Core Natural Resources Inc (CNR) 2006 Q1 法說會逐字稿

Good morning, and welcome to this NCI Building Systems conference call to review the Company's results for the first quarter of fiscal 2006. This call is being recorded and a telephonic replay may be accessed through March 8 by dialing 719-457-0820, and entering access code 6276640. The replay will also be available at NCI's website at ncilp.com. The first quarter results were issued yesterday in a press release that has been covered by the financial media. A release has also been issued advising of the accessibility of this conference call on a listen-only basis over the Internet.

Some statements made in this conference call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking 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, and in yesterday's new release for a discussion of factors that could affect NCI's operations and the forward-looking statements made in this call. To the extent any non-GAAP financial measures discussed in today's call, you may also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on the Company's website by following the news link to see yesterday's news release. The information being provided today is 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.

At this time, I will turn the call over to NCI's Chairman and Chief Executive Officer, Mr. AR Ginn. Please go ahead, sir.

Thank you, Scott. And good morning, and thank you for being with us today to review our first quarter results. With me today are Norm Chambers, our President and Chief Operating Officer, Frances Powell, our Chief Financial Officer and Treasurer, and Mark Johnson, our newly appointed Vice President and Controller. Ken Maddox, who is normally on the call, is not with us today. We'll also speak a little about our recent announcement regarding entering into a definitive agreement to purchase Robertson-Ceco Corporation and provide guidance for our second fiscal quarter. Our prepared statements will be fairly brief today so that we can get right to your questions.

As we explained in some detail on previous calls, we are committed to expanding the earnings of the Company, not only through organic growth of our businesses, but also through accretive acquisitions. We believe both the record first quarter, which resulted from organic growth, and the Robertson-Ceco announcement are consistent with our strategy.

Business activity for our first quarter '06 was strong. This was helped by relatively good weather, solid demand for our products and services. Revenue was up 20% compared with the first quarter of '05, and we shipped 20% more tons of steel than the same period last year.

Our first quarter '06 tons shipped growth was ahead of FW Dodge growth in square-footage for the same period. This pace well exceeds our previously stated guidance for annual growth in tons of steel shipped for fiscal 2006 of 6%. This is an encouraging start, but those of you that have followed us will appreciate that our first and second quarters occur during our seasonally slower period. Historically our business activity picks up significantly in our fiscal third and fourth quarters. And FW Dodge is projecting growth in calendar year 2006 in square footage of 4%, with a corresponding dollar value increase of 8%.

It's important to note that while all of our businesses compete in very challenging markets, business conditions were very different this time last year. As you will recall, last year at this time, the overall non-residential market was very soft for building materials. In addition, both our customers and competitors had substantial excess inventory. This created furious pricing pressure.

This was particularly evident in our Components group. We maintained commercial discipline in this group at the expense of market share loss, and it was not until October of 2005 that our market started to rebound. While our markets currently remain very competitive, we appear to have more favorable conditions than last year, nonresidential construction is witnessing sustained growth and less inventory overhang in our sector. Therefore, we remain confident that there is positive momentum in the market.

Our Components group had a great first quarter with revenues up 25% from the previous year. Profits outpaced revenue growth with a 29% increase over the first quarter of '05. Now the demand from Components has loaded our Coating plants to a moderate level. Revenue was higher by 20%, while profitability was about flat with the first quarter of '05. Our first quarter '06 coating tons were down versus our very busy fourth quarter '05 by about 15%. We expect to see improvements as business levels pick up, and we attract greater third-party sales.

Last but not least, our Building group had a good first quarter with revenues up 20% over the first quarter of last year, and profits grew at 27% over first quarter of '05.

SG&A expenses were up 29% partially due to increases in selling expenses and engineering and design expenses resulting from higher sales activity, and increases in corporate expenses. Corporate expenses were up partially as a result of higher IT maintenance, general liability accruals, the effect of FAS 123R, and Sarbanes-Oxley. We're not at all happy with this increase. Our SG&A costs are running higher than historical levels. You can rest assured that we'll be working throughout the year to bring our costs back in line with SG&A historical levels that have run between 15% and 16% of revenue.

