Columbus McKinnon Corp (CMCO) 2014 Q2 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). I would now like to go ahead and turn the call over to your host for today, Ms. Deborah Pawlowski, Investor Relations for Columbus McKinnon. You may begin.

Thank you, Jose, and good morning, everyone. We certainly appreciate your time and interest today in Columbus McKinnon.

On the call, we have Tim Tevens, President and CEO, and Greg Rustowicz, Vice President and CFO. Tim and Greg will review the results of the second quarter and give an update on the Company's outlook and strategic progress. You should have a copy of the financial results that were released this morning before the market and if not, you can access that at the Company's website, www.cmworks.com. Also on the website in the investors section, you will find the slides that will accompany the discussion that Tim and Greg will be discussing today.

If you turn in the slide deck to slide number 2, you will find our Safe Harbor statement. As you are aware, we may make some forward-looking statements during the formal discussions as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ from what was stated in today's call.

These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed by the Company with the Securities and Exchange Commission. The documents can be found on the Company's website or at SEC.gov.

So with that let me turn it over to Tim to begin. Tim?

Thanks, Deb. That was a refreshing change for me. So I appreciate that.

Let me bring you to page 3 if I could. I would like to remind you of our long-term objectives which include growing to a $1 billion business with about a third of our revenue in developing markets and two-thirds or so in developed markets, along with the $200 million to $300 million in acquisitions, a 12% to 14% operating margin and a strong working capital level and an overall balance sheet. We continue to focus resources and our energy on acquiring companies that strategically add market presence and product breadth to help us grow around the world to achieve these results.

Page 4 provides highlights of the second quarter of our fiscal 2014 year. Our gross margins expanded nicely, up 300 basis points to 31.9% and our operating profits being flat at 8.8% driven by productivity gains and pricing. These profits are strong in spite of a soft revenue quarter as our revenue was down 5.2% which was negatively affected by a divestiture and volume in certain portions of our business.

Emerging markets revenue continued to increase and our China sales were up nicely 19% in the quarter as compared to the prior year same quarter. The US revenue excluding the divestiture was down $4.4 million or 5.1% but I want to make a notation here that we were up as compared to last year if we exclude some large heavy OEM crane business which was a large decrease from last year. And last year was very positive I might add.

Sales outside the US were down 2.5%, the bulk of which was volume-related. Europe continues to be weak but we are certainly beginning to see some increased signs in quoting and other business activity.

Our earnings per share for the quarter was $0.36 on a diluted share basis, up about $0.01 from last year's adjusted EPS. We have almost $112 million in cash on hand and our net debt to total cap ratio was 13.4%.

Our global bookings in the quarter were down slightly but up sequentially from Q1. I might note to you that June and July were very poor bookings months this year and it is nice to see some recovery as the quarter moved along. We did have some bright spots in this past quarter including general industrial distribution, our rigging business, material handling specialists, and the entertainment industry. This was offset by the crane builder channel, some of the catalog houses, our government business and our own crane builders which was down substantially. In the US, our hoist business is up and our rigging business component business and crane business is down.

Page 5 summarizes some very interesting profitable growth activities. We launched a new ratchet lever hoist line in October. It is a great product. It will certainly be more productive and safe for all of our end-user customers. We manufacture this in our Chinese facilities and we are currently expanding and localizing more of these products into China. These activities are all on track for full completion by the end of our fiscal year 2014.

We do have an in-stock guarantee program that is off and running this past summer. This is in place to satisfy our customers' needs with standard products in three-day shipments or less and we guarantee it. Our on-time delivery is at an all-time high of 95% so far in the United States. We are very pleased with our production capabilities now.

We also have some new marketing campaigns in place including products and service blogs and target marketing to key vertical markets like oil and gas.

Now let me ask Greg to bring us through some of the more details of the second quarter.

Thank you, Tim, and good morning everyone. On slide 6, consolidated sales were $138.9 million, down 5.2% from the prior year period. Excluding the effects of foreign currency translation and the net effect of acquisitions and divestitures, sales declined 5.2%. While sales volume was down 7.6%, favorable pricing of 2.4% reduced the negative impact of the volume decline.

