Core Natural Resources Inc (CNR) 2002 Q2 法說會逐字稿

Please stand by. We're about to begin.

Good day, everyone, and welcome to this NCI Building Systems, Incorporated conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Burton Rice. Please go ahead, sir

Thank, Felicia. Good morning as well, and welcome to this NCI conference call to review the company's results for the second quarter of fiscal 2002. The results were released yesterday afternoon in a press release that has been covered by the financial media.

Let me also note a release has been issued advising of the accessibility of this conference call on a listen-only basis over the internet. As we start, let me express some statements made in this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact.

Actual performance of the company may differ from that projected in such statements.

Investors should refer to statements filed by the company with the Securities and Exchange Commission for a discussion of those factors that could affect NCI's operations and the forward-looking statements made in this call.

the information being provided today is as of this date only, and NCI expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations.

I'll now turn the call over to A. R. Ginn, chairman. Please go ahead, A. R.

Thanks, Burton. Johnie Schulte, Ken [inaudible] and Bob Medlock are with me to comment on our results for the second quarter of 2002.

We're pleased to announce that we hit the numbers that we had publicly projected. You know, hitting our numbers has a real positive ring, especially during a period in which the metal construction industry is still in a recession, business remains extremely competitive, and many other companies linked to construction are certainly expressing a very negative message about their immediate prospects.

I want to offer some background comments about what is driving our improvements and address whether we see this improvement in our results continuing over the rest of fiscal 2002.

We will then be glad to answer any questions you may have.

NCI has the broadest product line from a full array of metal components, which includes architectural and metal roofing products, to the highest complexity levels of metal buildings and structural systems in our industry. Our [call paint] lines contribute to NCI being an integrated supplier, which means we have better control over our costs, more flexibility to meet each customer's needs, and I believe that our culture is one of looking for ways to do just that, to outdo the competition.

We also use these strengths to expand our customer base. Our marketing plan for this year was one that focused on adding new accounts. This business, like most, is one in which the best accounts are that, in part, because they have a strong, well-established team of suppliers. At the same time, there's always some opportunities. I'm pleased to report that through the first half, we added a hundred-plus new component customers and 65 new builders. We were coming off strong momentum from this same type of effort in 2001, and are very gratified that it is continuing this year.

Our new national accounts program is on track, and will add to our future growth. The real significance of all of this effort is what it means to future sales. If we do what we say we can do for these new customers, we'll gain more of their business and gain more market share. So the news is not so much the incremental sales generated from these new accounts for fiscal 2002, but more the affirmation that NCI is outperforming the others in delivering value.

One of the interesting developments during our latest quarter was the enactment of a steel - of a price increase in mid-April by the steel industry in the 4 to 8% range, depending on the product. The steel manufacturers are on record as indicating that even against the current economic recession, they have no choice except to try to offset their higher costs. The mid-April increase is not expected to be the last increase this year, and I'm encouraged that we have been able to pass through the increases. It is clear that the cutbacks in steel capacity are now becoming apparent in tight supply. We have been proactive in informing customers of these trends, and do not believe that NCI's market share will be affected.

Another key factor that our results this far highlight is the benefit we are now realizing from the capacity adjustments we started last year and completed in the first quarter. Those of you that are familiar with NCI know that we consider these not at all as a cutback, but rather, as a logical shift of our physical resources to achieve higher economies of scale and provide higher levels or better levels of service to our customers.

We are now seeing the evidence to support that logic, and believe that the results in the second half, where we historically have higher sales volumes, will showcase these savings even more.

I'd like to underscore that the plant closing and equipment moves were also designed to provide some resources for expansion. Subsequent to our last conference call, we announced plans for a new facility in Big Rapids, Michigan. I'm pleased to report that the facility will be operational as planned next week. Now, this is a component facility where we will be producing light-gauge metal roof and wall panels for residential, commercial, and agricultural markets. It will serve new and existing customers in Michigan and portions of Indiana, Ohio, and Wisconsin. The incremental sales from the Michigan plant will certainly help us in the second half, but really has more significance for the future.

At a time when others, you know, cannot or will not make such a move, NCI is expanding its operating base into a very attractive market.

Now, our plan for 2002 was based essentially on some improvement in industry-wide conditions as the year progressed, but we recognized that any gain for NCI would come more from increases in market share.

