, obviously what I'm trying to just dissect from this is it looks like $1.7m was related to gain on the sale of property and equipment and other, something that's not going to be recurring. So I guess I'm trying to figure out on a recurring basis through the rest of the year, should we be looking at a number closer to $13.5m - $13.8m. And again that doesn't give any credit for declining corporate expenses, or admin expenses, but what kind of recurring numbers should we see from that.

Well, as you point out, we should start to see the admin and legal and other going down as the year progresses. But just keep in mind that on the gains on sale of property we're going to have for the year, probably in the $8m plus range that's going to run through there. We had a sale of an asset early in April which is going to throw some gain into the second quarter. We currently estimate the gain at about $2.5m or more. In addition there's another up to $6m that we'll see come through during the year. So, for this year, unless we get a bit chunk of that coming through, flooding through all at once in one quarter, you're going to see a fairly stable amount going through that gains on sale.

Okay, great. And just my last question is, as it relates to the subscriber growth that we saw in home security. Were any of those new subscribers, I mean, I know one of the issues that, one of the areas we're trying to grow is both the commercial and the high end residential-was any of that new subscriber growth from some of those new initiatives, or was this pretty much just the bread and butter typical retail person, retail customer that we've originally gotten?

It would be, Rob, it would be spread over all of our business lines. The only business line that didn't grow during the quarter was multi-family. But our home technology business, our commercial business, which is still very, very small, and our residential business all grew an equal share of that growth.

Okay, thanks a lot.

Your next question comes from Steven Fisher [ph] with UBS.

Good morning. Following up on forwarding product at BAX. You mentioned that those revenues were growing steadily. Now have domestic volumes increased? Do those forwarding revenues accelerate as well?

A lot of the revenue that we're seeing increasing in the Americas is revenue that's coming from that product or going on our BAXSaver network. Our actual overnight revenue that's BAX generated revenue is actually a little bit down, basically flat year-over-year. So all the growth is coming from BAXSaver on the ground, or our freight forwarder product. It continues to grow month after month after month, and obviously we're pleased with that performance.

It's growing at a steady rate, not an increasing rate?

At a steady rate.

Okay. And then on home security, one of your main competitors there has moved from leasing systems to selling them, and raised it's average up front payments. Is that something you've considered and can you attribute any of your growth in the quarter to a relative price positioning?

Well, we're a little higher priced than everybody else to start with, it's always been our pricepoint and we're not doing anything different as a result of some of the competitive action that's been taken. As you know, we have strong cash generation capabilities in the company, it's very strong free cash flow, and as long as we can have our controlled growth in our targets, and we have plenty of cash to fund the growth of that business, and we continue to do so.

Okay, thank you.

Thank you.

Once again as a reminder if you would to ask a question, simply do so by pressing star then the number one on your telephone keypad. You do have a follow up question from Jerome Land [ph] with Milbrook Capital [ph].

Hi. Two follow ups actually. One is, the international margin in BAX, you know, declined, it was a small decline, but can you describe why?

Yes. It was a very, very tight airlift availability market coming out of Asia in the 3rd quarter especially, and probably saw a lot of noise from a lot of the competitive marketplaces with the same thing. So our gross margins got squeezed quite a bit. And the carriers raised their rates and our ability to pass those on to some of our large global customers was non-existent, so we took a squeeze, particularly in March. That lift squeeze is over, but it really affected us in the month of March particularly. It was almost like peak season and it squeezed our margins, simple as that.

Okay. Secondly, I wonder if you have any comment on the recent deal announced by Honeywell selling their monitoring business, and if you can't comment specifically on that, is there anything you read from the trend of your now two main competitors in that business are privately held by financial sponsors?

No, not at all. I think, Honeywell has been trying to exit that business for an extended period of time and they have now completed a strategic move on their part, and a strategic buyer of some type-I'm sorry-a financial buyer of some type bought it. I don't know what they're going to do with it. But they're basically a high-end residential in a commercial company. And it really doesn't match up to what we do currently.

You mean by that, in other words, high value homes rather than high credit quality?

Yes.

Okay, thank you.

Thank you.

Your next question comes from Michael Novak [ph] with Frontier Capital.

A couple of questions for you on BAX. Could you describe what you're seeing on the domestic side from your competition please?

Very, very cost competitive environment. But our price discipline is evident in our figures, our numbers, our weight, our yields, you can figure them out from the information we give. We have capacity in our system, and we're out there trying to find a way to fill that capacity, maintain discipline, at the same time, and use these multiple revenue sources. That's our strategy, it's a little bit different than the competition. We think it's a good strategy and we're going to steer that course.

Can you comment a little bit on the volume trends and pricing that you've seen in April.

Volumes in April are continuing and reflective of what's happened in the 1st quarter of this year.

I've been on a couple of other conference calls, one in particular, a large contract manufacturer who suggested that some of the component shortages are beginning again, and there is some cost associated with expediting those deliveries. Are you starting to see any of that?

I think that some of the volume increases that we've had, that we've talked about in the past, that in a slowing economy the velocity slows down which is kind of a double whammy on our business. The velocity picks up, the demand picks up, that's going to help expedited freight company's volumes. So that's all encouraging news for me to hear, thank you.

And then my last question if it's okay. Seasonally, BAX's first quarter is typically the lowest volume quarter. Would you expect to see the traditional sort of maybe 2-5% sequential growth in the 2nd and 3rd quarters?

I always get a kick out of seasonality. And we always talk about typical seasons, and we didn't have too many typical seasons the last three years with SARS and the Mid-East conflict. And two years ago we had the highest revenue in the first quarter and revenue went down. In a normal economy, in a normal performance, the answer to all those questions would be yes you'd see better performance in the 2nd and 3rd quarter, which is usually the strongest and a slight tail in the 4th quarter. That's a normal economy. If we can sustain that economy this year for the next nine months remains to be seen.

Thank you very much, good quarter.

Thank you.

The next question comes from Jeff Kessler [ph] with Lehman Brothers.

Mike have you seen any effect on what is going on with Kittyhawk? We're at a point now where it doesn't appear that these guys are able to haul anything more given their credit situation and the fact that they may end up being liquidated at some point. Are you seeing any benefit at all from business coming from them to you?

Jeff, no, not at all. And I'm really not aware of that competitor is dealing with or standing. We just have our strategy and we're executing it.

Okay, thank you.

Thank you.

At this time sir there are no further questions.

Okay, great. Well, thank you all for joining us, and we'll talk to you again soon, thank you.

This concludes today's Brinks Company 1st quarter earnings conference call. You may now disconnect.