Foreign currency translation was slightly positive and offset by net acquisition and divestitures activity this quarter. For the quarter, US sales were down 7.1% due to weaker sales volumes offset to some extent by pricing and the impact of the divestitures that occurred last year.

Sales outside of the US were down 2.5% due to softer volumes primarily in Western Europe. We did see double-digit growth in the emerging markets of 10.9% which partially offset the declines in the US and Europe.

Turning to slide 7, our second-quarter gross profit margin increased 300 basis points to 31.9% which was one of the highest gross margin levels achieved since our Company went public in 1996. While sales were $7.6 million lower than the prior year, gross profit dollars were actually higher by $1.9 million. Pricing gains of 2.4% versus the prior year added $3.5 million of gross profit. In addition, the net impact of acquisitions and divestitures added $1.6 million of gross profit.

Offsetting these positive factors were the impact of lower sales volumes which negatively impacted gross profit dollars by $1.8 million. Product liability costs were also higher by $1.3 million, the result of a favorable reserve adjustment in the prior year which did not reoccur in this current quarter. For the quarter, inflation on raw material costs was essentially flat with the prior year.

On slide 8, selling expenses increased 5.1% from the prior year and represented 12.4% of sales this year compared to 11.2% last year. The increase in selling costs were primarily related to the Austrian acquisition that was completed in June of this past year and continued investments in emerging markets.

G&A expense increased 12.9% from the prior year and represented 10.2% of sales this year compared to 8.6% last year. The current quarter included approximately $600,000 of one-time costs which included personnel related costs and professional services.

Foreign currency translation had a $300,000 unfavorable impact on G&A cost this quarter. We anticipate G&A cost next quarter will be at a similar level to the current quarter as a result of higher professional services related to M&A activities but will be lower as a percent of sales.

Turning to slide 9, operating income decreased by 4.9% to $12.3 million or 8.8% of sales compared to the same level in the previous year. Despite the 5.2% reduction in sales, we were able to deliver the same operating margin percentage. The improvement in gross margin offset the higher SG&A costs noted previously.

As you can see on slide 10, income per diluted share for the second quarter of fiscal 2014 was $0.36 per share reflecting a $0.06 decrease from the prior year period where we reported earnings of $0.42 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 15.6%.

On a pro forma basis at our current tax rate of 30.6%, earnings per share in the second quarter of fiscal 2014 were $0.36 per share compared to $0.35 per share in the second quarter of fiscal 2013. Our effective tax rate for fiscal 2014 is expected to be between 27% and 32%.

Turning to slide 11, our working capital as a percent of sales increased to 21.5% in the current quarter from 18.3% at March 31, 2013. The increase is largely attributable to an increase in inventory for project type orders as well as additional inventory being carried for our in stock guarantee program in our rigging business. As a result, inventory turns declined to 3.6 times. We do expect inventory turns should return to the 4 times plus level by year-end as projects are shipped and our inventory dollars decrease.

On slide 12, you can see that we generated $1.7 million of cash provided by operating activities year to date which was down compared to the prior year. Income taxes paid year-to-date were $3.9 million higher than the previous year as we are no longer in an NOL position in the US.

Capital expenditures year-to-date were $8 million versus $4.1 million in the previous year. On an LTM basis, we generated $36.5 million of cash provided by operating activities and ended the quarter with $111.8 million of cash which is net of the $5.8 million of cash used for the Austrian acquisition which closed in June.

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 13, you can see that as of September 30, 2013, net debt was $40.2 million and total gross debt was $152 million. Net debt to net total capitalization was 13.4%.

In addition to having $111.8 million of cash on our balance sheet at September 30, we have an additional $91.5 million of liquidity available under our $100 million senior credit facility net of $8.5 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.

Well before we do that, let's make sure we open it up to questions. I'm sorry. Thanks, Greg.

Let's spend a moment and look at our outlook on page 14. We continue to see very positive bookings trends in emerging markets such as China, Latin America and Eastern Europe. Our North American bookings are mixed with certain target markets such as oil and gas and entertainment being strong and with some positive initial signs in infrastructure builds.

