Brady Corp (BRC) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Brady Corporation earnings conference call. My name is Heather and I'll be your coordinator for today. At this time all participants are in listen-only mode. We'll be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today's conference, Ms. Barbara Bolens, Director of Investor Relations. Please proceed.

Good morning. Thank you for joining us. During the call this morning you will hear from Frank Jaehnert, CEO, and then Tom Felmer, CFO, who will be presenting Brady's quarterly financial review. Also joining us this morning is Matt Williamson, President of Brady Americas; Peter Sephton, President of Brady Europe; and Allen Klotsche, President of Brady Asia-Pacific, who will all assist in providing the regional reports. As usual, after brief presentations by the team we will open up the floor to questions. We encourage you to follow along with the slides located on the internet, as we will be referring to the individual slides as we proceed through the presentation. These slides can be found on our website at www.investor.bradycorp.com . You have a few minutes to get to those while we go through our Safe Harbor statement and other usual information.

Please note in this call we may make comments about forward-looking information. Words such as expect, believe, and anticipate are a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's 10-K and 10-Q filed this fiscal year. Second, please note this rebroadcast is copyrighted by Brady Corporation and there may be no rebroadcasting of this without express written consent of Brady. Also note that Brady will be taping the call and broadcasting it on the internet and your participation in the question-and-answer session will constitute your consent to being recorded.

Thank you and now here's

Thanks, Barbara, and good morning. Thank you for joining us at this early hour. This morning we announced third quarter results, which were reflective of the continued global recession, with sales of $277 million, net income of $18 million. Total sales declined 28% with a 20% decline in organic sales and 8% negative currency effect due to a stronger dollar compared to the same time last year. During the quarter we continued to implement the restructuring plan announced in November. That plan included a global workforce reduction that has taken our workforce from 9,500 employees, including contract employees, at the end of October to about 7,300 employees at the end of April, a 23% decrease in the employee count. We are in the process of negotiating lower costs from our suppliers of goods and services. We have frozen salaries and wages, cancelled bonuses and reduced discretionary spending across the board. The result of these actions are reflected in our ability to keep gross margins and operating expenses as a percent of sales to [a level] percent about 100 basis points of last year.

Cash flow from operating activities in the quarter was a very strong $55 million, more than double what it was in the second quarter of this fiscal year. This was a result of our Company-wide focus in working capital initiatives, as well as higher profitability. The success of these initiatives has continued to position our balance sheet very well and we ended the quarter with a cash balance of $233 million. We believe we may have begun to see a stabilization for our business, albeit at a low level; however, the nature of our business is such that we do not have much visibility, which causes us to operate with utmost vigilance and caution.

In addition, we continue to look for further opportunities to create the most optimal structure in order of our businesses unit -- business units globally. While we are dealing with a challenging economy with dramatic cost reductions we have not stopped investing in key initiatives to drive organic growth in the future; in particular new product development initiatives. We continue rolling out the Brady Business Performance System, BBPS, and updating our acquisition strategy to position us for the eventual economic recovery. We are investing in productivity enhancements in many administrative functions, such as finance, HR, credit collections and so fourth to assure that we are well positioned, both today and in the future.

I will return after the regional reports to provide color on how we are approaching the remainder of fiscal 2009. Now here's Tom

Thanks, Frank. Starting with Slide three I would like to walk through the financial highlights of our third quarter. While we continue to feel the impact of the global recession the rate of sales decline was similar to what we saw in the second quarter, with sales declining 28% compared with the prior year. We saw a 27% sales decline in our second quarter. We continued with our planned restructuring activities and had a pretax charge of $2.2 million in the quarter. Operating income and net income were $29.3 million and $18 million respectively. Excluding restructuring charges operating and income were $31.5 million and $19.6 million for the quarter. Diluted earnings per share was $0.34 improving to $0.37 when adjusting for restructuring charges. And despite the challenging economy and soft sales we are seeing the impact of the restructuring and cost savings initiative that we began last October with relatively strong gross margins and significant declines in our SG&A expenses. We are also seeing the impact of our working capital initiatives, having generated $55 million cash flow from operations in the quarter. We will provide more details on these improvements later in the discussion.

