Columbus McKinnon Corp (CMCO) 2014 Q1 法說會逐字稿

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session.

(Operator Instructions)

Today's conference is being recorded. If you have any objections you may disconnect at this time. And now I would like to introduce your host for today's call Mr. Tim Tevens, President and CEO of Columbus McKinnon.

Thank you, Evan. Good morning, everyone, and welcome to our conference call to review the results of our first quarter of fiscal 2014. With me here today is Greg Rustowicz, our VP of Finance and CFO. Please note that we have included summary slides for the quarter for your review. They can be found on our website at cmworks.com/investors, and hopefully that will be helpful to you following this call today. We do have a Safe Harbor Statement on page 2 of those slides and we want to remind you that the press release accompanying slide and this 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 actual the results to vary. You should in fact read the periodic reports that we file with that SEC to be sure you understand these risks.

Let me get to page 3 and remind you of our long-term objectives which include growing to be a billion dollar business with about a third of our revenue in developing markets and about two-thirds of our revenue in developed markets, along with a $200 million to $300 million acquisition target. We would like to operate in the 12% to 14% operating margin range and have a strong working capital level and a very strong overall balance sheet. We continue to focus resources and energy on acquiring companies that add strategic position in the market -- in our marketplace, our product breadth, and help us grow around the world to achieve these results.

On page 4 provides the highlights of the first quarter, and let me just pause there and go through it with you just for a moment. Our gross margins expanded nicely, up 270 basis points to 31.3%, and our operating profits were up 130 basis points to 9.7% driven by productivity gains and pricing. Our revenue was down 9.2%. Now this was negatively affected a divestiture, as well as some volume. Emerging markets, revenue increased 18.6% in the quarter as compared to last year same quarter and now represents 10.4% of our overall sales. The US revenue, excluding the divesture, was down $3.4 million or 3.8% but up compared to last year if you exclude some large, heavy OEM crane business we had last year that was very positive in last year's quarter. Sales outside the US were down 9.8%, the bulk of which was volume related, and in Europe. It continued -- Europe continues to be weak but we are beginning to see some positive signs in quoting and order activity in that part of the world. We should also note that we made a small acquisition in Austria this past quarter. Now this has been a long-standing channel partner of ours and does allow us to extend the -- our lifting system capability into this region, as well as other markets around the world.

The adjusted earnings per share was down $0.02 per diluted share, but we should also consider a large and unusual transaction that occurred in last year's quarter which represented about $0.06 per share. This was a brokered crane that we sold into South Africa and you may recall that we reported that last year. At this point, we have $110.4 million of cash on our balance sheet. It's less than our fiscal '13 Q4 amount, and this lower amount of cash was driven by the acquisition in Austria that I just mentioned, as well as an increase in inventory in the quarter to support some large engineered orders we've recently booked.

Our global bookings in the quarter were down in a similar range to our revenues. We have seen some bright spots. Industrial distribution material handling specialists and the entertainment industry are some that we have noted. This was offset by the crane builder channel and the government channel that we sell into. Some special hoists that serve specific markets, such as oil and gas, also seem to be doing well. Asia Pacific and Latin America, which are small in size for us today, continue to do very well and grow rapidly. This, of course, is driven by our strategic investments in these markets over the last several years.

Page 5 summarizes our first-quarter revenues. Overall the revenues were $138.9 million. On a year-over-year comparable basis, revenues were negatively impacted by that divestiture that we had last summer and on volume. Most of the lower volume is in Europe and from lower business activity in a heavy OEM market that we service with our crane business. The revenue was down in the US as well. The bulk of it coming from that divestiture as well as lost business in the heavy OEM marketplace that I just mentioned. And in Europe revenue was negatively impacted by the lower economic activity in western Europe. However, as I mentioned previously, we've begun to see some positive signs in quotations and order activity for large engineered projects. Let me turn it over to Greg to walk you through the rest of the slides.