We do feel some more capital-intensive projects are being delayed because of the economic and political uncertainty in the US. Although not a leading indicator, our backlog remains constant at about $92 million and as you all know, we continue to make strategic investments in emerging markets developing new products to help profitably grow our business.

We have also performed well in improving our productivity with our Columbus McKinnon lean business system improvement methodology.

We continue to execute our strategic plan and make investments in the emerging markets of the world like China, Eastern Bloc of Europe, Africa, Latin America, and we also continue to look for acquisitions to accelerate our growth in those regions as well as broadening our product offering.

And with that, I will open it up for questions. So Jose, if you would open up the lines to questions that would be great.

Certainly. (Operator Instructions). Schon Williams, BB&T Capital Markets.

Hi, good morning.

Good morning, Schon.

I wanted to dive into the SG&A costs as a whole up $2 million on a sequential basis in fiscal Q2 versus fiscal Q1 despite the fact that volumes were flattish. I know it sounds like there is some professional fees in there that will maybe carry over into fiscal Q3. But anything else kind of one time-ish in nature that was in the quarter? I mean it just seems like we have been in a fairly significant ramp up mode on the SG&A. I am just wondering if we should expect this trend to continue?

Let me comment first, then I will turn it over to Greg, Schon. We have not been ramping up -- we have been pretty flat at about $30 million for the last -- I will say --

Quarters.

Yes, almost probably more than a year. So let me correct you on that. But this last quarter we did see some increase and Greg will comment on that and what those pieces are.

Hi, Schon. So I think you've got to break it into the two components. First on the selling side, you are talking about the sequential change in SG&A, right?

Right.

Okay. So on the selling side, all of that increase and more is actually due to the Austrian acquisition and if you remember, we had one month of the acquisition in the first quarter. We have got the full three months. So that impact was over $700,000.

When you look at the G&A side of the equation, there were $600,000 of one-time costs related to personnel items and some professional services that we talked about. In addition, there were several hundred thousand dollars of incremental new product development costs in Q2 versus Q1. We had one of our SAP sites go live in the June timeframe --

June 1.

So there was an incremental $200,000 roughly of costs for post go live support for our ERP system implementation. And then there -- so that is really the bulk of the M&A or sorry of the G&A increase.

And those would be more one-time kinds of items, Schon.

Okay, yes, I mean I guess my commentary was just SG&A as a percentage of sales has gone up on a year-over-year basis for the last three quarters in a row. That is more -- I agree with you that the absolute dollar amount of SG&A has been flat but I mean you have been faced with sales declines in the 5% to 10% range. So in that environment, SG&A as a percentage of sales has gone up.

That's right. We continue to make those strategic investments around the world. We have not stopped that in those emerging markets, Schon. We feel it is a prudent business decision to make to continue to make those investments around the world to grow our revenues and we have been successful in those sections of the world.

Okay, that is good color. And so as we look into Q4, fiscal Q4 and some of the professional fees and maybe some of these other one-time fees going away, should we get back to that kind of $30 million range or have we set -- has the bar kind of been set a little bit higher here even going forward a couple of quarters out?

Yes, I think it is -- from a go forward standpoint first of all, it is our third quarter, the December quarter which I think you are referencing. We would expect to see some additional one-time expenses come through in that quarter but I would believe if you look out beyond that we would be back in the $30 million area. And I think that is what we have always guided people to think about the Company on a long-term basis to be in this $30 million area once we get through these one-time costs which is this quarter and the third quarter.

All right, thanks for the clarity. And one follow-up if I may. Can we just talk about the pricing environment and what you are expecting in the back half of the fiscal year here? Typically I believe if memory serves me correctly, you would be looking at pricing in Europe in the back half of the year but then obviously it sounds like Europe still remains a challenging environment.

Can you just talk about where we are with pricing and kind of what you see in the next couple of fiscal quarters?