Moving on to Slide four, we outline our progress towards the $30 million in restructuring that we are targeting for the year. As I mentioned earlier, we recorded $2.2 million in restructuring this quarter, bringing our year-to-date restructuring to $23.3 million. We've also broken out the cash and non-cash components of restructuring for you. Note that of the $21.1 million in cash restructuring that we have completed thus far we have paid out $11.9 million of the charge, which $9.2 million remaining to be paid in future quarters.

On Slide five we show the break down of our growth components, and as you can see our third quarter has similar declines to the second quarter, with organic sales declining 20%. There was no impact from acquisitions and a negative 8% impact from currency when compared to the prior year. The Americas and Europe saw similar low 20% declines in organic sales while the Asia-Pacific region organic sales were down only 11% for the quarter. We expect to see similar currency declines in the fourth quarter, with currency comparables beginning to stabilize as we move into the first quarter of fiscal 2010.

on Slide six, you can see the impact of the cost savings measures that we started to implement last October and November. Despite more than a $100 million sales decline in Q3 compared with Q1 of this year, we were able to generate gross margins of 48.5% in the third quarter compared with 47.9% in the first quarter. We've also seen spending in SG&A drop $32 million, or 25% compared with Q3 of last year. This drop relates primarily to the restructuring activities that took place during Q2, as well as a decrease in discretionary spending and reductions in incentive compensation plans.

We believe that we are -- that we can increase market share as we go through this recession and as you can see in Slide seven, we continue to invest heavily in research and development. We list some of the new products that we launched in the quarter, including the Brady Benchtop Printer, the BBP11, Lockout compliance software and Permasleeve wire markers. Our R&D spending was down in absolute dollars compared to the prior year; however, it continued to increase as a percent of sales, again as we look to continue to invest in this area in order to improve market share and accelerate growth as we come out of the recession.

Slide eight shows our operating income and net income by quarter compared with the prior year and makes the comparisons both with and without the restructuring. You could see that we have rebounded nicely from our soft second quarter to generate $31.5 million of operating income and $19.6 million of net income, excluding restructuring for the quarter. Similarly, you can see our diluted earnings per share and EBITDA comparisons on Slide nine. As I mentioned earlier, we delivered $0.34 of EPS for the quarter and adjusting for our $2.2 million of restructuring our EPS improved to $0.37. EBITDA for the quarter was $43.7 million.

As I mentioned in my opening comments another highlight for the quarter is the strong cash flow that we generated in the quarter. On Slide 10 you can see that we generated $55 million in cash from operations, and increased our cash balance from $185 million at the end of the second quarter to nearly $233 million at the end of our third quarter. $48 million in cash came from the $55 million in cash from operations plus the $3.9 million gained from currency, offset by $3.1 million in capital expenditures and our continued committment to pay dividends of $8.9 million in the quarter. Of the $55 million in cash from operations, net income generated $18 million, $18.5 million from working capital improvements, $13.5 million related to the add back of depreciation and amortization, and $5 million was from other items.

I'd also like to comment on a few items on our balance sheet on Slide 11. Here you can see the strong cash position that I just covered. You can see that our receivables continued to decline as a result of lower sales but it is also important to note that both our day sales outstanding and aging of receivables have improved since the beginning of the year, as we monitor collections regularly and work closely with our customers during this challenging financial time. We have also worked very hard to manage our inventories tightly while continuing to provide excellent service, which often includes same-day or next-day shipments. Inventories are down 21% from the end of last year and down 13% in the quarter.

On Slide 12, we show our debt position, as we currently have $479 million outstanding in private placement debt. Adjusting for our $233 million in cash our net debt position is $246 million. We also remain conservatively leveraged with 2.4:1 debt to EBITDA ratio and adjusting for our cash position a net debt to EBITDA ratio of 1.2:1.

And finally, on Slide 13, you can see that our full-year guidance remains unchanged. Our full-year guidance is as follows. Excluding restructuring charges, we expect net income of between $85 million and $95 million, with diluted earnings per share of $1.61 to $1.80. Including our restructuring charges, we anticipate net income to be between $65 million and $75 million, with diluted EPS between $1.23 & $1.42. This guidance still assumes capital expenditures of about $30 million for the year and depreciation and amortization of $60 million.