Thank you, Tim. Good morning, everyone. Turning to slide 6, our first quarter gross profit margin increased 270 basis points to 31.3%, which was one of the highest gross margin levels achieved since our Company went public in 1996. While sales were $14 million lower than the prior year, gross profit dollars were only $300,000 lower. Lower volumes negatively impacted gross profit dollars by $5 million, as did raw material and inflation by $0.5 million. It should be noted that the prior year had the benefit of a one-time $1.8 million brokerage fee that was accounted for on a net revenue basis with no associated cost of sales. This is included in the $5 million negative impact of lower sales volumes. Offsetting these negative factors were the benefits of favorable pricing of $3.4 million, which was up 2.2% versus the prior year and productivity gains of $1.2 million. In addition, product liability costs were lower by $500,000 compared to a year ago. Finally, we also had a favorable impact to gross margin of $300,000 related to the net effect of acquisitions and divestitures.

On slide 7, selling expense increased 2.3% from the prior year and represented 12.1% of sales this year compared to 10.7% last year. This increase in selling costs was primarily related to the Austrian acquisition that was completed during the quarter and continued investments in emerging markets. In addition, foreign currency translation had a positive impact on selling expense of $100,000 this quarter. G&A expense declined 9.4% from the prior year remaining constant at 9.3% of sales compared to the prior year. The prior year G&A costs included approximately $800,000 of one-time costs. At the current sales levels, we expect our SG&A run rate to be approximately $30 million per quarter going forward.

Turning to slide 8, operating income increased by 5.1% to $13.4 million or 9.7% of sales compared to 8.4% of sales in the previous year. This improvement in operating income was driven by the net pricing gains over raw material inflation, as well as productivity gains in our facilities. Our productivity is being driven by our Lean manufacturing program coupled with the benefits of our CapEx projects, training programs, and safety initiatives. In addition, lower G&A expense also contributed to the improved operating margin increase.

As you can see on slide 9, income per diluted share for the first quarter of fiscal 2014 was $0.35 per share reflecting an $0.08 decrease from the prior-year period where we reported earnings of $0.43 per share. The decrease in reported earnings per share was primarily due to the deferred tax asset valuation allowance in the prior year which resulted in an artificially low income tax rate of 17.4%. On a pro forma basis at our current normalized tax rate of 29.6%, earnings per share in the first quarter of fiscal 2014 were $0.35 per share compared to $0.37 per share in the first quarter of fiscal 2013. The prior year benefited by $0.06 per share from the one-time net brokerage fee previously discussed. Our effective tax rate for fiscal 2014 is expected to be between 27% and 32% based on the geographic mix of earnings that we anticipate.

Turning to slide 10, our working capital as a percent of sales increased to 20.2% in the current quarter from 18.3% at March 31, 2013. The increase is largely attributable to an increase in project type orders that have resulted in approximately $4.8 million of increased inventory in the first quarter of fiscal year 2014. As a result, inventory turns declined to 3.8 times.

On slide 11, you can see that we used $5.5 million of operating free cash flow in the quarter, which was comparable to the prior year. Capital expenditures were $3.6 million versus $1.7 million in the previous year. On an LTM basis, we generated $27.6 million of operating free cash flow and ended the quarter with $110.4 million of cash after funding $5.8 million for the Austrian acquisition. We expect capital expenditures for fiscal 2014 to be in the $20 million to $25 million range due to a $6.8 million manufacturing plant expansion in China, as well as capital projects that are expected to generate further productivity improvements.

Finally on slide 12, you can see that as of June 30, 2013, net debt was $41.5 million and total gross debt was $151.9 million. Net debt to net total capitalization was 14.4%. In addition to having $110.4 million of cash on our balance sheet at June 30, we have an additional $93.1 million available under our new $100 million senior credit facility, net of $6.9 million of outstanding letters of credit. This facility, along with our healthy cash balance provides significant liquidity to support our strategic growth plan. With that, I will turn it back over to Tim to cover the fiscal 2014 outlook.

Great, thanks Greg. Let's spend a moment and look at our outlook on page 13. Overall, we continue to see slow growth in these uncertain markets. Emerging markets is doing well, growing at double-digits, driven by investments in those regions. Order activity in the US is challenged with lower crane sales compared to last year. However the hoist business seems to be doing quite well. There is strong activity in and around gas as well as the entertainment markets. The capacity utilization in the US was at 76.8% in June and seems to have moderated in the 76% to 77% range.

