Columbus McKinnon Corp (CMCO) 2008 Q3 法說會逐字稿

Good morning and welcome to the Columbus McKinnon fiscal 2008 third-quarter earnings conference call. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Timothy Tevens, President and CEO. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to the Columbus McKinnon conference call to review the results of our fiscal 2008 third quarter. Earlier this morning we did issue a press release with corresponding financials, which hopefully you all have.

With me today here in our headquarters is Karen Howard, our Chief Financial Officer; Derwin Gilbreath, our Chief Operating Officer; and Joe Owen, our Vice President and Hoist Group Leader.

We do want to remind you that the press release and this conference call may contain some forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. These statements contain known and unknown risks and other factors that could cause the actual results to vary. You should, in fact, read the periodic reports that Columbus McKinnon files with the SEC to be sure you understand these risks.

Overall our revenue for the second quarter exceeded the same quarter last year by a healthy 9.3%. This was led by our product segment, which was up 10.7%, and negatively impacted by our focus on profitable revenue at Univeyor in our Solutions segment, which was down about 3%, as well as the divestiture of Larco which occurred in the fourth quarter of our fiscal 2007 year.

As we have been saying for awhile now, we continue to experience a strong global industrial economy. Our gross profit was up almost 21%, and income from operations increased almost 29%, leading to a solid operating leverage of 32%. Our actual net income was up about 9.5% over last year, and as you can see, this is a very solid quarter for Columbus McKinnon.

Revenue for the Products segment in the third quarter was up 10.7% as I mentioned. This was compared to the same quarter last year and flat with our second-quarter of fiscal '08, which is actually an improvement because this quarter is normally the weakest quarter as Karen will review with you in a moment.

The increase from the same quarter of last year is primarily driven from additional volume, which is about 8.4% of it, and this is a result of increased demand from end-users, as well as foreign currency translation of 2.9%, a price increase of 1.3% offset by the Larco divestiture of 1.9%. Our international sales were up 15% over last year. This was 12% if you exclude the impact of currency translation, as well as that Larco divestiture. This is again driven by strong pan-European and Latin American economies, as well as investments in the products and the market presence that we have made over the last several years.

Products segment gross profit was up 17.4% over the same quarter last year, and gross margin was strong at 31.5%. The operating income was up about 17%, and the margin was very strong at 13.5%. The operating leverage continues to be positive for the Products segment at about 20%. At this point we do not see our end market slowing to any great degree, and we continue to be buoyed by the activity we see in the various distribution channels that we sell through.

Bookings for the Products segment continue to be strong in the quarter and overall were up once again in the mid to high single digit level over the same quarter last year. Our backlog in the Products segment was flat compared with the second quarter.

As you may recall, same cycle time for most of these items in the Products segment is a day or weeks, and therefore, our backlog number represents about a month's worth or so of shipments.

Turning now to our Solutions segment, the sales were down about 3% from the same quarter last year, but up about 33% from last quarter or second quarter of '08. As we have been reporting to you, we have refocused Univeyor, the largest business segment, on profitable revenue, which continues to negatively affect the revenue in the segment, although more modestly in this quarter.

This quarter continue the trend of improving our Solutions business by changing the business model at Univeyor to allow them to have solid profitable revenue. It is the first time in the last six quarters where we had a profitable Solutions segment. Univeyor is not operating to the levels that are acceptable just yet, but it has dramatically improved, and the other portions of the Solutions segment, the other businesses of the Solutions segment, are performing very well.

Backlog is up nicely to $17 million, reflecting strong bookings for most of the businesses in this segment. And as we have previously promised you all, we have reported in January actually about a week and a half ago or so that we will pursue strategic alternatives for Univeyor. We have spent a considerable amount of time and diligence in studying this business and have concluded that there are better owners for Univeyor than we can help them to be more successful than Columbus McKinnon. This process has begun, and we expect to have something to report to you sometime this summer although as you may know in the M&A business timing is somewhat in question.

You should also know that Univeyor has an excellent reputation in their industry, and we have already received numerous calls from potential buyers expressing their interest. Cash flow from operations was once again very strong at about $14 million, and funded debt net of cash is down to $88.8 million at the end of the quarter. At this point (technical difficulty)-- 24% net debt to total cap, which is a nice number.