Sure. So as you know historically, we are able to get between 2% and 3% price basically through a cycle and I think this quarter was no exception to that. As we look to the future though, price might be toward the lower end of that, Schon, because Europe continues to be challenged and it is a much more difficult pricing environment. In fact, we pushed our pricing in Europe out a quarter so it is going to be a bit delayed.

So I would not think about us toward the 3% but probably more toward the 2%-ish area.

All right, thanks a lot, guys. I will get back in queue.

Okay, Schon.

Jason Ursaner, CJS Securities.

Good morning.

Hi, Jason.

Just first question on the US. I think you had mentioned that volume actually would have been higher year-to-year without the heavy OEM and crane business. So I was just wondering you know if you can quantify how the rest of the business was actually growing year-to-year?

Yes, our hoist business actually did quite well in the quarter -- well it's single-digit kind of growth in a very uncertain world we live in in the US. Oil and gas is pretty good, entertainment was reasonably good, but general manufacturing seemed to be soft for us. And I would say that the heavy OEM business where we sell some of our cranes and hoisting products to some very significant corporations that have really scaled back their investments not only in the US but around the world and that had a dramatic impact on us.

If you kind of remove that large heavy OEM customer of ours, you will see that we actually grew low single digits.

Okay. And was the majority of that impact in the second quarter or that has been (multiple speakers) might be (multiple speakers).

It has been going on for two quarters now. It has been a bit longer than that.

And in terms of a comparable, I mean is that going to continue in the back half -- (multiple speakers)?

Yes, Jason, this is going to be difficult for us for another couple of quarters I would say at least.

Okay. And the emerging markets, obviously you guys quantified the revenue there. Can you talk maybe about the gross margin you see in that piece of your business versus other more mature geographies around the world?

Yes, Latin America's gross margin is about the same as you would see in North America. The same would be true in the Eastern European sectors. I would say that China might be a bit lower and the reason it is is because of the fact that our guys there -- our guys and gals there sell our product that is made in America and they have to be competitive in the Chinese markets and we have to export it by the way and ship it across the ocean.

It is a little more costly to operate there. Until, Jason, we ramp up our strategy of building our facilities more broadly and being able to produce more product into China, we will still have margin pressure in China. But I think that as we build out these facilities now, we are in the midst of that and we should be done with that build out at the end of our fiscal year. We will have more capability in China to build the product to be sold into China. And then the margins would look more equivalent to what you would see at Columbus McKinnon as a whole.

Okay, but the pricing environment in Asia really isn't -- I mean there is nothing structural once you can get it made there that would keep that from getting more in line with corporate margins?

Correct. The prices are lower but our costs will be lower as well and therefore the margins would be similar to the corporate margins.

Okay. And I understand that you guys have been obviously investing a lot in emerging regions ahead of the curve to kind of accelerate the growth there and capture market share. Can we get some better sense of the magnitude of what that platform costs from an operating expense perspective and how much more additional investment would you need there once revenue actually starts to show a more significant ramp?

You know, that's a great question, Jason. We are beginning to see in China that we have a solid selling and G&A structure right now in place in China in particular with 30 salesmen over 20 application engineers, a solid management team on the ground running this business that we think that that is fairly well set now for the next foreseeable future. We would build our strategies out and I think there is a little bit more investment to come but the bulk of the investment has been made and in place.

Now we just need to continue to see the revenue grow like we have in the last year or so at the same pace and it will grow into that very nicely.

And then I think if you look out a couple three years, it will have to be adjusted again in the future. As we grow the revenue and we want to cover and blanket more of that market, we will have to add the selling expense in particular at that point in time.

When you look at the rest of Asia Pacific, I think we have some work to do there not significant amount of headcount but just better coverage in Southeast Asia in particular where we have some salesmen on the ground but I think we need a better presence in places like Indonesia and Malaysia, Australia to name a few.

So from a quantification standpoint, I don't have a number in my head but think of maybe $2 million, $3 million kind of ballpark in that part of the world. Latin America, we have a stronger presence because we have been there longer by the way. We have been in Latin America, we have been in Mexico since 1975 and Brazil since the late -- mid-90s with our own presence there since the late '90s. So that has a little more maturity to it and a little more stronger presence that we can build upon and more stable from in SG&A standpoint.