You can see some additional assumptions on the slide. We still anticipate the economy to remain soft through the end of the fiscal year. We anticipate mid-teen declines in our base business. We expect cur -- we use our current exchange rates and the full-year tax rate of 28%. Some of the other elements that are included in our guidance: The savings and restructuring activities from this year, including the 23% reduction in employee headcount, as Frank mentioned; the elimination of F09 merit increases and bonuses; reductions in all discretionary spending budgets; and pretax restructuring expense of approximately $30 million and a corresponding annual savings of approximately $45 million, $30 million of which which should be in this fiscal year.

If you have any questions regarding our financial results we'd be happy to take them at the end of the prepared comments. I'd now like to turn the presentation over to our group presidents to review our regional highlights. Here's Matt Williamson, President of the Americas region.

Good morning. Thanks, Tom. Please refer to Slide 14. Americas sales in the third quarter were $125.7 million, down 24% compared to the prior year. Organic sales declined 22% and currency negatively impacted sales 2%. In the US our Brady business was down significantly compared to the prior year, consistent with the sales decline we had seen in the second quarter. The economy did not improve in the third quarter, resulting in continued softness in products sold to the manufacturing, maintenance, safety, electrical and construction sectors in the US. As noted, in the second quarter our distribution partners have been decreasing inventory. This reduction of inventory has continued in the third quarter but we believe this is now slowing. The gap between the sales of our distributors to their customers versus their actual purchases from us was smaller in the third quarter than it was in the second. Sales to markets such as medical, aerospace, defense, and laboratories partially offset sales declines in other markets.

In Brazil the recovery of our customers to the electronics and automotive OEMs was slower than anticipated. We do see signs of increasing demand from these customers in the quarter, but buying habits have changed. Previously, these OEMs were carrying several months of inventory. With the dramatic exchange rate fluctuation in October, these companies now only carry or want to only carry less than a week of inventory. In Canada the Brady business continued to decline in the third quarter versus the second, as the deteriorating economic conditions have lagged the US slightly. Mexico still had growth for the quarter but continues to show signs of slowing.

in our direct marketing businesses, organic sales continue to be down yet less so than in our Brady business due to the greater mix of compliance product sales, which experience a seasonal high in the first several months of the calendar year. The weakness we continue to experience is being driven by overall economic conditions, with the declines in the manufacturing sector and MRO project delays proving to be the greatest challenges. Canadian business had sales decline mirroring the softening Canadian demand noted in our Brady business. In our people ID businesses we continue to see lagging sales, with declines similar to the second quarter. Customers continue to delay capital projects of our software and systems products. Sales of our badging products have not picked up, as attendance remains down at conferences and trade shows, with continuing layoffs seen at end users directly affecting the demand for employee badging products.

Segment profit for the Americas declined 29%, or $11.7 million, to $28.5 million in the quarter, and as a percent of sales segment profit decreased to 22.7% compared to 24.1% in the prior year. The loss of sales volume continues to impact our ability to absorb fixed costs and overhead. We are continuing to adjust our cost structure as necessary in areas that do not impact our core growth and productivity initiatives. We are working closely with suppliers to realize lower raw material costs now that commodity-linked material costs have come back down. Our focus on implementation of Lean management principles continues in all facilities in order to drive better space utilization, labor efficiency and cycle times. In addition, we have significantly driven down our working capital in the third quarter to bring it in line with the reduction of volume. Looking ahead we do not expect near-term improvement in the economy but feel our ongoing cost reduction efforts and growth initiatives will position us well with end users and distributors to take market share.

Peter Sephton will now report on our European business.

Thanks, Matt. I'll draw your attention now to Slide 15. Sales for the European region were $85.2 million, down 36% against last year. Organic business was down just under 23%, whilst the stronger US dollar against the European currencies had a 13% negative impact. There was no effect from acquisitions in this quarter. As we expected, we saw an acceleration of GDP decline in all our economies and all indications are that we have not yet seen the bottom. As public spending is increasing our sales to government and public utilities have increased somewhat but this has not been able to fully compensate for the decline in our private sector business in both OEM and MRO markets.