Europe's capacity utilization was down in the quarter to 77.5%. But as I just mentioned, we are now beginning to see increased quotation and order activity and we do expect improvement in this order activity to ramp up in the second half of the year. Backlog is at $92 million down from $99 million in Q4. We seem to be performing very well from a profitability perspective despite these challenged revenues. Our Lean system is producing productivity gains, driving margins, and inflation, at least at this point in time, is moderate. We continue to execute the strategic plan that we've laid out and make investments in emerging regions of the world like China, Eastern bloc of Europe, Africa, and Latin America, and we continue to look for acquisitions to help accelerate our growth in these regions and other regions of the world. And Evan, at this point, why don't we open it up to questions?

(Operator Instructions)

Jason Ursaner, CJS Securities.

Just first wanted to ask about volume. In your prepared remarks you mentioned US continued to grow modestly during the fiscal year. Is this more of an economic projection in terms of GDP or is it more forecast for your total US volume including the heavier crane type items?

Yes. It is a combination of both, I think. As we look to the future, we do expect and have seen economic trends that model us to have a little bit better growth in the second half of our fiscal year as compared to the first half. And it's a broad-based improvement. So it's economically driven but also from what we see in the order book as well as the industries in which we compete.

Okay, and in terms of the gross margin that you guys are delivering right now, obviously it is very strong level given the revenue. I guess if you can give any more detail on the factors that are driving that? You mentioned that pricing versus inflation. Just where do you see those things trending right now and what the key elements of that is?

Sure. I think if you look at the elements, it's multiple pieces. First of all, as you know, our business normally has price -- we're able to get price in it and we are in the 1% to 3% area historically. So this 2% or 2.2% I think it actually was in the quarter is, let's say, normal, and Jason, I would expect that to continue at least in this range as we look forward. I also expect that the activities that our various businesses are undertaking to go after productivity, investing wisely in capital to help us get more productive. But, at the same time, also looking at all of our business processes and removing waste in all forms is really proven to be a pretty good advantage for us, increasing productivity, and thereby, as you know, when you get productivity increases we're seeing it come through in the gross margins.

I'd also say that inflation on the purchasing and sourcing side is relatively tame at this point. We don't see lots of headwinds just yet. Of course that could change, and if it does, as we have done in the past, we will react to that and adjust prices accordingly to make sure that we have -- remain margin neutral in this area. And so I think it's a combination of all those things. The one thing I'd add is if indeed we can have a little bit uptick in volume -- you know that our operating leverage would be very strong in this kind of an environment, especially given the productivity we're seeing and the efficiencies in our facilities today -- that I would expect that the margins would actually increase, and increase in a measured -- in a measurable way.

Okay. Great. Appreciate that commentary. I'll jump back in the queue. Thanks, guys.

Schon Williams, BB&T Capital Markets.

Congrats on the quarter.

Thanks, Schon.

I wondered if you could just maybe address the balance sheet here? You continue to have very good free cash flow. You've got a good cash balance here. You've got good flexibility on the revolver and then it looks like you guys put in a shelf registration, as well this quarter. So, I'm just wondering if you can talk about where you see the balance sheet going over the next 12 months or so?

Yes. I think that we would love to apply some of our liquidity, our cash, and revolver into acquisitions. We have a number of activities on that front going on right now. We have nothing to announce at this point, but at the end of the day we'd love to apply our cash into this area and going forward. We bought the small little company, Schon, in Austria, about $10 million in revenue, relatively modest in size, but strategically relevant for us to help us build our lifting system capability across Europe and the Eastern bloc of Europe, as well. It's those kinds of activities that we'd like to apply our balance sheet to going forward. And the shelf is nothing more than a flexibility in our ability to raise capital as need be, and we certainly would think about that at the appropriate time if it makes sense.

Schon, it's Greg. It's really a best practice and just gives us more flexibility for a relatively modest cost.

Certainly. And just maybe as a follow-up, can you talk about when you are looking at acquisition targets, what geographies or product lines are really your -- in your top tier or top three? And then can you just talk about why the Austrian acquisition? Why was that strategic? Why do it now kind of thing?