We're seeing those, and that reinforces our confidence about prospects over the balance of the year. Although some GDP numbers may suggest the formal end to the recession, it's clear that the metal construction industry is still very much in a slowdown. We are now in the seasonally stronger part of the year for construction, and we're seeing some improvement in orders from that factor.

Based on current trends, we believe that we will report earnings for the third quarter of approximately 50 cents per diluted share, up from 39 cents per diluted share a year ago. We also look for a gain in the fourth quarter versus 39 cents a year ago, excluding the restructuring charge.

I believe the important aspect of this outlook is not the absolute figures but the message that in a very difficult business environment, we are performing and showing improvement. It is not as much as we had hoped at the start of 2002, but it sends a clear message about our prospects once the overall market starts improving.

on a short-term basis, you know, it's hard for us to forecast because of the considerable up-side leverage in our business, but the key question is not whether the third quarter will be 50 cents, but whether and when NCI will return to and surpass the operating profit margins of two years ago.

We believe we can hit those levels again. The timing is uncertain, but fiscal 2000 as a whole is going to represent a positive trend that will extend and even accelerate next year. Especially if the economy rebounds and the construction activity recovers.

Combined with the continued improvement we have realized in our balance sheet, I believe this bottom-line outlook for NCI offers a very positive picture for investors. Our results through the first half have come through the energetic and hard work of the employees at NCI, and we thank them for their continued dedication and commitment.

We have the good fortune to be in an industry that offers us exciting growth opportunities. We have the right resources to capitalize on that potential. And we have an unquestioned drive to succeed.

I'll now turn the call over to Bob Medlock.

Thank you, A. R.

Sales are 213 million in the second quarter, and were up 2% compared to the second quarter of fiscal year 2001.

Gross margins for the quarter are 21.4% compared to 22.2% in the prior year's second quarter.

the majority of this decline can be attributed to a higher degree of price competition in the current year versus what we experienced in the prior year.

the 21.4% represented a 7% improvement from the 19.9% gross margin for the first quarter of this fiscal year. The majority of this improvement resulted from the favorable impact of plant closings which were completed in the first quarter, which led to better utilization of existing plant facilities in the second quarter.

Operating expenses for the quarter were up $1 million, compared to the prior year, before the impact of the elimination of goodwill amortization. As a percent of sales, operating expenses were 15.2% in the current quarter compared to 15.3% in the prior year's second quarter, again, absent the impact of the elimination of goodwill amortization.

Interest expense for the quarter of 5.5 million was down from the 8.9 million in the prior year, reflecting the decline in interest rates and lower debt balances. That income of 4.8 million was up sharply from the 1.2 million posted last year. Part of this, obviously, was the result of the elimination of the goodwill amortization in the current year as a result of the adoption of SFAS 142.

For the six months ended May 4th, sales of 442 million were up 4% from the prior year. Again, this compares to an industry which is still down approximately 15% year over year. The recruitment of new customers, as A. R. mentioned, had a great deal to do with our performance vis-a-vis the industry.

Gross margins for the six-month period of 20.6% compared to 22.6% in the prior year, again, price competition and higher costs for employee benefit programs accounted for the major part of this decline.

Operating expenses for the period were up $2 million, or 3%, before the impact of the goodwill, which was in line with the increase in sales. As a percentage of sales, operating expenses were 15.1 compared to 15.2 in the prior year.

Interest expense for the six-month period of 11.7 million was down 38% from the 18.7% in the prior year, again, due to lower interest rates and the reduction of total debt by approximately a hundred million dollars or 23% from the amount outstanding at April 30th, 2001.

income of 43 cents per share was up 87% from 23 cents posted in the prior year. Again, a portion of this is attributable to the elimination of the goodwill.

the results for six months include the cumulative effect of the change in accounting principles, net of tax, of a $65.1 million noncash charge related to the adoption of accounting standards 142, which required the testing for goodwill impairment on an individual operating unit basis. This adjustment represented approximately 18% of the goodwill balance carried on the balance sheet of the company.

on a segment basis, engineered building system sales in the second quarter were 67.6 million, down 2% from the 68.6 million posted in the prior year.