In this quarter our (inaudible) marketing business fared better than our Brady business in terms of organic sales decline, helped by the modest decline for the quarter at this time in the UK. This confirms the general observation that the UK was the first European economy to be hit by the recession, with other economies following in phases depending on the flexibility of their labor markets. In comparison, Southern Europe, and in particular the Mediterranean countries, saw the greatest decline in the quarter and Germany lost some of its traditionally-excellent customer retention rates and posted a marked decline. Throughout all our geographies our success at selling to government armed forces and transport utilities have convinced us our models work equally well beyond our traditional industrial markets.

We have kept our marketing investment levels constant and have increased our customer contact rates in certain markets where we feel that the current economic climate presents an opportunity to gain market share. We also achieved some major breakthroughs in our eBusiness marketing, which now forms an integral part of our customer contact strategy. Apart from reaching out further and faster than through our traditional mail order channels this gives us an edge in terms of reactivity and flexibility when the economy eventually turns up.

Our Brady business saw sales decline strongest in Central Europe and the Mediterranean countries, which are the areas where we've experienced strongest growth over the previous eight quarters. Our business in the Middle East and Africa performed comparatively well with the modest increase, although we expect this to slow going into next quarter. During this quarter we continued new product rollouts with the successful launch of BBP11 printer, boosting the [parts] of new product development sales and our sales are almost double the normal run rate. We continue to be pleased with our recently acquired businesses, [Transfer Safe] and Scafftag, as they continue to post solid results with little or no sales decline and improving margins.

Segment profit was $23.8 million, a decline of 34% including the impact of currency, which impacted this figure substantially. More encouragingly, as a percent of sales profit improved from 27.2% to 27.9%, showing the effectiveness of our cost-cutting measures and our ability to hold our operating margins. The swift execution of our savings plan has helped to limit the profit impact of such a sharp decline in our base business, which enjoys high operating margins, where the impact of even a small sales decline can hit our profit hard.

Looking forward we see no respite from the economic decline. We believe our direct marketing business and MRO business generally will hold up better than our OEM businesses and our cost control measures will help keep the quality of our earnings high. Without exception we believe each of our European businesses is well positioned against their competition, both by segment and by geography, with an experienced and seasoned management team in place to weather the storm and maximize opportunities for growth.

And now I'll pass it over to Al Klotsche, who will report on Asia. Over to you, Al.

Thanks, Peter. We'll now move to Slide 16. Asia-Pacific sales for the third quarter were $65.9 million, down 20% from last years $82.1 million. Organic sales declined 11% while currency had a negative impact of 9% and acquisitions had no impact on this quarter's sales . This quarter's performance was very much in line with what we expected throughout the region. During the quarter we saw multiple swings in order activity, all of which were related to inventory management.

Going into the lunar New Year shut down our customers were pessimistic about their business outlook and as such, significantly reduced their inventories. Upon reopening they experienced some increase in order demand and as a result, had to place small but urgent orders upon us. In the middle of the quarter things flattened out again, but more recently we have seen another small uptick in demand. It's difficult to tell whether these upticks in demand are reflective of some market recovery or if they are just filling depleted supply chains. Looking at our end-user markets we've begun to see some signs of recovery in the electronic component industry, oftentimes a leading indicator of future demand. However, sales of finished goods, such as mobile phones, computers, et cetera, are not showing much sign of recovery and have not forecasted significant growth in the near future.

Our focus on differentiated new products has continued and we have some nice wins during this quarter. We have successfully introduced two new products in the hard disk drive market, which have enabled us to regain some of the sales that we have previously de-emphasized based on profitability. These solutions are a combination of new material developments combined with automation and assembly solutions.

This is the time of the year that we are working hard at the design centers to secure our position for volume allocations later in the year. While we are seeing some of our customers reduce the overall number of programs being designed, the volume of prototype parts that we are supplying seems to be consistent with prior years. We continue to see adjustments in our customers' overall market share and are aligning our commercial efforts to focus on the customers and programs we believe will emerge stronger from this recession.