Yes, so, the Austria -- let me start with the Austrian one. That one is one that has been a channel partner for in excess of 20 years, a long time. They actually add value in the market place by taking our components. They resale our hoists but they also take our componentry and create lifting tools, lifting slings, and sell them into the market place. We think there's an opportunity for us to take that know-how and capability and spread it to other regions of the world where we don't have good channel partners that are able to do that today. So strategically we can see leveraging that know-how into other regions. Not regions where we have strong channel partners and already perform that value added task, in particular. In addition to that, the owner of that business is of age where he would like to work maybe not as long or not as many hours per week as he has in the past, and he'd like to help us with this growth model, but not do it on a full-time basis. So, we view this as a win-win scenario for both the buyer and the seller of this business. The first half of your question? I'm sorry I lost track of it.

Just in terms of the target on the acquisitions, is it Europe, is it Asia Pacific? And then maybe the product lines.

No. Thank you. I'm sorry. I just lost it. Yes. Our targets including a wide swath of opportunities. Generally speaking, these companies are not for sale so it's generally investing in markets where we don't have a strong selling presence, but this target would have a stronger presence then we would. And we can see a way to leverage our product line into his sales force, and then the target sales force would add revenue, but also we'd look for operating characteristics where we can create cost synergies, as well. And quite honestly, product -- continued product expansion -- we do a pretty good job in the hoist business, but our rigging tool business doesn't have the breadth of product that we would like, so it be great if we could find a partner that could add value in the product expansion, in that area as well. So it's really a two-pronged approach, market and product expansion.

All right. Thanks, guys. I'll jump back into queue here.

Joe Mondillo, Sidoti & Company.

I guess the first question I have regards the top line. So last quarter we saw backlog increase sequentially. You guys were fairly positive, I'd say, on the release and yet we saw the volume decline to 10% this quarter. It did not sound like you were expecting that. So, I was wondering what may have changed throughout the quarter.

Well I don't know if we -- I'm trying to recall the last quarter in particular and our conversations. We certainly saw a clearly slower growth, especially in the capital goods area of high intensity cranes. We make a line of indoor bridge cranes which are used on those cranes, and we have some key customers in that area that we definitely have seen a pullback in their investment in this capital good area. So, that was not surprising to us at all. And last year's quarter, last year's first-quarter, was astounding. It was incredibly positive and good coming out of this particular business of the Company. So, having it come back a little bit was not, I would say, surprising. We did not also see a huge surprise in Europe. Europe remains economically challenged across the spectrum there. The thing that did surprise me was some -- a bit of an uptick in some orders in some of our engineered business there which we have the order activity and actually bookings that have been more positive than we expected.

I think what I would -- when I look at the US, I also see just spotty growth. I see some markets that are pretty good, not huge, robust growth, but decent growth, and then I see some markets that aren't doing very good and they are challenged in that regard. So it is inconsistent, and I would say uncertain would be the word I would use. Now, most of the shortfall was in these two categories, the crane builder business, as well as Europe. I would say those were not huge surprises to us. I would love to keep that volume, but it just was not present in the market today.

Okay. That's helpful. And then in terms of going forward, so now you have this backlog that was off about 7% from the fourth quarter, so you have a little bit of smaller backlog. Also, you mentioned in the press release that 38% of the backlog is extended after September. So first off my question is, what is that number usually? What is that -- is that abnormally high or low or what is that compared to usually? And then having said that, with the lower backlog, are we anticipating even a weaker second quarter before these orders translate into a better second half of the fiscal year?

Joe, I will take the first question on the backlog that shifts beyond September 30, or beyond three months. At the end of the fourth quarter, it was $33 million, so it's gone up over a little over $1 million. So it's comparable from a dollar perspective and typically is in that $32 million to $34 million, $35 million range so really not unusual there. The backlog in total has dropped a little bit, as you mentioned, which leads to it being a higher percentage of the backlog.

Okay.

Keep in mind that the bulk of our business, by far and away, is not a backlog driven business, Joe. It is a get an order today and ship it within a day or two or three. So that's what we normally see. We're not really backlog driven, except for certain portions of our business, like the crane business, our engineered products business in Europe which, indeed, are major projects that we bid on and get. Then, that sits in our backlog and its extended, but most of our business is a flow business where we get the order in today and ship it in very short order.