Operating income was down sharply to 5.3 million from the 9.2 million posted in the prior year. An 11% decline in gross margins resulting from heightened price competition and higher operating expense levels for employee benefit programs were the main reasons for this change.

as a percent of sales, operating income for the period was 7.9, compared to 13.4 in the prior year.

incoming orders for the engineered building segment were flat for the with the prior year for the six-month period and backlog was 161 million/?TXU at May 4th compared to 160 million a year ago.

Most component segments had sales of 145.7 million in the second quarter compared to 139.6 million in the prior year, representing an increase of 4%.

Improvement in the coater sales and in the rural segment of the component business accounted for a great deal of this change.

Operating income in the metal components segment was 13.5 million in the current period, compared to 8.2 million in the prior year's second quarter. Higher activity in coating operations, along with reduced energy costs in the current year, better plant utilization of component operations due to higher volume, and the plant closings accounted for most of these gains.

Turning to cash flow, the company repaid 16.6 million in debt during the second quarter, bringing the six-month reduction to 38.7 million. Capital expenditures in the second quarter were 2.3 million, and totaled 4.1 million for the six-month period, compared to the 7.7 million spent in the prior year.

on a trailing 12-month basis, EBITDA was 102 million.

That concludes my comments. We'll now turn it back over to the operator and open it up for any questions.

Thank you. Today's question and answer session will be conducted electronically. In order to pose a question, please press the star key, followed by the digit 1 on your touch-tone telephone. Once again, if you would like to ask a question today, please press the star key, followed by the digit 1.

We'll go first to Robert Marshall of Wachovia Securities.

Yeah. Good morning, guys.

Good morning.

A question. Where do you expect revenue to come in in the fiscal third quarter? Are we looking at a down year over year comp at this point, or flattish?

Rob, I don't think we're looking at a - you know, a year-over-year down year. Obviously we've been up in the first and second quarter. We would expect we would do a little bit better in the third quarter this year compared to last year. And based on seasonal demand relative to the 213 million we had in the second quarter, we would expect that would be up, you know, sharply from those levels.

Okay. The backlog at 161 million, how does the margin look on that backlog? Is it off significantly year over year?

It's obviously off some. You know, and I really can't give you a number, but, you know, it's - it's - we obviously are still experiencing, particularly in larger jobs, a great deal of price competition in the marketplace.

Okay. All right. Thank you you very much.

We'll go next to [Jung Chow] of UBS Warburg.

Yeah. Hi. It's Robert Manowitz with UBS Warburg. Two quick questions. First, with your Michigan facility opening, I think you said next week, will that be a cash-flow positive facility in the second half of your - of your fiscal year?

By positive, you mean will it make money?

Yes. Will it generate cash - free cash flow or will it be a user of cash flow?

Yeah. It will - it will make money and generate cash flow.

Okay. Secondly, what was your revolver availability at the end of the quarter?

Robert, it was around $80 million.

Okay.

And that's not an exact number, but, you know, somewhere in that range.

Okay. Is it substantially different today than at the end of the quarter, or is it pretty comparable a few weeks out?

No. Obviously, you know, since we paid down $16.6 million worth of debt, 11-and-a-half million of that was a required repayment of our term loan, so actually, our revolver availability net of that would have gone up another five or six million from where we were at the end of the first quarter.

Okay. Great. Thank you.

We'll go next to John [Diffendahl] of BB and T Capital Markets.

Yes. Good morning. I know in the release, you indicate you thought the fourth quarter would be up. I mean, obviously and not giving any more specific guidance. But traditionally, your fourth quarter is slightly better than the third and actually fairly similar. I mean, at this point, A. R. , and like I say, it's going out a little ways, do you expect that we're talking about a similar kind of earnings per share number in the fourth quarter, from what you know now, to the third?

You know, I think we would believe that it would be at least equal to the third quarter, and it - it should be better. You know, the market - you know, Johnie and I are sitting here shaking our head at each other. It's - and not in a negative fashion at all, but I mean the market's just extremely hard to read, and what's happened is, a number of competitors, especially on the building side, are just knocking the bottom out of prices, and that wasn't happening to us a year ago.

the absolute number of orders is up, but the volume is down, and the complexity level's up, and this - you know, when the complexity level goes up, that adds to your costs. And what we're seeing is there's just not any large projects being sold. They're just - you know, it's just one once in a while.