And at this point, let me just turn it over to Karen to give you some more details.

Thank you, Tim, and good morning, everyone. I'm pleased to have the opportunity to review some of the financial highlights of Columbus McKinnon's fiscal 2008 third-quarter and year-to-date that ended on December 30, 2007.

Consolidated sales increased by 9.3% to $155.2 million in the third quarter of this year compared with last year's third quarter. Products segment sales, which accounted for approximately 91% of total sales in the quarter, increased by $13.6 million or 10.7% with strong double-digit sales increases reported by our Columbus McKinnon Europe and our domestic crane groups and mid to high single digit growth reported by our domestic hoist and rigging businesses.

Our Larco Canadian crane business, which contributed $2.3 million of revenue to last year's quarter, was divested on March 1, 2007, resulting in a 1.9% reduction in segment revenues. Accordingly, the combination of volume and an additional shipping day contributed to an 8.4 percentage point increase for this segment over last year.

Further, pricing and foreign currency translations favorably impacted the change by 1.3 and 2.9 percentage points respectively. Solutions segment sales decreased $0.5 million or (technical difficulty) compared with the third quarter of fiscal '07, driven by the decision to transition the business model of our Univeyor operation, but benefiting from strong backlog coming into the quarter.

As previously indicated, we're transforming this material handlings system business to be more products and service maintenance-oriented as we pursue its potential divestiture. On a year-to-date basis, consolidated sales increased $21.8 million or 5% over last year. Products segment sales were up 8.7%, while Solutions segment sales were down 24%.

The Company's quarterly sales pattern, assuming a period of consistent economic conditions, typically shows sales strongest in the fourth quarter and weakest in the third quarter with such comparisons being impaired throughout fiscal '08 by the March 2007 Larco divestiture. The recent quarter had 60 shipping days, one more than the year ago quarter, and the next quarter will have 63 shipping days. Included in the press release is a table showing the number of shipping days in each of the quarters of fiscal '08 and fiscal '07, as well as our upcoming year, fiscal '09, for your reference.

Overall third-quarter consolidated gross profit increased $8.1 million or 20.8% with gross margin expanding 290 basis points to 30.1%. Products segment contributed an incremental $6.5 million or 17.4% with its gross margin expanding 180 basis points to 31.5% from 29.7% in the year ago quarter.

During this quarter we realized relief from our September 4 price increase that affected our steel-intensive rigging products. We also realized margin expansion and volume and productivity improvements. The Solutions segment contributed $1.5 million of incremental gross profit on $0.5 million lower revenues for the fiscal '08 quarter, realizing a 16.8% gross margin compared with 6.4% in the fiscal '07 quarter. This gross margin represents the highest level in the past eight quarters.

Favorably contributing to these results, Univeyor is realizing the benefits of its restructuring activities and focused on more of a products and services orientation. We are pleased with the significant progress made as we also pursue the potential divestiture of this business for strategic reasons.

On a year-to-date basis, consolidated gross profit is up $16.7 million with gross margin expansion of 230 basis points to 30.0%. Consolidated selling expense as a percent of sales was 11.5% in the third quarter, up from 10.6% last year due to the continued investments in both our domestic and international markets in accordance with our strategic growth initiatives and consistent with prior quarters of this fiscal year.

On a year-to-date basis, consolidated selling expenses followed a similar pattern at 11.3% of fiscal '08 year-to-date sales compared with 10.4% for fiscal '07 year-to-date. Consolidated G&A expense was 6.1% of sales in the fiscal '08 quarter relatively comparable to fiscal '07's 6.0%. Year-to-date G&A expenses were also relatively consistent year-over-year at 6.1% of sales.

With operating income increasing by $4.3 million or 28.6%, our operating margin expanded 180 basis points, improving to 12.3% for this year's quarter compared with last year's 10.5%. The consolidated operating leverage contributed 32% to income from operations for each incremental sales dollar in the quarter, exceeding our stated sustainable 20 to 30% goal.

On a year-to-date basis, operating margin expanded 110 basis points to 12.4%, realizing 36% operating leverage over the prior year. With steady revenue, we see further sustainable opportunities for operating leverage growth.