Okay. And then my next question just regards the gross margin, so I'm just trying to understand a little bit better how your products mix has sort of shifted over the last several quarters? You've mentioned that some of your higher products were a little weak this quarter, the crane business was weaker. You've mentioned that the larger project work in Europe has been a little bit weak, even though maybe it has started to stabilize. So that type of business, is that lower margin type stuff? I'm just kind to get a better idea in how your product mix, margin mix has shifted.

I do think that if you look at the revenue that we did get in the quarter, it was more hoist oriented revenue, which is generally a bit -- a little higher margin than what we would see in rest of the business. However, with Europe being down -- and that is mostly a hoist business, too, and that has similar margins that we would see. I have not looked at it from that perspective in terms of understanding the mix impact.

Joe, there's one other factor, as well. If you are looking year-over-year, the crane business we divested last August had a lower than average gross margin.

Okay.

Another factor is our forge business is performing much better than it did a year ago.

Okay. And then in terms of the productivity gains, I was wondering -- last quarter you talked about a couple initiatives that two of your China plants being a pretty big factor to gross margin improvement this year. I was just wondering has that taken hold and has that benefited the gross margin as of that yet or is that still not -- is that still a benefit that we are waiting for?

Joe, that will be a benefit that will come in fiscal '15 and that's in the press release and in my comments I referred to a $6.8 million manufacturing plant expansion in China, so that is underway. Approvals have been received. The engineering has been done, construction is underway, and that will take through this fiscal year to complete. So, the real benefit from that will come in fiscal '15.

Okay. Great. And then just lastly in terms of the long-term goals that you talked about for several quarters now, at least, I was just wondering what kind of time horizon is that sort of $1 billion sales, the $200 million to $300 million acquisitions. What is that sort of time horizon?

The reality is we would like it to be very close to today, but the other side of that coin is that when you do acquisitions or you are targeting the way we target acquisitions, it is very uncertain as to the timing. You just don't know how quick those conversations take place, how interested the sellers -- potential sellers are, so it's very difficult for us to put our finger on the timing relative to when we get to the $1 billion. However, you should know that our activity and our energy and our focus is around it to grow to get to that level, and I think that's what's most important.

All right. Thank you.

Lance James, RBC Global Asset Management.

Congratulations on really achieving significant margin expansion in a challenging top line environment. That -- you really re to be congratulated for that. My question really is with regard to -- especially the domestic oil and gas industry. Have you seen -- I know you noted as an area of strength, but have you seen a real large ramp-up in orders there? Are we kind of at the sweet spot or do you perceive that as still to come? And then just a question to -- if we get a build out on pipelines, which have been held up by regulation or whatever. Is the pipeline business that if we do get the build outs, is that going to be particularly helpful to you or not in particular?

First of all, Lance, thanks for the compliment. We certainly appreciate the recognition. Relative to oil and gas, let me start with that one, and that has to do with what we are seeing in the marketplace. I would say that it's not robust, but it continues to grow. So, we are talking low mid single-digit kind of growth. We are talking about decent, not through the roof. And on the pipeline question that you asked, certainly the construction -- the fabrication of that pipe, the construction and erection of it, would use a whole variety of our kinds of lifting tools and manual hoists in the field. So, we would be, I think, buoyed of that activity and look forward to it.

Terrific. Thanks a lot and congratulations again on a good quarter.

Peter Van Roden, Spitfire Capital.

Just a quick question on North American market share. Because of the fact that Asia and Europe are a little weaker now, are you guys seeing the North American market being a little bit more competitive?

No more than ordinary competitive nature. It feels about the same.

Okay. And then, you guys say you've see some good signs out of Europe. What exactly are those?

Well the engineered business, our actuator business in Europe, has seen some opportunities come their way, and they've landed some of them for highly engineered material handling systems that they would produce. That's the piece that we're seeing a bit more robust right now.

And it's a combination of quote activity as well as orders that we have received.

Okay, and then can you talk a little bit about how your sales trended (technical difficulty) different distribution channels for the quarter?