Last year, we sold a lot of buildings that were up in the, you know, 400 to a million square feet, and - 400,000 to a million square feet, and we're not seeing that this year. It's just not happening. And one of the things that we believe is that when - when 9/11 happened year, people were in the process of formulating their capital budgets for this year, and they just - you know, they put a lot of projects on hold. And we think that when people do their capital budgets this year, that it will look a lot different and 2003 will show an improvement.

So is that saying that long bay is down versus where we were - I mean, given the larger building, that long bay is under some pressure?

Yes, there's no question that the larger warehouse structures are down, John. I think that what A. R. said is that on the on the order entry level is high on quantity of buildings. If you take last year's average, we were probably in the 39,000 average, and now we're in the 20 - 26, 27 average per order. So you can see the big ones have had some effect. But number of jobs, we're still - we're still okay, and I think that's one reason that we shine a little bit more than some of the others is that we do - you know, we take all types of buildings from small to large. And I think that the small building market is still there and the large building market has slowed down.

So, yeah, we're taking pressure on the large buildings, and that includes long bay.

And on - how are you doing in the self-storage business? I mean, typically noting that given many of the mobiles have had in the stock market, how is that business holding up for you?

You know, there's - the self-storage business is just about where it was last year. You know, we also supply doors to the self-storage industry. Our door company is about where it was last year and that's even with a new competitor coming on stream. And I'd like to add one other thing.

You know, through the component side of the business, we sell a lot of regional metal building manufacturers, and have for years and years. These guys are - we're seeing the same thing with the regional manufacturers as we're seeing with NCI. It's just the complexity level of the building is up, the order size is down, and they're struggling to get orders just like we are. There's just not as many orders. And you can see from what Bob said that the component side of the business is actually up year over year about 4%.

Yeah. Yeah. And just one last question. It cut out because I had a call come in. You mentioned you had - at the beginning of your presentation, that you had 65 new builders and what was the other statistic you gave, in terms of new - new customers, I guess?

Well, I said that we had over a hundred new component customers, and that is a very conservative number. We have to watch that number because so many component customers are - buy one time, you know, and -

Right.

- and, you know, they're building a project on their farm or something. I mean, if I told you the absolute number of new people we've entered since November the 1st, you'd fall out of your chair, but if you look at new accounts, we've added about a hundred.

In the past, you've given us sort of a revenue number of new accounts you've opened that you didn't have a year ago. Is there any way to quantify that for the quarter?

We don't have that here in front of us.

Okay. Thanks very much.

We'll go next to Steve Revell of [inaudible] Brown.

Hi. This is actually Skip Tagg for Steve Revell.

You mentioned that you didn't expect the steel price increases to be the last. Could you talk about your outlook for steel prices?

To be what, now?

Could you go over your outlook a little bit for steel prices? You did mention that you didn't expect the price increase to be the last one you saw so can you be more specific.

Oh, they've announced another price increase July the 1st, and we already have price increase letters out to our customers. And, you know, I mean you've got 8 or 10 weeks lead time in buildings, and on the component side, you've got several weeks of lead time on the like school projects and so on, roofs for school projects, so you've got to get these - the price increase announcements out. And, you know, by and large, we've not heard any - any of our customers complaining about the steel price increases. By "complaining," I mean saying, "We're not going to take that increase, we're going to go look for another supplier." You know, I think everybody in this country is pretty aware that our steel industry's in trouble and they needed to have a price increase, and I think that there - in general, people are supporting this price increase.

Okay. Do you buy all of your steel on the spot market or do you have long-term contracts as well?

You know, we have contracts with the major - all three major mills here, and then, you know, the foreign market has dried up for the most part except for some steel coming in from - from Mexico. You know, the 201 didn't cover Mexico and Canada, so, you know, we've got some material coming from Mexico and then we've got, needless to say, the building products that we produce in Mexico coming out into the United States.

Okay. Great. Thank you very much.

We'll go next to Jerry [Bruney] of J. D. [Bruney] and company.

My questions are already answered. Thank you.

We'll go next to David [Ushack] of Sanders, Forest, and Harris.