Interest and debt expense was down $600,000 or 14.6% over the prior year's quarter and $1.5 million or 11.6% year-to-date due to lower debt levels. We incurred bond redemption costs of $200,000 or $0.01 per diluted share during the quarter upon purchasing $3 million of our 8 7/8% notes, which will save $300,000 or $0.01 per diluted share of annual interest costs going forward.

During last year's quarter, we incurred $400,000 of similar costs, representing $0.01 per diluted share. On a year-to-date basis, we have incurred $1.6 million of bond redemption costs in fiscal '08, representing $0.06 per diluted share compared with $4.9 million or $0.17 per diluted share for fiscal '07 bond redemption costs.

We realized $300,000 of investment income on our captive insurance company assets this quarter compared with last year's $3.8 million. Last year's $3.8 million included $3.4 million of gains resulting from a reallocation of the asset portfolio. Further, we recognized $800,000 of other income in this year's quarter, primarily interest on invested cash compared with $200,000 last year.

Regarding income taxes, the effective tax rates for the fiscal '08 and fiscal '07 third quarters were 40.8% and 38.2% respectively. This year's quarter was unfavorably impacted by the establishment of a valuation allowance against Univeyor's deferred tax assets. On a year-to-date basis, effective tax rates were 39.0% and 39.5% for fiscal '08 and fiscal '07 respectively.

On a go-forward basis, our expectations are for an effective tax rate in the 38 to 39% range for normal ongoing operations, which continues to include a non-cash portion relating to the utilization of US federal net operating losses or NOLs. The NOL carryforward currently amounts to approximately $6.2 million, representing approximately $2.2 million of future cash tax savings. Therefore, the cash tax payment savings for US federal tax that we have been realizing will expire when the NOL is fully utilized, which is expected to be in the upcoming fourth quarter of fiscal '08.

Earnings per diluted share for the third quarter of fiscal '08 were $0.52 versus $0.48 in the third quarter of fiscal '07. After adjusting for the tax affected bond financing costs and unusual investment gains previously described, the pro forma non-GAAP diluted EPS for the fiscal '08 third-quarter of $0.53 compares with the pro forma non-GAAP diluted EPS for the fiscal '07 third quarter of $0.38, reflecting a 39.5% improvement. Actual year-to-date diluted EPS of $1.51 reflects a 23.8% increase from last year's $1.22. Upon removing the tax affected bond redemption costs from both periods and fiscal '07's tax affected unusual investment gain, the fiscal '08 year-to-date pro forma non-GAAP EPS of $1.57 compares favorably with the fiscal '07 year-to-date pro forma non-GAAP EPS of $1.27 or 23.6% improvement.

Depreciation was 2.0 and $2.1 million for the fiscal '08 and '07 third quarters respectively. On a year-to-date basis, it was $6.3 million compared with $6.2 million last year. Capital expenditures were 2.4 and $2.5 million for the fiscal '08 and '07 third quarters respectively. Year-to-date CapEx was $7.4 million with last year being $6.8 million. The spending included investments in our new product development activities, our growing low-cost international facilities, productivity improvement equipment, as well as normal maintenance CapEx.

Looking forward, we expect capital expenditures for fiscal '08 to be in the 11 to $12 million range.

Net cash provided by operating activities was $14.1 million in the quarter with earnings contributing $17 million and operating assets and liabilities using $2.9 million. Within working capital, reductions in receivables and increases in payables generated cash but were partially offset by increases in inventory and decreases in other current liabilities which utilized cash.

We continue to focus attention on our working capital utilization. Our long-term target remains 15% working capital as a percent of revenue. At quarter's end, debt net of cash was $88.8 million, and total gross debt was $150 million. At quarter-end availability on the $75 million revolver provided for under our senior credit agreement was $63.6 million, representing $11.4 million of outstanding letters of credit and nothing drawn against the revolver. We were comfortably in full compliance with all financial covenants related to this agreement.

While our strategy emphasizes profitable sales growth with international expansion, it continues to include focus on debt and interest expense reductions to further improve our profitability and provide capital structure stability. During the quarter net debt decreased by $11.8 million, reflecting continued improvement in our net debt to total capitalization percentage to 24.1%. Gross debt to total capitalization improved to 34.9% at the end of the quarter, down from 42.7% a year ago.