I'm sorry. You were breaking up there Peter. Could you repeat that question?

Yes, just how your sales trended across the different distribution channels for the quarter?

In the quarter?

Yes.

Let me see if I can research that. Yes. So the crane builder channel was off substantially. Industrial distribution and the rigging channel were both positive. Material handling specialists, which these are design houses generally, was up quite a bit. Entertainment was up solidly. Catalog houses was down. Retail was flat. OEM and government was down quite a bit and our own crane builder was down quite a bit, as I mentioned earlier.

Okay. Thanks.

Gregory Macosko, Lord Abbett.

Yes. Thank you. Yes. Nice quarter.

Thanks.

Just with regard to the gross margin, I want to understand, you talked about the puts and takes with regard to it. Lower volume, it sounded like lower volume hurt a little bit, but obviously, the other side of that was when volume picks up, that should -- would drive it higher. Is that the point?

Yes. That would be exactly the point. It's really pretty good execution, efficiency of productivity gain, sourcing activity, that really allowed us to get that margin in the face of lower volume. So, as we would expect volume to certainly return, we would expect it to go north.

And then the productivity gains, you've kind of talked $1 million a quarter or so, it sounds like you've had -- you have kind of been beaten at a little bit recently. Are you pulling stuff forward and getting it done faster than you thought? Or is this sort of an out lie a little bit, and the $1 million is going to continue going forward?

Well, last year we reported $5.3 million of productivity for the year, so it's slightly over $1 million a quarter run rate, and so this is, I would say, another typical quarter of that sort of a level.

How long -- I mean, are we talking years in doing this, every quarter for a while, or is there an end in sight or is it pretty ongoing?

Well, I think there's multiple pieces of it. Our -- certainly, our lean is ongoing, and we'll get the productivity that's driven from those activities, I think, pretty regularly. The other side of that coin is the sourcing coin, I think, and that is -- right now, we're getting price in a flat purchasing price world out there today, and some commodities is actually down year-over-year. That's not going to hold forever, as you know, Greg. Prices will come -- will increase, and we'll have to figure out a way to offset those with more productivity, and at some point, that might get -- might flatten out on us.

And just to add on, the other part of the productivity equation is that capital expenditures that we have spent to increase our efficiencies in our manufacturing facilities. So, there will be a limit to that over time, but we certainly see this sort of a run rate being sustainable for the near term.

What kind of net-net? It feels as if that gross margin has a little -- I mean obviously it depends on the economy but --.

Well, the biggest piece to that will be volume.

Yes, yes. I agree with that. But the point is that it should -- it sounds like you've got continued upside here with some of the things you've talked about unless the economy turns bad or something.

I think you are right.

Okay, good. And then with regard to the Austrian acquisition. That, I must say, did sound interesting. Is the -- using the creating the tools, have you done that -- taken that approach with any of your other acquisitions before and done that around the world in different places, so is that a similar approach?

We made a small acquisition in South Africa back on December of 2011, where we used a similar approach, different product group, different reason for the acquisition, but that was a mining business. They supported the mines with our hoisting products, in doing the service of the hoist and the inspection and the replacement of those hoists in the mine, and we have our leveraging that know-how and knowledge from South Africa to spread around the world. So it's similar concept, different product group.

And this is rigging tools you were talking about or not? Or is this --?

Yes. This is chaise slings and wire rope slings and a variety of rigging tools. That's correct.

So the point I think is, is that you've done it before and it's in an area where you can use some breadth and could be leveraged to some extent around the world and you have experience in it.

That is exactly the case. Right.

Okay, good. Thanks very much.

Schon Williams, BB&T Capital Markets.

I just wanted to follow-up on some of the pricing commentary. I would have thought maybe actually that we would have seen pricing accelerate a little bit more from the March quarter. It was 2% in March, 2.2% in Q1, is this -- I'm just trying to get a sense of, is there -- I wanted -- I believe that kind of March, April, was normal when you start putting through pricing in a year. Should that pricing actually pick up modestly as we move into Q2 and Q3? Or is this kind of as good as it gets?