And the same is true with the many parts of Europe; South Africa in particular, we have had a great presence there for many years. The Eastern Bloc of Europe, we have a nice presence in most of the countries. And the buildout really is these unique sales offices like Turkey and Dubai and Morocco where we never had a presence but now we have these offices with -- think about several people in each location. That is not the huge investment either.

I appreciate that. I will jump back in the queue.

Thanks, Jason.

Joe Mondillo, Sidoti & Company.

Good morning, guys.

Hi, Joe.

Hi, Joe.

Just a couple of questions on the gross margin. So just wondering just sequentially if you look at the last couple of quarters you continue to sequentially -- are able to increase the margin and I know you talked about the year-over-year comparison in the slide deck.

I am just wondering, it seems like just from first glance on the numbers that you put out there, it seems like price benefits, obviously the divestiture as well as possibly product mix have been fairly consistent with the past couple of quarters but you are still seeing significant sequential expansion on the gross margin despite sales being flat to down.

So I am just wondering if you could talk about those factors and sort of if you expect this sort of sequential expansion on the gross margin to continue if in fact you were to see flat sales going forward?

Yes, good question, Joe. I will take a shot at it and then I will ask Greg to comment if I miss anything.

Yes, as we look at our business I would say a couple of things. First of all, you are seeing price come through and very moderate inflation. In some products and commodities, we buy actually a bit of a deflation so there is certainly some margin improvement in that regard. I would say that our product mix continues to be favorable as our hoist business in particular in the markets where we have this number one position grow, our operations are able to take advantage of that volume.

In addition to that, Joe, what I am seeing is our operations actually performing much better and I attribute that to our lean business system and our ability to get productivity month in and month out. We got a lot of people working on many improvement jobs -- projects that continue to drive our margins in a positive direction.

I also think to a degree we are leaning on the work we did several years ago to rationalize our facilities. When we shut down three of our major operating plants in particular, the hoist business we closed the plant. There was about 440,000 square feet. That is a lot of fixed cost out of the system and as their revenue ramps up back to the peak levels, you get some pretty good solid operating leverage with the lower fixed cost structure. And that is what we are seeing as well.

So I think there is these multiple facets and multiple positive benefits that we are all seeing right now.

You know do I expect it to go forward? I certainly expect our productivity to continue to go forward. That is an effort that has been underway for many years and we are not going to stop that. You know, Joe, that our Company has generally had price increases and I would expect us to have some level of price increase. Historically we do that as well.

What I don't see -- have a clear sense for yet is inflation. I think it will be moderate in the near-term but as economies change and heat and things may change around the globe as you know, we have seen inflation come at us. That may be an offsetting entry, hard to say as we sit here today and look out into the future but that could possibly have an impact on us.

Okay. And then just in terms of the gross margin, I was wondering if you could just talk about geographically what is your gross margin profile around the world? I imagine the US is higher than most regions. If a lot of the growth is coming from emerging markets, do you in fact see at all any lower margins in those regions or if you could just talk about the geographic profits.

So Joe, when you look at our gross margins by region in the US and Latin America, they are essentially the same, very close. Europe is not far off of that. As Tim had mentioned earlier, our Asia-Pacific business has -- a few margin points lower gross margin overall but one of the things that is different this year compared past where we were investing for growth, our Asia-Pacific business which used to be run at pretty much a breakeven level at the operating margin line is actually now contributing positive operating margin.

Still not at the corporate levels but we are making good progress and we think with the investment and the manufacturing assets that is going to be done at the end of the fiscal year that will further allow us to expand our operating margins in Asia.

Okay, great. Thanks a lot, guys.

Thank you.

(Operator Instructions). Schon Williams, BB&T.

Hi, thanks for the follow-up, guys. I wanted to address the M&A pipeline. Can you just talk about what you are seeing out there in terms of looks at deals? And then could you address maybe the situation with Crosby and does your outlook on that competitor change now that it's in different hands? Any thoughts there would be appreciated.