Reflecting improvement in our credit statistics and overall capital structure, during the quarter Moody's updated our overall corporate credit rating to be Ba3. Ultimately we're targeting a sustained 30 to 40% debt to total capitalization ratio with an investment-grade rating to give us flexibility to support our growth strategy, which will include strategic bolt-on acquisitions regardless of the point in the economic cycle.

And with that, I thank you and turn it over to Derwin.

Thank you, Karen, and good morning to everyone.

Global Products segment sales representing 91% of our total business continue to show strength with an 11% increase in the third quarter of FY '08 compared to prior year. Solution segment sales were down 3% compared with prior year, although up 33% compared to previous quarter as we progress in the transition of Univeyor to a more products and service-oriented company. In total, Columbus McKinnon sales increased 9% in the third quarter versus previous year.

Domestically sales for the quarter through general industrial distribution representing 61% of the total were up 5.1% over last year. We did recognize continued strong sales through rating shops to the commercial construction industry. Sales through domestic specialty distributors which include catalog houses, material handling specialists, the entertainment industry, consumer, OEM and government were also up 5.1% and represent 19% of all domestic sales. Sales from our crane building division, CES, were up 17% for the quarter and represent 17% of all domestic sales. Growth in this division continues to be driven by investment in energy and public works infrastructure. In total, domestic sales for the quarter were 7% higher than one year ago.

Internationally growth for the quarter was 13%. Excluding Larco, which was divested in March of '07, and Univeyor, international sales growth was 24% with positive exchange effects accounting for half of this increase. Continued geographic and market expansion combined with generally robust economies is driving this growth.

For the fourth quarter of our fiscal year, we expect to see continued solid sales in our Products segment both domestically and internationally driven by continued focus on targeted attractive end user markets and international expansion activities.

Relative to operations, our operating leverage continues to be strong at 32% in the quarter. Our employees continue to pull together all the dimensions of our strategy to achieve this range of success quarter after quarter. Our strategic goal of superior customer excellence is supported with detailed initiatives and operational excellence, people development, new products and services, as well as new markets and geographies to drive sales growth. Investments in all of these areas are occurring throughout the Company.

For example, in the new geographies category last quarter, we selected a distributor in the Middle East and one in India where the sophisticated entertainment markets are just developing. Our global entertainment business has had a compounded annual growth rate of more than 20% over the last five years. In Europe we had just opened a sales office in Italy to penetrate independent industrial distribution. In Russia we have hired someone and will be opening an office very soon and are also on the brink of opening a bonded warehouse in Panama to support South America. Our sales into Poland have been growing nicely, and we're investigating sales office opportunities there as well.

In total, CMCO has 43 active operational excellence cross-functional teams focusing on goals that will achieve superior customer excellence. One very small example at one plant is a team using (inaudible) analysis discovered that 86% of customer complaints in fiscal '07 were due to product being damaged or lost during shipment. They work with their carriers and shipping supply companies, and they determined that box construction and box taping methods would be the most effective routes for improvement. This resulted in complaints being down over 50% from last year.

Turning to inventory, our inventory increased over the quarter by $800,000. Europe increased $1.8 million for the same timeframe. The exchange impact was 76% of the increase. Europe is in the process of adding inventory for our multibranding initiative, as well as new markets such as Italy.

From a turns standpoint, CMCO improved from 4.6% last year for the quarter to 4.7% for this quarter. Year-over-year the increase in inventory has been $5.3 million, and all of that has been as a result of our inventory in CMCO Europe. Of that increase, 54% is due to the exchange rate.

Beyond Europe, all our facilities are focusing on inventory reduction via an increased focus on lean as I reported last quarter. We're also improving our skills in our planning departments in the plants. We're not satisfied with our performance on inventory management. We're confident that performance will improve.

Backlog remained constant in the plants in the Products segment and is up nicely in the Solutions segment, primarily driven by several large orders for our shredder business.

Now let me turn it over to Tim.

Thank you. We are ready for questions.

(OPERATOR INSTRUCTIONS). Peter Lisnic, Robert W. Baird.

Good morning. It is actually [John] on for Pete. First off, nice solid quarter here. Kind of given the potential macroeconomic uncertainty, it was nice to see. But if you kind of look at your guys margin profile, should we continue to kind of think that as the gross margin continues to improve that it is really -- most of it is going to be reinvested into selling resources? So you're going to stay kind of on the operating margin line around the 12, 13% range?