Steel prices, which abated during much of fiscal 2005, are now showing indications of increasing. [Zinc] prices have increased 67% in the last six months. Scrap prices are up to $275 a ton from lows of $140 a ton. Now, we experienced a 4.5% increase in our weighed average cost of steel during the first fiscal quarter of '06. We expect another increase of 3.6% during April. As in the past, we will endeavor as -- to pass these cost increases on.

I would like to say a couple of words about Robertson-Ceco. As we said in our recent conference call, we are very excited to have the opportunity to acquire such a great company. We have been patient in our approach and believe the advantages of leveraging our horizontally integrated business model of Coating, Components, and Buildings with their state-of-the-art engineering systems will be beneficial to all. We are particularly pleased by the highly motivated and capable men and women throughout the Robertson-Ceco and Star divisions. It is their collective focus and dedication that has served their builder network so well. Now we've recently filed Hart-Scott-Rodino and await notification to proceed to close.

As we stated at the onset, we had a strong first quarter. When we look at our second quarter, we see continued strength in components. That should keep our Coating plants moderately busy as well. In Buildings, we face the same challenges we've faced in the past of releasing projects from the backlog to manufacture and ship in the second quarter. We still have some work to do to fill out our shipping schedule in April. However, our backlog is up 10% to 185 million compared with the same period last year after a very strong shipping period in the first quarter. While down 7% sequentially, we believe our backlog will build as our quoting and booking activity is strong.

Given these factors, we expect the first half of our fiscal year to show good growth over last year. We are issuing second quarter '06 guidance of $0.48 to $0.53 per diluted share, which includes noncash charges relating to FAS 123R of $0.02 per share. When added to our first quarter '06, our first half will be in the range of $1.10 to $1.15 per diluted share. This range includes noncash FAS 123R charges of $0.05 per share.

I would like to compare that to the first half of fiscal 2005 in which we earned $1.03 per share, which included a one-time benefit on healthcare costs of $0.06 per share, but does not include any FAS 123R expense. Earnings per diluted share for the first half of 2005, reflecting the pro forma impact of FAS 123R had it been applicable, and excluding the health benefits, would have been $0.88, which compares to the low range of $1.10 for the first half of '06, which is a 25% increase in earnings per share year-over-year.

I will now turn it over to Frances Powell for some prepared remarks concerning our convertible note. Frances?

Thank you, AR. For the first quarter, there was a $0.01 impact to the diluted earnings per share due to the 2.125 convertible bonds. During our fiscal year-end conference call, I said that the impact of the convertible bonds was not dilutive. This statement was based on using the accounting methodology for traditional convertible bonds, where the entire debt is convertible and the full interest expense is added back to the dilution calculation.

Since the principal on our bonds is repaid in cash, only the premium, if any, is paid in stock, and only the premium gives rise to dilution. In support of this accounting treatment, the EITF gives specific guidance for this type of bond. For the first time since the close of the convertible bonds, our average stock price was over the conversion rate of $40.14, which gave rise to a $0.01 dilution to Q1 2006 EPS. Our future dilution will vary depending on stock price, shares outstanding and net income. Thank you, AR.

Okay. We'll now turn it over for any questions that you may have.

[OPERATOR INSTRUCTIONS] And we'll go first to John Diffendal with BB&T Capital Markets.

Yes, good morning. A couple things. I wonder if you can give us a little more color. You mentioned that quoting activity is strong, anything you can give us versus last year. And we've talked about that before in prior calls, and the size of average quote and that sort of thing. What's sort of going on there?

John, the quoting activity, particularly in Buildings, because that's where it pertains to, is very strong. We have seen a spread of moderately complex buildings, which, as you know from before, is an area that we really wanted to have occur, and we are now looking to balance that with a couple of bigger jobs as well. We are very happy with our pricing in the Buildings group as well. It's doing quite well. So we're very encouraged, in terms of what we're seeing in the Buildings group.

You mentioned that SG&A was up actually slightly more than -- or more than sales, tell us a little bit more about how you expect to pull that number back down. It sounds like, AR, you feel like that number was too high, and certainly, you didn't get the leverage you would have wanted, given the sales growth. What -- how should we sort of look at that going forward?