Yes, Schon, let me take those one at a time. The first question was M&A activity. You know as you well know, we have a strategic initiative to spend a lot of time targeting companies and we have a team of folks that spend time around the world identifying opportunities for us to look at and these are companies that are typically small in nature, typically family-run and generally not for sale.

So we continue to make good headway there, had multiple conversations. The pipeline has actually broadened a bit I would say. It is a little more -- there is more opportunities given our activities. Nothing to report just yet but we continue to work on that targeting effort. That is unchanged.

The Crosby situation in particular which was I think there was an announcement out that it was sold recently to a PE -- from one PE firm to another PE firm. I think that from a competitive standpoint that asset will -- they will continue to do good work. It is a solid competitor of ours in a very narrow niche of our rigging business. Keep in mind we are mostly a hoist company and they are mostly a forging, rigging tool kind of company. That is a smaller section of our business.

And they will continue to do their good work around the world. They are mostly oil and gas-centric and mostly North American-centric as well. I don't expect them to change their trend and their behavior and their investments that we see around the world. I expect them to continue to do the things they have always done with some added pressure. There is going to be some additional leverage on that company that they have never seen before and I suspect that there may be some pressure to generate free cash and delever that company and pay their shareholders maybe differently than the last shareholder group.

So I don't expect a difference from a competitive standpoint at all.

All right, thanks. I appreciate the color.

Joe Mondillo, Sidoti & Company.

Hey guys, I just wanted to address sort of the volume declines that you have been seeing which not surprising that we are seeing some organic declines in this type of environment, but it is really just the magnitude what seems to be a little higher than -- or the declines are larger than some of maybe your peers just talking to the general industrial space generally. It just seems a little larger.

So I am just wondering if you could sort of comment on what is driving such large volume declines? And I guess mainly it is in the US. So I was wondering if you could just comment on sort of where you are seeing and maybe why a big of a decline in the volume.

Yes, let me see if I can do this again. Two major pieces. The number one piece that we see as decline is our crane business that is sold to a couple of major heavy OEM kind of companies where last year was a spectacular business. I am talking like through the roof, the best business we have seen ever out of this crane business to one where it is gone. It is basically the business is I will say cut in half for all intents and purpose.

That is the largest shrink that you are seeing at our topline. The rest of the business, Joe, that you know us for is our hoist and rigging tools is flattish if not up slightly.

The other part of it is certainly Europe. The recession hit our business later than maybe an might if it others -- I don't know who you are referring to. But we saw a decline starting I would say last summer and then through the fall in our European business and it seems to have bottomed as we sit are today and look backwards -- it seems to have bottomed in the summertime this past summer and now we are seeing some sequential growth in our European business ever so slightly. But our bookings and activity, our quote activity, seems to be improved.

And that would be a second shrink of the topline. And that is directly related to the -- I would point toward the Eurozone recession, in particular Germany, where we have most of our business, the UK and France. But as I said, it seems to be recovering.

The first instance, the crane business doesn't seem to be and I don't think it is going to recover for a while.

So just in talking about that crane business, is that -- do you -- do you normally do business with one or two customers or is it just a flood of customers because of the environment for whatever reason? And in that case, what is the wood of the driving factors for that business and why is it so weak? I am just trying to understand -- (multiple speakers)

I am not going to give you any names of customers, okay?

No, I was just wondering if it's like -- do you only sell to one or two customers or --

Yes, it's three or four major customers out of that business and all three or four are off significantly.

Okay. And is that just the nature of their particular business and not doing as well as maybe some other industrial customers or is there -- (multiple speakers)

Yes, that is exactly the case. And I mean if you think deeply about it, there are some sectors in the general economy, mining being one, ag is soft, construction is way off and people who provide to those industries are way off as well. And as a result, they are not investing in their equipment, their lifting equipment. They don't have as much activity which drives our business to a large degree.

So as a result of their lack of activity, we don't have the same activity either where last year we saw some pretty good business, now we see very little. So it's very specific and very targeted at a couple of key end-users that we have that just don't have the same level of activity.

Okay, good enough. Thanks a lot.

Okay.