Pricing continues to be a significant challenge for us, with two factors coming into play. Firstly, our customers who are struggling to maintain their own profitability on a lower base of sales are continuing to push hard for quarterly price reductions. Secondly, we are seeing a number of competitors become more desperately aggressive with their pricing as they are fighting for their own survival. The recession has clearly impacted some of our competition and we are very cautious not to get drawn into pricing wars that will result in levels which are not sustainable in the future. Most of the governments throughout Asia have introduced and executed stimulus spending plans, which are heavily focused on developing infrastructure. This has given us increased opportunities for our MRO products and as such, this is one area of our business where we are seeing performance levels exceeding prior-year sales.

Segment profit for the region was $7 million, down 37% from last year's segment profit of $11.1 million in the same third quarter. During the quarter we completed most of our planned personnel and process cost reductions but continue to look for opportunities for improvements.

I'll now turn the call back to

Thanks, Al. You have heard from our business leaders of all the actions we have taken to date to proactively deal with the challenges of the global economy. We believe that the result of those actions are being seen in a number of ways, such as gross margins and SG&A being risen about 100 basis points from last year's quarter in spite of a significant reduction in organic sales, as well as good management of working capital. We believe that our fast reaction to the economic downturn and our fiscal discipline will position us well to weather the economic storm. Additionally our significant investments for our future will benefit us when the economy finally recovers.

We thank you for your interest in Brady and we'll now start the Q&A. Heather, please provide the instructions for our listeners.

Thank you. (Operator Instructions). Your first question comes from the line of Matt McConnell of Robert Baird & Company. Please proceed.

Good morning. Al mentioned competitors in Asia getting more aggressive on price, are you seeing that in the Americas and Europe, as well? And can you just talk about pricing trends in general throughout the business?

Matt, do you want to go first?

Can you hear me? Yes.

Okay, thank you. Al mentioned in Asia some competitors were getting more aggressive on price. Are you seeing that in the Americas and in Europe? And if you could talk about pricing in general across the business that'd be helpful. Thanks.

Okay, now, the other Matt, Matt Williamson. (LAUGHTER) Could you answer this question first and then Peter. So I think there was a confusion. I was talking to Matt Williamson.

Yes, I would say that it has risen but it's not dramatic. There's some markets where it's up considerably but not to the level that Al would have indicated for the OEM market.

Peter?

Yes, actually quite different for us. I think that our competitive position is stronger than most of our competition so if anything we're seeing ourselves in a stronger position and that's reflected in our ability to hold prices, so quite the opposite.

Okay, great. Thanks. And can you maybe talk about demand through the quarter. You mentioned that demand stabilized, can you speak to whether April was stronger than March and whether there was a significant change throughout the quarter?

Well, Matt, let me take a stab at this. We say business has stabilized. It's very difficult for us, of course, to make statements like this because we have no visibility whatsoever but if you look over the last couple of months -- we were up April, in particular -- but over the last couple of months, and if you also read what's in the press it appears that America has stabilized on a lower level. It also appears that Europe continues to weaken but not at the same traumatic rate it weakened before,so it looks like it's weakening at a lower pace. Whereas Asia -- and this is particularly for Brady -- all organic sales in Asia in the last quarter, which we are just reporting on, was down only about 10%, I think, organically compared to almost double -- about double the quarter before. So it looks like that Asia has fallen already deep and it has rebounded a little bit. So if I look at the Company in total then and I can put all of this together, Americas is kind of stabilizing, Europe weakening but not at the same dramatic rate, and Asia rebounding a little bit, I think the Company in total has somewhat stabilized, however, on a lower level.

Okay, great. Thank you.

Your next question is from the line of Charlie Brady with BMO Capital Markets. Please proceed.

Good morning. This is actually Tom Brinkman with BMO Capital Markets. Just wanted to clarify a statement you made about the Brady Asia segment. You're saying that it was in line with expectations but last quarter you were saying that you expect the third quarter to look a lot like the second quarter. But this quarter organic sales were down 11%, last quarter they were down 29%, so it would seem to me that this quarter was actually a little bit better than the second quarter. So can you clarify what your expectations were and how the quarter actually shaped up?