No, I would say that as the revenue grows, and let's say, for example, it is at the current rate or even a lower rate for that matter, we would expect to see operating leverage in the 20 to 30% area. So the operating margins should continue to expand as the revenue grows, even with the investments we're making in new markets and new products.

Okay. So if I read into that, you're saying that implicitly in that the selling investments that you are making are gaining traction pretty quickly?

They are doing quite nicely, yes.

Okay. And then I guess as an unrelated follow-up, we have heard a lot of rumblings kind of in the January timeframe about just there was some unexpected steel pressure where it seems like steel prices are going up some more and just unanticipated from people. Are you guys seeing anything like that? I mean I know you put through the prices increase before, but are you seeing more pressure there?

We're not. I do not know what kind of steel you are referring to. We traditionally by forging bar or coil rod steel. We did see increases. There is no question last year, but we've put it pretty much mitigated as much as we could, and most of that in with the price increase we just had.

So we are not seeing anymore in January, though. That one is not Columbus McKinnon's view at this point.

That increase was late October and November when we saw it, but we took care of it with the price increases.

Okay, and then just a final one. On the backlog comments you had with kind of the five weeks, I would assume the one area where the backlog probably just naturally runs a bit longer is the crane building kind of business that you have, and that was just up pretty strongly year on year. What is your visibility there into that? Because I imagine that's a bit longer cycle just in terms of assembling things and everything?

It is. It is mostly tied to construction projects. Not all of the revenue. A lot of the revenue is maintenance as well as parts and replacement business. But a portion of it is certainly tied to projects, and we would have more like several months worth of visibility on a portion of that of their backlog, which is only a small portion of our entire backlog.

Okay. And is that still trending favorably for you guys?

I think it is doing fine, yes. We just shipped some very large orders to one of our key customers in the Midwest recently here, which actually took their backlog down quite a bit in the quarter. But their booking activity seems to be pretty solid right now.

Amit Daryanani, RBC Capital Markets.

Just a little follow-up on the selling expenses number that sort of increased, and I realize you guys are making some investments there. How much of that is just investment in people versus investment in R&D for new products, and is there an absolute dollar value that we're targeting towards?

Yes, and most of the selling expense is in new people and locations. So, for example, you heard Derwin talk about Italy. We just opened up an office in Italy this past summer/fall kind of timeframe, I think it was actually August timeframe. When we open up an office like that, we hire a country manager. We have been exporting to that market for awhile, and we have good distribution. We hire the country manager. He hits the ground and then builds the infrastructure around that. We've put inventory in his locations. He begins to hire a sales force to more deeply penetrate the market. It takes a little while for that cost expense, for the revenue to catch up with that expense. So that is the investment that we talk about. Eventually it does after maybe -- it varies country by country, but let's say on average about a year we begin to see the traction on the revenue side.

Alright. And then just from a working capital perspective, your A/P days tend 20, 25 days short of your A/R days typically. Is there some plans on where we can either stretch out the A/P days or bring down the A/R days?

We actually have a working capital team looking at that. I think it is fair to say that our trade receivables is probably at a very good point in the mid-50s. I'm not sure how much more can be done there. I think there is some work that can be done in payables, but the biggest opportunity in my mind is still inventory. The investments that Derwin mentioned that we are making in terms of the new countries and new products adds to the inventory a bit, but we operationally can improve what we do, and that is what he is using the lean tool for is to really help us put flow systems in around the world.

The other thing we need to do is improve our base systems business in Europe where the ERP systems, the backoffice systems, the inventory planning systems need to be integrated. They are not just yet, and we have embarked on a project to help Europe do that. So we will be tying a network together that covered the European continent. That needs to be done. That's going to take a little bit of time. And then I thing they will have a better shot at improving their turns in the normal course of operating the European business.

Got it. And just finally, I guess when you look at the end market environment, could you just talk a little bit of about what you are seeing domestically and internationally? I realize your backlog is probably not the best indicator to look at, but when you talk to people in the channel, your customers, are you seeing the time from the initial quote to the final sale getting stretched out a bit, or are things still pretty good?

Still pretty good. I would say that the same end markets that we have seen for awhile now continue to be pretty strong. Oil and gas and all the industries that support that seem to be pretty solid. The construction market is as well. And we make a lot of lifting tools and hand hoists that service that market.