Just a couple quick ones here. Other income was up about 800,000 versus a turn-around of about 800,000 in the first quarter. Is there anything in particular there that was the positive turn?

David, I think the majority of it would just be the margin improvement.

I mean on the other income line.

Oh, other income line.

Right.

Oh, there is a - there is - we sold a portion of one of the plants that we had closed in the first quarter.

Okay. That was -

So there's about a $400,000 gain included in the other income line.

Okay. That was - you had mentioned that on your last conference call, I believe.

That's correct.

Okay. Then the tax rate kind of jumped up to - again, compared to the first quarter. Could you give us some guidance as to where that tax rate should be in the second half of the year?

Well, I think it went up from around 39 to right at 40 or slightly over 40.

Right.

40 is probably a - a fairly decent number to use for the balance of the year.

Okay. And on inventories, it looks like inventories were down about 10 million versus the first quarter, and that's generally, you know, going into your seasonally strong period. Is there some reason why the inventories had come down that much?

Well, the inventories are down when we - we're primarily domestically sourced, and we have roll in whole programs with a lot - with most of our major suppliers, and when the market has gone almost exclusively domestic, that situation will occur.

Okay. Okay. Then one other thing. You had mentioned about, you know, putting some price increases through, but pricing is still a factor in the competitive landscape. Is there anybody in particular that is kind of leading this pressure - pricing pressure that's in the - in the industry right now? Can you point to any one particular - not necessarily to name names, but is there one particular one that you're finding particularly troublesome?

There's probably three companies on the component side, and Johnie, what do you think on the building side two or three?

Yeah. That are already leading in.

Okay.

There's one on the building side that is - I don't know what they're doing but they're just - they've lost their mind, the best we can figure.

Uh-huh. Okay. Now, with that as a background, do you sense, though, that these price increases you're putting through, given that kind - some of the ripples out there, that these price increases can hold?

The price increases?

Yeah.

Yeah, they're going to - they've got to hold.

Uh-huh.

The mills are going up. They're going up to everybody.

Okay.

And most of our major competitors have been - have announced a price increase. You know, quite frankly, NCI has led it, but we think its prudent to do so because of the lead time involved with these projects.

And one final question. The - could you just give us an update on your national marketing program, kind of where that stands as far as progress you're making and just kind of, you know, a quick overview as to how more comfortable you are with it now compared to where you were three months ago.

Yeah, I'll tell you, we're on target with the national accounts. I think that we've already signed a few orders in place, people are in place, the operation is doing well. In fact, we've - we really feel good about national accounts, and it could be a winner for us even in the fourth quarter. It's just something that has come on as - on stream and has performed as well as we expected and maybe a little bit quicker than what we expected. But we're entering orders today that we have on the books with national accounts right now.

So the - some of the backlog contribution, the - you're performing as well os backlog contribution does include in national accounts being rolled into that backlog then.

A small of that right now is - that's true.

Okay. That's all I've got. Thanks a lot.

Thank you.

We'll go now to Greg [Macosco] of Lord Abbott.

Hi, good morning.

Good morning.

Good morning.

With regard to the gross margins and the like, I know that you've changed to adding the shipping costs, which affects the revenue. Is this having any year-over-year effect on the revenue growth in the gross margins as we make comparisons?

Actually, it has a negative impact on the gross margins, Greg, because prior to the adoption of that accounting bulletin, you know, we were treating - we were treating freight and handling as an offset to costs within the cost of sales section.

It's adding maybe - maybe a couple of million dollars to the revenue number, year over year. And we adopted that in the fourth quarter of the last year, so, you know, you probably have for the second quarter and probably for the third quarter, you probably about $2 million of the revenue increase would be a result of that.

Okay. And with regard to pricing, we're saying that pricing will rise basic - based on the steel cost increase, I'm assuming. Right?

Correct.

Yeah. What - do we see anything in the quarter, just completed, in terms of pricing?

Absolutely not, because most of our price increases were effective mid-April, and most of them related to - you know, would not have been effective for any product shipped during the month of April.

Okay. So then if we compare year over year, that 2% increase in revenue, adjusted for prices, might have been somewhat higher? I mean, if we looked at it on a sort of unit or real basis?

I'm not sure you could make that analogy because of the price competition for some of the bigger work. You know, some of the bigger work may be - have sold cheaper in the second quarter this year compared to second quarter of last year.