I think when I made the comment last quarter I was referring somewhat to absolute sales and we saw a lot of bounce, Tom, during the quarter and we had -- we came off to a fast start in the quarter and as I said because of the rebound in inventory levels after the lunar New Year and then things slowed down for us a little bit. This is what we expect is a bouncy recovery, if you will, where customers are going to be placing urgent and smaller orders and we expect to see this probably for the next couple of months and then hopefully we're going to see some consistency and ramp up of the size of orders as we head into the fall season.

Okay. And then just -- yesterday there was also a major cell phone manufacturer announced some further staff reductions as they said they continue to adjust capacity according to market demand, so I'm just curious what you see now in terms of inventory in the channel and what you expect from the levels of production from your OEM customers in general, particularly in Asia?

Well, we see inventory levels about as low as they've been in, let's say, the last two or three years so people are managing that very, very tightly. and we're seeing a lot of market share plays at the OEM level and we're seeing not only supply chain adjustments but some of the OEMs are adjusting their strategy in terms of what they do in house versus outsourcing. And so we expect -- we're very fortunate that we've got solid coverage across all the OEMs and across the entire supply chain, but we are preparing ourselves for swings in market share changes both at the OEM level and the supply chain level.

Okay, thank you.

Your next question is from the line of Ajit Pai with Thomas Weisel Partners. Please proceed.

Yes, good morning. A couple of quick questions. I think the first one is just looking at the acquisition environment. I think you've talked about, especially in Europe, that you have opportunity to gain share, but what about inorganically? Just given how business has slowed are you seeing an increased opportunity out there? And then the uses of your cash, you've been generating a decent amount of cash recently. How do you plan to deploy that?

This is Tom Felmer. The -- as far as the acquisition environment right now we're spending a lot of time just working on our strategy, making sure we understand what adjacencies we'd like to continue to work in going forward. As far as specific companies, I would say there's just not a lot of activity. There's just so much uncertainty, both in terms of companies looking to sell at depressed levels and our desire to wait until we have a better und -- a clearer picture of what the next couple of years look like before we go out and make those acquisitions.

As far as uses of capital, obviously we're very pleased with the cash that we're generating and we just -- we continue to measure our options. Historically we've invested -- our primary focus has been generating internal investments, focusing on R&D. We continue to invest in R&D. Acquisitions, we do anticipate playing in the acquisition market going forward, and there's always the possibility of other things. We still have some debt that's out there but right now, we're happy with our cash position and just looking at all of the options that we have out there.

Right. But in the near term, at least until the end of this fiscal Year, you're suggesting that there aren't likely to be any acquisitions; is that fair?

Ajit, I don't think we want to be that specific. We are talking acquisition targets and there's just one major problem. It is how do you value future cash flow and how do you come up as a reasonable price, because the economy is so uncertain. So we have a lot of discussions going on and I would say many of them are lukewarm. Nothing is hard because we are just being very cautious and the same is true for sellers. Many of the sellers are just sitting there and saying, you know what, maybe wait half the year or year, until earnings come Maybe wait half the year or year my earnings come back up and I can get a higher price and right now it's at depressed levels. So we are cautious, we are very conservative and I would say based on this activity is low, but I don't want to get as specific as you asked the question.

Got it. And then the other question would be your talked about pricing trends, some challenges in Asia and then across the rest of the world, no material change as such but still a competitive market. Can you give us some color as to on the raw material side for you folks what kind of relief have you gotten very broadly over the past year? Are the costs of raw materials down in double digits or not?

You always ask those specific questions, Ajit, (LAUGHTER) and of course, we are a very diversified business. Our raw material costs are down double digits, in aggregate certainly not. But I can assure you that we have a lot of discussions going on with many, many suppliers. We have asked for a significant price reduction. In some cases we can get it. We can even consolidate raw materials maybe combining volumes and giving to one of the suppliers. We've been (inaudible) successful but we are not at double-digit raw material price declines across the board for the Company.