The power utility market is very good right now. There's a lot of grid work going on around the world, which is helping us. Internationally speaking I think it is two things. I think it is economically driven in the Eastern portion of Europe, but it is fair to say that I think Western Europe is alive and well and doing quite nicely. And we actually might be taking a little bit of share there on top of the economic growth.

But it is pretty much the same story. We have not really seen any changes in our end-user markets or our distribution channels. The things that have been weak have been automotive and automotive-related, so there are some channels that support that that have not been strong for a long, long time, by the way, as an example of something that is maybe not going as strong as we would like to see it go. But those things change as well.

Joe Giamichael, Rodman & Renshaw.

Thank you. Congratulations on the quarter. Between the release, the introduction and the Q&A, I think most of my questions have been answered. But do you have a sense for the traction in the market share you have been able to capture internationally? Have you been able to quantify the addressable international market opportunity as a whole?

Well, that is a big question, Joe. Let me take it in slices that I maybe can handle. Relative to the international market share, we do not have good reporting data like we have in the United States where we have trade associations that collect data in an objective way and report back to the member companies, so in the states where we can get pretty darn close to the actual market share numbers.

When we talk about Europe, that does not happen that way. So we actually measured it a little differently. We've measure it as a portion of their overall GDP. And that we have seen that country by country our respective portion of the GDP is growing faster than the GDP is, which leads us to conclude that we're gaining share.

We continue to ask ourselves the question, why? What is driving that? And we think we keep coming back to the same issue, is innovative differentiated products that other competitors may not have, don't have, as well as a very keen sense of customer service and quick deliveries and service and support to the marketplace, which many of our competitors do maybe not as good as we would. Those are the two issues that we see that might be driving the market share. And, as I said, it is relatively gross. It is not as exact as we have here in the states.

Are we covering the international markets as well as we would like? Absolutely not. I think we're trending in a very positive way in the Eastern and Western Europe. We're making investments in the Middle East that Derwin talk about. We export to that market today through other distribution channels, but we do not have a presence there. So that is an area of interest for us. And, of course, the big one, and probably the biggest opportunity we have that we really don't have good coverage on just yet, is China. And, quite honestly, the whole Asia-Pacific region is a tiny slice of our revenue today.

And we're making investments in that market. We just hired a business development manager this past summer, and he is on the ground. He is building a salesforce. We are doing it organically today. And things are moving albeit slowly. And that is a huge market to cover, and we need a lot of skilled folks to help us do that.

It actually is an area where we're looking for some partners and maybe some acquisitions or joint ventures or alliances with people that already have a presence in the marketplace there in China that can help us sell our product more directly to the indigenous industries that are resident in China. So that's a big opportunity for us.

Got it. Have you quantified as a whole what you feel the international market opportunity is?

Some rising up, from the details I know, the answer is no. But I would say that we have huge opportunities, probably bigger than the United States is in terms of international markets. Those total markets that we don't participate in just yet are probably larger than the US.

Got it. Great. And just one last question. I know you have kind of touched upon it to a certain degree. But given your conversion time, backlog is not a great long-term indicator for the business. That being said, can you comment on what visibility that you do have or what you're sort of seeing on a macrolevel that has you comfortable with the end market demand remaining robust?

Yes, you know what it is? It is mostly salesforce touches to the various distribution channel partners, as well as to the end user communities. And I think there is no question there is concern floating around in those areas, but at this point in time, none of our channel -- not many of our channel partners are seeing any slowing or recession kind of numbers. They may see maybe slowing from a growth standpoint, but also the comps are getting a little more difficult as well. And many of the end-users, of course, that we're talking to are ones that are looking for our kind of product and our kind of service. So there is activity in terms of they are trying to build something. I just happened to be in Las Vegas for a couple of entertainment meetings, including I took my board there to show them some of our hoists used in the entertainment market, and there is a huge demand in that part of the world for hoists for use in the construction market. And everybody I talk to, all of our rigging partners out there were very, very busy.

So it is more anecdotal I would say and more of a feel with multiple touch points. But it is the same comments we are hearing that we have been hearing for quite a while, that things are pretty good.

Alright. Congratulations on the quarter, and thank you very much.

Ted Kundtz, Needham & Co.