So pricing is down for most everything, is what we're saying?

I would say that's generally [inaudible]. You know, it's not down for small - you know, when we say price competition, the thing you're really alluding to are the bigger projects that have a lot more visibility, where you tend to have all major manufacturers represented by a customer.

You know, on the smaller work, we're still getting our share of work at, you know, a reasonable selling price, but it's the impact of the larger work that tends to be extremely price-competitive in the current business environment.

And with regard to - you know, we - John talked - asked about revenue growth going forward for the next couple quarters. I mean, revenue was down, I mean, for the next two quarters, 41 and 56%, so I mean we're still saying that revenue - top-line growth is still going to be difficult in the next two quarters, or sort of flat? Is that - is that what I heard?

Greg, I'm really - you know, and I was sitting here looking, I was trying to figure out what our revenue number for the third quarter of last year was.

259, right, or -

259. So compared to that, I would think it would be somewhat flattish compared to last year.

Okay. And the same, 271 for the following quarter?

Probably.

Okay. Okay.

Yeah. One of the things Bob said - Bob was speaking mostly for buildings on the competitive part of the 259 - you know, the pricing situation.

Right.

And components, the price has absolutely been competitive on every order,and we've seen the pricing go down, okay? We're shipping - we'd be shipping more for less, and that's strictly due to competition.

And that's, again, using the price list and so they look at the list price and discount from that?

Yes, sir. We're saying - what we - what we - you know, you don't know what other people are doing, but what we suspect is that there's some people trying to keep their business afloat today strictly with cash flow. To heck with the price, you know, we got to have cash flow. And I mean that's - that's what we think is happening.

and then when you look at - when you look at components as compared to buildings, in buildings you're selling a complete package and, you know, there's always a difference in engineering and there's always a difference in what you've included in that package. In components, you're selling one sheet versus somebody else's one sheet, so your price is absolutely exposed, and so they can - it's very easy for them to cut the price.

I understand. Okay. And then you spoke early on about - you said some order improvement. Are you meaning sort of your pipeline or, in fact, actual order improvement?

In components or buildings or both?

I don't know. You just said some - after you spoke about the Michigan plant, you talked about some order improvement. I mean, is that - I mean, I realize that the visibility is difficult, but . . .

We think we'll see some order improvement in buildings and components in the - in the third quarter based on the seasonality of the business. You know, we usually do. But it's - it's - it's really hard - it's really hard to predict right this minute, and we're not trying to be cagey or coy. It's just - it's hard to predict what's going on in this market. When you got people out there trying to keep their doors open with cash flow, it's hard to predict what you can sell. Because it - I mean, we're walking away from projects today because they're too cheap. I mean, I know Johnie walked away from two buildings pretty - pretty nice orders last week because they were just too cheap. You know, that we don't need to build them for exercise or a learning curve because we know how to do it.

That's good. Okay. Wouldn't want to wear you out.

What about DSOs? How do they stand?

Greg, they are still probably comparable to where they were at the end of the first quarter and we have not seen - from the standpoint of dollars, we haven't seen any, you know, increase in past-due accounts. So we're still probably in the high 30s.

Okay. And finally, capex, what do you expect that for this - for this year and next year? I mean, is there any kind of rough order you're talking about? Looks like you're spending at a rate of about, what, 8 million for this year, is that right?

Probably. You know, we spent 4 million in the first half. Typically, in a normal year, we would spend probably a comparable amount in the second half of the year.

You know, we started the year with a plan of around $12 million, and I would suspect - you know, I would suspect we probably would have some carryover, some projects that wouldn't be finished. You know, and one - one expenditure we will have is - and do have is we have opened the plant in Michigan, which from a capital standpoint was about a $900,000 capital expenditure.

And that's not - that didn't show up in the - in the second quarter. It will show up in the third quarter.

And that's done?

It's - the plant - yes. We - all we have to do now is pay for the land and buildings, and we bought a facility that was - had been built. It was - happened to be a metallic building that was - had sat vacant for two or three years, and we used equipment out of the plants that we closed at the tail end of last year and during the first quarter of this year, so we didn't have any equipment expense. I mean, you know, we might have had a little bit of moving expense and hooking up electricals and stuff, but we used existing equipment.