But there are situations where they actually have achieved double-digit reduction in raw materials. That's -- for instance in areas where it's commodity based, where commodity prices have come down, you have a much better leverage and so we are certainly pushing as hard as we can working together with our suppliers to get our price in line. And I think that's a very good story because we have taken dramatic action in our Company and I think that's what's the story, we go to our suppliers and say, listen we have taken more than 20% of our workforce down via not giving any bonuses this year. We cancelled all bonuses. We have not given salary and wage increases. Now it's your time to pitch in if you want to continue to be a strategic supplier to Brady. And we have found that many suppliers react very favorably to this because we took care of our business first before we went to our suppliers.

Got it. And then the last question would just be the broad mix. I know that you've changed the way you report your segment -- it was a while ago -- but just very broadly what approximately in this particular quarter the OEM revenues would be versus MRO?

We issued our disclosure.

Okay. But in terms of a percentage over the past maybe two years, has the percentage fallen for the OEM business quite significantly? Is it less than a third of your business now?

The way we answer that is the -- you typically look at the three regions and I would say Asia's the surrogate for the OEM market so that's probably the best indicator is just looking at the mix of Asia with the rest of the business.

Yes. Just on how we look at our business. We don't look at our business OEM/MRO, we look at our business by region and then maybe by countries underneath.

Right. But in Latin America also the mix of OEM would typically be higher than it is for the rest of the Americas?

Yes.

Okay. Okay, thank you.

(Operator instructions). Your next question is from the line of Anthony Kure with KeyBanc. Please proceed.

Good morning. Just had a question about maybe some impact from shutdowns in the US big three auto plants here forthcoming. Just given that dynamic that's likely to play out here over the next couple months do you think that shutdown impact or factory closure impact will mean upcoming quarters will look more like the second quarter where you were affected by that, or is it sort of -- are you expecting it to be more in line with the third quarter as far as the impact goes?

I think it's a (inaudible).

I would say that that would in line with the third quarter. We don't sell a lot directly to the automotive assemblers, that would be mostly in MRO-related work. Most of our business to the tier 1 and tier 2 suppliers. Obviously, their businesses are impacted by this but I would say that the decline in the automotive industry, we've seen the impact of that and I'd say that it would be in line with what we've already been seeing.

Okay, great. And then we touched on a little bit the MRO/OEM mix but last quarter we talked about the mix in Asia being something close to 50/50. Just wondering how that may have progressed -- or if I need to be corrected on that number that'd be fine, too -- how that would be impacted here in the quarter as far as the government stimulus maybe helping construction spending. Are we seeing more of an even mix now in Asia?

We aren't commenting on OEM/MRO mix but all the other questions I think Al can answer.

Yes, the mix hasn't changed substantially in Asia.

Okay, that's all I have. Thank you.

(Operator instructions). Your next question is a follow up from the line of Matt McConnell with Robert Baird & Company. Please proceed.

Okay, good morning. You mentioned that you're getting a lot more urgent orders in Asia-Pacific since customers are operating with less inventory. Are those typically at higher margin and are there enough of those sales to meaningful impact the segment's profitability?

Matt? Or Al?

No. Most of the pricing, Matt, that we have with our larger OEM customers is program0based pricing and so we're having to take a look at maybe making some adjustments to that if there's going to be a continuation of smaller volumes, which require more frequent set ups, but it hasn't significantly impacted the profitability mix.

Okay, thank you.

As there are no further questions in the queue at this time I'd like to turn the call back over to Barb Bolens for closing remarks.

Let me just mention, I think we're going to see a lot of you later on via the New York Stock Exchange. We had our 10-year anniversary on Monday, rang the opening bell and we are hosting an inventor conference I think at 10:30 today and many of you who are on the phone will be joining us and so thank you very much for this. We have -- we can have an interesting mix. We can some of our directors there who you can mingle with and ask questions. I think that's going to be interesting. Some of our executives will be there and we're looking forward to meeting you there at 10:30. Now I think Barb Bolens wants to make a couple of closing remarks. We have no further questions, right, Heather? No further questions?

No further questions at this time, sir.

All right.

Thanks for your participation today and we'd like to remind you that the audio and slides today will be available on our website beginning at noon central today. The phone number to access the call is 888-286-8010 with a passcode of 17338824. The replay will be available until May 27th. As always, if you have questions please contact us, but thank you for your interest in Brady and have a great day. Heather, you can disconnect the call.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.