A couple of questions for you. Any thoughts on the potential to increase gross margins from these levels? Do you have any targets set out there for yourselves?

We do not at this point in time, but I would think it is fair to say that that operating leverage that we talk about that drives the income from operations line is somewhat tied to gross margin as well. We should continue to see some level of expansion as the revenue grows to the similar levels we have seen today.

Okay. So that means you do expect to grow gross margins? I assume that is what you said? It was carefully crafted there.

Yes.

Okay. But you have not set out any targets for yourselves or for the street yet?

No, at this point, no. We are having an investor day on February 1 in the city, which we will talk more details about some long-term objectives for our Company.

Okay. Because at that point, you were probably going to address the operating leverage issue because you talked about potentially rethinking that. You still have your 20 to 30% guideline out there. You have been doing better than that.

We are, but we're talking about 20 to 30% over the long-term.

Right, yes.

Quarter to quarter, it is going to move a bit.

Right. Okay. So looking at the international market for a minute. Representing what, 35, 36% of your total revenue right now. Where would you like to see that be in the next several years?

You keep going to targets there. Don't -- (multiple speakers)

I just want to get your thoughts. Obviously I think you probably expect international to keep growing faster, at a faster rate?

Yes, if you map it out and you say international is growing at I think our CAGR is somewhere around 11% or so and domestically it is maybe mid single digits, you can kind of quickly get to the point that in the not too distant future this Company will look more 50 -- like a more global company -- more 50% international revenue and 50% US.

Okay, and you still see that as very doable?

I do. I would say that the acquisitions that we are focused on are international as well. So again, leading down that strategy of market presence, that will add to the international growth as well.

Okay.

Of course, taking away Univeyor, by the way, is a negative against that, so.

Right. Did you expect Univeyor to still continue to improve over the next several quarters? Assuming you still have it in the portfolio by the summer, do you expect to see continuing improvement there in their contribution?

Yes. That model shift that we have been talking about for the last year or so is taking root and growing nicely. Talking about the (inaudible) machine and layer pickers, which are more standard products. A lot of interest actually some additional revenue to report, which is good news, which is higher margin business for us.

So we would expect that business to continue on the trendline that they are on right now. (multiple speakers) -- be much more profitable in the next several quarters.

Right. And was it at a breakeven level this particular quarter? I know the group was at profitable. Was Univeyor itself at a breakeven level operating?

No, slightly negative.

Okay, very modest drag. Okay, terrific. Thanks very much. Very nice quarter.

James Bank, Sidoti & Co.

Tires shredders kind of came out of nowhere a little bit. Could you tell me what the percentage breakdown to the Solutions sales was?

Sure. While Karen is getting that out, yes, tires shredder, there's a lot of international activity for that business as the European Union and various Asian countries outlaw tires piles, which forces them to process their tires into reusable material. And Univeyor -- or, excuse me, our tire shredder business out of Sarasota, Florida has done a great job of marketing those products internationally. They actually hired a sales guy in Europe -- multiple guys -- to cover the continent there. It is going -- their business is going very nicely.

Yes, absolutely. So I'm sorry, you won't disclose the percentage?

Karen will get it for you.

We do give the sales breakdown. We don't talk about profitability by our different businesses, but for this quarter the tires shredder business was about 21% of the segment, which is still just about 2% of our consolidated revenue.

Okay. I'm sorry, you do not give the profitability of that?

No, but it is nicely profitable.

Right. Univeyor, I guess the wording in their press release it is leading me to ask this question. I was kind of able to pick it apart in past releases. Can I assume that it's more or less at breakeven here, or at the very least by the end of this fiscal year, can we assume it to be breakeven?

As I said, in this quarter, it was slightly negative. One could argue it's on a trendline to improve. So I would assume by the fourth quarter it is going to be much more positive looking. Not great and not at a level where anybody is happy just yet but --

Right. But certainly much better from the first quarter. Selling and marketing, the strategic investments you're doing, is this something that I guess would continue into the fourth quarter this year, but then also the way we think about selling expense next year, is it going to carry through next year with the similar type of incremental gains?

Yes.

Okay. And then also with general administrative, a similar question, kind of how we should think about it in this fourth quarter as well as next year?

Yes.

[Dory Koenig], Lehman Brothers.