Okay. Well, sounds like then given that capex budget, probably pay down a little more debt then.

Thanks very much.

Thank you.

Once again, that is star 1 if you have a question. We'll go next to Dana Walker of [Calmar] Investments.

Good morning.

Good morning.

Could you talk about how the second quarter played out versus when we were all talking three months ago how you thought the second quarter would play out?

Well, we predicted 26 cents and we made 26 cents, and quite frankly, we made most of it in April. Both buildings and components had - March was not a good month. We might have made one or two cents in March. But most of it was made in April, and we had a good up swing in business in April, and, you know, I guess it's - it's - at one point, we wasn't sure we was going to make the 26 cents, you know, and then we did have a good April. So I guess that's the best way we can answer it. We hit our number.

What did your original revenue plan look like?

Dana, I think when we had our first-quarter conference call, we indicated that we thought revenue would be somewhat flat, and that's obviously, you know, where we - where we ended up for the quarter. From the standpoint of where we ended up, where we thought we were when we had our first quarter conference call, I think the revenue number was fairly close to what we expected. We were pleased to see an improvement in the gross margin, which bore out the impact of the plant closings that we completed in the first quarter.

Operating expenses, you know, we've had some fairly healthy increases in healthcare costs and general insurance, in property taxes, year over year. We're only up about a million dollars for the quarter, year over year, so that obviously with the increases we've had in these areas, a million-dollar increase included substantial cuts in other areas. So overall, I think where we thought we were going to be three months ago and where we've turned out, I think the results are fairly close, up and down the line, from top to bottom, as to what we expected.

Is there any regional cover that - color that offers any insights, given the mild winter we appeared to have had?

Well, I think obviously the winter probably helped our business. In February/March, it probably helped our - in the component side of the business. We know that it helped our rural or ag business significantly. You know, but I think we - I think we've factored that into what we had to say in February when we had our first-quarter conference call.

Okay. On the national accounts front, is most of the business that you are booking or talking about with prospective customers metal buildings oriented or is there also some components in the business.

Mostly in the metal buildings. There are some modifications done in it, but mostly buildings.

On the components side, are there any themes from a product standpoint that appear to be helping or hurting that are worth talking about?

I don't think that there's a great deal of change from where we were a year ago. Someone mentioned the self-storage industry, and that business has held up pretty well. Some of the big customers of the component company have a much larger backlog than they had a year ago. So I - for some reason, the self-storage industry seems to be holding up.

Are you seeing, for instance, though, that the roof business is more active in that perhaps people attack roofs when times are slow and they have the opportunity to do so, or is that not operative?

No. We've always said that they'll repair. You know, when they won't spend money for new construction but they will spend money for, you know, retrofit or repairs, and we're certainly seeing that. A lot of school projects, you know. A lot of school projects.

You mentioned that your coating business is better year over year. Is that a function of volume improvement or is that a function of having addressed capacity that you now have the ability to better load?

Probably a little of both.

How does the outlook in the second half appear for your coatings business?

It looks good. It looks - it looks good. We had - we went down and we was down for a month with the [call paint] line in California. You know, with some oxidizer replacement. And, you know, the other [call paint] lines on the West Coast changed hands and our call paint line on the West Coast is performing - it performed in April and it's performing now and will continue to perform much better than it did previously and/or last year.

So that's - that's - that's an improvement.

And is that based on changing the oxidizer or is that a competitive statement.

I think it's a competitive statement.

And that's because competitors have closed or maybe you would amplify.

The - you know, [Groupa Emsa] bought the [call paint] lines and the galvanizing lines on the West Coast, and while they're a good supplier, they compete with the service centers out there, and so the service centers have switched their business to us, and, you know, when you - once you hit - once you hit your break-even point with that [call paint] line, every pound of steel you produce, you know, there's very nice profits coming to the bottom line.

Happy to hear about that.

Bob, would you care to offer a band of likely debt paydown expectations for the second half of the year?

Well, we paid down - you know, Dana, a lot of what we paid down in the first half of the year has come out of working capital. With the seasonal increase in business activity, I think we're going to see that reverse a little bit in the second half. You know, our inventory level's probably about as low as I've ever seen it, and I actually expect that it would go back up, as would our receivables if our - if our business picks up in the third and fourth quarter.