Peter van Roden, Spitfire Capital.

Hey guys.

Hello Peter.

Just a quick question just broad brush strokes, what is the margin in the crane business versus something like the hoist business?

Yes, we don't provide that and disclose that information at that level of detail, Peter.

Okay. And then generally I know Joe just got into this, what would you have to see -- like what should we be looking at on a more macro level to see that business start to come back?

I think you need to see commodities turn. I think you need to see the construction industry turn to name a few and see more robust activity in those sectors of the world.

Okay. That is all I had. Thanks, guys.

Bob Franklin, Prudential Financial.

Hi, just a clarification. You sold the crane business a year ago, right?

Yes, we sold a portion of it a year ago. The portion that serviced the general industry in the Texas, Oklahoma, Louisiana area. This is the remaining portion.

Okay, thanks.

Jason Ursaner, CJS Securities.

Thanks for taking the follow-up. I just wanted to I guess clarify on this a little more because mining aggregate and construction are also fairly key verticals for the hoist business. So is it more a cyclical element related to those customers' CapEx spending or you are also seeing obviously not to the same level but similar type of pressure on those verticals in the hoist business?

Yes, good question. So this crane business has these end-users that are very tied to those sectors of the economy. So it is really hurting those end-users and therefore our business to supply them with hoists and cranes in a very particular circumstance. As we look around the world and as you know one of our key verticals is mining, and some of the mines that we service for example in South Africa, the gold, platinum, palladium mines, their activity is down as well.

So that portion of our business I would say is flat because as they operate a mine, they still have to do some level of inspection and repair of our waste hoists so we get that business as well. But for the most part, those industries are also negatively affecting our hoist business but not nearly to the same degree.

Our vertical focus on oil and gas mining -- to name a few -- construction, are very -- are working well and they are new for us. As you know, we started this in the last year or so I would say and that effort for our team to go out and really apply our product into those key verticals has been a fabulous increase in our revenues in those particular verticals. And we are going to continue to do that.

Okay. And then just wanted to follow up on a comment that was made before that Asia is actually contributing positively to operating profit --

Right.

I just wanted to make sure I heard that --

Yes, you heard that right, Jason.

With all the SG&A or that is kind of an ex-corporate level that is targeted in Asia?

No, that is the entire SG&A cost of that business. That is correct.

Okay.

That's positive operating income.

Okay. And just as you think about incremental operating leverage, obviously you have made the investments are ahead. When you talk about the 30% targeted leverage, what type of rates do you expect to see from China specifically but also all the emerging market regions that you are serving where obviously there is a greater percent of the SG&A platform in place at this point?

I don't have the number on the top of my head from leverage from those sectors but I would expect them to be in the same ballpark as the corporation would be as they go forward and their revenue grows that we would see the same 30%-ish that we have spoken to in the past.

I guess I am just wondering why wouldn't something like China have a much higher incremental operating profit if the cost platform is sort of already there?

Because the sales price is going to come down as well to offset that.

So Jason, Greg. We had talked about earlier on the call the fact that Asia's gross margins are below the rest of the world's. And so that is part of the reason why.

Okay, all right. I appreciate it. Thanks.

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Great. Thank you. I appreciate that, Jose. Let me summarize by saying we do expect some modest level of revenue growth and we are beginning to see improvement in the bookings as we talked about earlier. Our profits should continue to improve as our lean business systems, the results of our fixed cost reductions of several years ago, and good cost control bear fruit, our investments in the emerging markets continue to be successful and we expect the European recovery will most likely be slow but however are buoyed by the more positive order activity as of late.

We remain positioned to continue to execute our strategic plan, to profitably grow our business as we have about $112 million in cash, $100 million revolver. We continue to have multiple acquisition discussions with businesses that can add strategic value to our Company and we also continue to make strategic investments in selling in emerging markets as well as investing in new products and services and productivity enhancing equipment in our facilities.

I would like to take this time to also thank all of our associates around the world for their dedication to excellence, and making our Company stronger and a market leading organization. And as always, we certainly appreciated your time today as well. Thanks very much.

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