We -- I think, Schon, as we talked before, the price increases in March that you're referring to are mostly US-based price increases. In Europe, our price increases tend to go in in the October time frame, and at this point in time, we're looking to see what makes sense on a product-by-product and country-by-country basis. So I think it will depend on how challenging the European environment is in that September-October time frame as to whether or not the market will accept price increases.

Okay. And then just on -- back on the China expansion. Can you clarify? Is that just productivity gains or does that mean -- is that capacity gains, as well? If it is -- I don't know. Have you guys quantified either the productivity gains or the capacity gains?

Are you referring to the capital expenditures that we would make into China?

Right. For this year -- you talked about spending several million dollars this year. It's going to lead to some productivity and cost savings for next fiscal year. I'm just trying to get a sense of, if that also actually expand capacity at the same time, and if so, are we talking about kind of millions of dollars, tens of millions of dollars? Just trying to get a sense of capacity expansion as part of that CapEx expansion.

Yes. Let me see if I can give you the strategy, and I think this might answer your question. We have invested in the sales force in China -- back up. 1992, we started our manufacturing footprint there in China. We built products that we exported out of China into America and Germany and other parts of the world and that was very successful. About 3 or 4 years ago, we started to invest in the sales force to really sell those products into the Chinese marketplace. As we began to get into the market and understand the needs of the market more clearly, we found that the demands for the products were really coming from Germany and America. These are high-cost products and very capable products, premium products, premium-priced products, and we decided that we needed to localize the production of these powered hoists into China to help the Chinese sales expansion.

So, we actually are expanding our manufacturing footprint in China to accept more a broader product offering to produce into China, to sell into China. The first thing were trying to get is additional revenue that should drive more revenue into the Chinese market because today we're -- for a large part, we're actually importing into China from outside of China, and we think that we can do a better job if we produce that product in China for servicing the local market. So, that would be number one. And I would expect with that increased revenue, we'd have some increased margins coming out of that part of the world, as well.

Okay. Are there -- it's better to serve that market locally, but are there capacity constraints right now? I mean, could you actually be growing faster than the 18.6%?

Yes.

There is a capacity constraint. But we don't have enough footprint right now but to build all the parts we want to build, so we need to expand to be able to localize the three or four product lines that we are moving in there.

Okay. Thank you. That's helpful.

Joe Mondillo, Sidoti & Company.

I just have two quick follow-up questions. First, the pricing increases that you did in the US, I think you've talked about that you guys are sort of -- you lead in price in the market. I was just wondering what you've seen sort of in the market, what pricing has done. Has competition followed you or sort of what you've been seeing there?

Yes. So we're -- depending on the product. It could be zero, but it could be 5% price increases and we're averaging 2% or so. I think that for the most part, our competitors follow, depending on the individual product, but generally speaking, that's the case.

Okay. And then the orders obviously were weak in the quarter, but I was just wondering how they trended throughout the quarter and into July.

The orders trended -- got worse as the quarter went on. They were stronger in the early part of the quarter and got worse as we went -- moved through June, and now they seem to have stabilized in the front part of July here. Summertime is always a tough time, but they seem to have stabilized at the level they are at now.

Great. Thanks.

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Super. Thank you, Evan. So we continue to expect the rest of '14 to be the slow growth mode and maybe revenues will be choppy as we're seeing in this quarter. The profits should continue to improve as the Lean business system as was our fixed cost reductions of several years ago and good cost control bear fruit. Our investments in emerging markets continue to be successful and we do expect the US to continue to grow, albeit slowly, and maybe in a choppy way. Europe will be in a very slow growth mode, but were buoyed by this more positive order activity as of late.

We do remain positioned to continue to execute our strategic growth plans to grow our businesses. We have this $110 million in cash, this $100 million revolver to help us execute that, as well. We continue to have discussions with multiple businesses that can add strategic value to our Company from an acquisition standpoint, and as I mentioned, we continue to make strategic investments in the selling into these emerging markets, as well as invest in new products and services and productivity enhancing equipment in our facilities.

I'd like to take the time to thank our Columbus McKinnon associates around the world for their dedication to excellence in making our Company a stronger, market-leading organization. And as always, we appreciated your time today and your support. Thanks, and have a good day and a nice weekend.

This concludes today's conference. You may disconnect at this time. Thank you.