So we're probably going to have some of our - some working capital needs the second half of the year, but I think we started the year with an expectation that we would pay down in excess of $50 million in debt on an annual basis, and I - I certainly think that's still our goal to do that or possibly to even do better.

Final question. With the difficult competitive climate, what has that catalyzed in the form of acquisition opportunity? And presumably at prices that a buyer might want to pay.

We haven't seen - we haven't seen anything so far that we're interested in pursuing. Now, I'm telling you we look every day and we've got our nose to the ground trying to sniff one out, but there's just - there's not anything that we've seen that we're interested in pursuing. Either, you know, buildings or components or [call paint] lines.

Final thought. When you said that the fish fish plant was opening imminently, you said that that plant would make roofing components and what else, again?

It's going to make metal roof and wall panels. You know, primarily for the - primarily the light-gauge. And some commercial. And then, you know, we do a lot of interplant transfers and so, you know, there will be gaps wide open where they can sell anything and we'll transfer it in there and they'll ship it. So, I mean, because we do that all the time. I mean, that's just, you know, the hub and spoke system that we've spoke of so often.

But they're going to produce metal roof and wall panels. Really, the basic commodity component products.

And a couple years out when that plant is fully loaded, it might be able to generate what level of annualized revenue?

I think we predicted something - yeah, 12 to 15 million.

Okay. Gentlemen, thank you, and good luck.

Felicia, let's take one more question if we have it in queue.

Yes, we have one question from John [Diffendahl] from BB and T Capital Markets.

Yeah. Just going back to the plant restructuring that kind of dragged in the first quarter but I seem to remember it did help you in the second quarter, can you give us just maybe a little bit of sense? I seem to remember that when you made the restructuring, you expected it would help you by about $5 million annually, so can you give us any indication of what it sort of cost you in the first quarter, as that was sort of being wound up, and how it might have helped you in the second quarter, in earnings per share, would be nice?

John, I don't think I can formalize those numbers really for you. You know, I think it's probably a little early for us to tell what our run rate was.

Obviously, you know, most of those plants operated during the first quarter and were not shut down until one of them was shut down in December, but the majority of them were not closed down until -

Right.

- January, so, you know, obviously we continued to incur the expense of keeping those plants open in the first quarter. But, you know, what it's allowed us to do is to, you know, balance our production better and get a little more utilization out of - out of our other plants in the second quarter, and it's really hard to give you the impact in the second quarter.

I gotcha.

I think the thing you got to keep in mind is these are for sale and we've got contracts on two more and we're still paying the property taxes and the insurance and we've got the lights on and the water on and that kind of stuff in those plants, so I mean the absolute, you know, all the expense of those plants haven't [inaudible] yet. You know, we've still got the depreciation on them [inaudible]

Right. And I seem to remember you were help - refresh my memory on what you expected in terms to gain out of full asset sale? I mean the two more plants, does that complete what you thought you had, and then you said you took a $400,000 I guess gain in the last quarter on one of the sales, right?

Right. If you'll remember, we wrote down two of the five facilities at the end of last year.

Right.

We will have two of the five sold by the end of the third quarter. We have a lot of activity on two of the remaining properties. And one of them is - it's going to take us a while to sell it. It's in a smaller town. There's some other property available in the city. The labor market's not particularly strong. So, you know, that one we may have [inaudible] sometime in the next fiscal year. But vis-a-vis the first four properties, what we get out of those will result in at least book value, and in some cases gains on the sales of those properties.

And - but at the end of the day, would that gain be less than what you had earlier, I guess, even released in terms of what you thought you would get out of them.

Well, I think what we released is we thought we would gain - or we would get 8 to $10 million out of the sale.

Right.

You know, in terms of cash dollars in. And we still believe that's a reasonable expectation.

Right. Thanks. Thanks, guys.

A. R. , do you have a closing comment.

Yes, sir. Thank you. You know, we really appreciate y'all joining in this morning, and we appreciate the questions that you've asked and we certainly tried to answer them to the best of our ability, and we fully plan on the same refrain in three months of making our numbers and hopefully you'll be able to join us then. Thank you.

That concludes today's conference call. We thank you for your participation. You may disconnect at this time.