Just one -- just a comment around the international sales being up 24% on a year-over-year basis and half of that being driven by the foreign exchange. That would suggest that you are selling in non-US dollars. Is that correct?

Yes.

Great. That is all I had. Thank you.

That is for the most part, yes. That is not 100% true, but generally speaking it is.

Right, generally speaking. Thank you.

Holden Lewis, BB&T.

I am trying to get a little bit -- I know that you put in your price increases recently. Looking at the gross margin in the Products business, it has ticked up a little bit but certainly not dramatically as the year has progressed.

And then also kind of looking at the incremental margins of the Products business, your range is like 20 to 30, and you have kind of been skirting around that 20% rate, which I assume you sort of have -- you can expect to do better than that if you're putting on a 20 to 30 type range. Did the pricing take? Are there some negatives which is kind of compressing the gross margin relative those expectations of the incremental margins? It would seem like the pricing was expected to give us a little bit of a push, and that push has been pretty modest. So I guess I am curious if in Products gross margin, if there's some offsetting pressures in there that we should be aware of.

Well, there's certainly is, but do you think 20% is modest?

Well, but you're putting out 20 to 30, right? I'm assuming 20% is the fairly acceptable level from your perspective. Plus, I think in Q1 before you had the price increases, it was 18%. But a good number. It just seems like you're expecting to do better, and I guess we kind of thought the improvement would be a little bit greater given the pricing. That's why I'm curious if there are any pressures which have been kicking in that were maybe unexpected as well?

First of all, it is 20 to 30% for the Company, the total Company, not the Products segment. Okay? And we are above that. So that is the number we put out. We don't necessarily talk about the segment. But let me address your real question, and that is are we seeing pressures?

Well, certainly we're seeing raw material pressures, which the price increase, by the way, is designed for all intents and purposes to mitigate. It may not do that entirely. We also have situations where we have some contracts with some larger distributors where the price does not hit immediately. It takes time because of printing a catalog or things of that nature. So that is another timing issue more than anything.

And then the other one that comes to mind is we are still seeing health care costs rise high single digit, which is another cost pressure as well.

Okay. So the raw materials are certainly still a factor. I mean net net that is still a drag as opposed to neutralizing the mix at this point?

It is not a drag. We have got 20% operating leverage in the Products segment, plus. (multiple speakers.) On top of making significant investments outside the US and actually inside the US in certain markets.

So, you know, I think the spin is you're looking at it a little differently than what I'm looking at it, and that is I am saying we're making significant investments in our international markets in certain markets segments like energy here in the United States. And on top of that, we're generating 20% more operating income.

Yes, okay. Okay. And then the increase in revenue in the Solutions business sequentially, was that all -- I mean tire shredder sounds like -- it seems like it is a business that you sort of ship out of, and so you get these big lumps of business. But is the 14 7, where did the sequential pop in the revenue come from?

I think it is mostly Univeyor. Karen?

Yes, it is. Univeyor, given the nature of that business, it does fluctuate with its projects and such. And they had nice backlog coming into the quarter. So we did see a little bit of a pop there this quarter compared to the prior quarter.

Okay. But this was not sort of clearing out? This was actually business that you booked under your more disciplined sort of approach, and it's very profitable business then?

Both older projects and new projects.

Okay. Thank you.

At this time we're showing no further questions. So I would like to turn today's conference back over to your speaker for closing remarks. Thank you. Go ahead, please.

Thank you and thanks to everyone on the call. Just as a summary for you all, we're poised to grow profitably with a stronger balance sheet and very solid and growing markets with a strong market position in North America and excellent cash flows. Our use of free cash will continue to be applied to reducing debt, but we're also focusing our attention on products-oriented bolt-on acquisitions that can add market presence where we have a small or no presence and add to our product portfolio where we can leverage our existing distribution channels and brand-name strength. Combine this with our lean initiatives, cost reduction activities and investments in new products and markets, and I think we're positioned to finish our fiscal '08 on a very positive note.

I would like to thank all of our Columbus McKinnon associates around the world for their hard work and ultimate success in making this quarter a very good one. As always, we certainly appreciate your time today. Have a good day.

Thank you. To listen to a replay of today's conference, please dial 1-866-395-7239. Thank you for attending today's conference, and have a great day. You may disconnect at this time.