Well, you know, John, when we look at that, we've done a kind of detailed analysis, and I don't want to make too much of a big deal of this, but we, as you know, have been pretty hot and heavy on this acquisition, so we probably have seen some additional costs run through the SG&A on that front, for sure. We have been spending a lot of money on IT, both in terms of our engineering side and our -- Oracle 11i. As you heard us say last week in the conference call about Robertson-Ceco, we have a wonderful opportunity to leverage their engineering, so going forward we'll be looking at reducing our costs on that side. We're going to keep working hard, as AR said, and focusing on making sure as we go into this merger that we start cutting away things that we no longer have to continue on our side. And I think that we're all confident that we'll get our SG&A back in line. It will take a little while, but we'll get it there.

And one last thing. Gail, I think, on the last call, we talked about, in terms of a share price relative to the convertible, where there's a break point. Is that still operative? Is there some price we need to be looking at in the stock that -- where the full amount -- there's sort of a break even level where the full amount of the shares get pulled in?

Well, the -- at this point, any dollar that's over the $40 will, in fact, be dilutive.

Okay.

But I think the -- I think the important consideration here, as well, is that the -- this is a very hypothetical calculation. Meaning that when we look at the bond and look at the bond within the history of 100 or more companies that have such instruments, there is in fact no evidence that conversion does take place. So we're in a situation where it is very hypothetical, to say the least.

All right. Thank you.

Next question comes from Greg Slater with CJS Securities.

Good morning. Your original fiscal year '06 guidance included $0.18 of option expense, and being that you've reiterated your guidance for the full year with an option expense being stated at $0.10, can you give us some more color as to what has changed with that guidance?

Yes, Greg, as I said before, that -- we -- the convertible situation is hypothetical. We're pleased that the -- that our view of FAS 123R is now kind of coming down from $0.18 to $0.10, that's a positive thing. But we will not be doing anything regarding our year-end guidance until we close the deal, and then we'll recast it.

Okay. And just a little housekeeping item. Sales by segments, excluding inter-segment sales, do you have those numbers? I believe --

I may have to -- we may have to go offline for that.

Okay.

Frances here has them. Okay, do you want to give them, Frances?

Sure. I'll tell you what, why don't we post them -- we'll have them on our Internet, and that way they'll be available and we don't have to read them. Is that -- does that work for you?

Well, just trying to get a better view as to what type of margins we're looking at.

Okay. For first quarter '06, Components -- third party, eliminating inter-company, is 153.750 million, engineering is 110.441, coil coating 29.061 million.

Engineering?

Building.

Building. Yes, that's Building.

Okay. And last question. If it's possible, as you mentioned, there was some delays from Q4 that was experienced in Q1. Could you back out what was pushed out so we could get a better sense as to what tons would have been up for the quarter, minus those -- that -- the items that have been pushed out of Q4?

Well, I'm not sure I understand the question. We shipped 20% more tons in Q1. We expect, which has historically been the case in over half the years in the last 8 years, that the second quarter is seasonally slower than the first quarter, so we would expect to ship fewer tons in the second quarter than the first quarter, but the second quarter tons shipped will still be up comparably to the second quarter of 2005.

I guess I was just trying to get a better sense, if you can give, to the size of the contracts that were delayed or being pushed out.

Well, again, it's speculative, because we haven't filled out our second quarter shipping schedule yet, so I think we need to speak about that more retrospectively.

Okay. Great. Thank you.

Next question comes from David Yuschak with Sanders Morris Harris.

Good morning, everybody.

Good morning.

The benefit that you had in the quarter from the insurance, is that in the SG&A line, then, about $2 million or so?

Yes, in 2005.

Okay. Just wanted to make sure we got that isolated to where it should be. And as far as -- I missed the early part of the call. Did you comment about your shipment, your tons were up in the quarter?

Yes, Dave, they were up 20%.

Okay.

And revenue was up 20%, which indicates we were able to pass on the price increases we had experienced.

But, I would have thought, though, that you would have had more leverage in your model from an operating point of view, given that kind of shipments. Is -- was there anything that was kind of--

Well, SG&A is up--

From a cost point of it. Was it -- is it more just the SG&A or was -- and that's it more than it is a gross margin issue?

Yes, because our gross margins are up.

Yes. That's--

So it was SG&A, and that's why AR and I are doubly focused on getting that in line.

Okay. I just wanted to make sure that there was nothing else in the-- From a gross margin point of view, then, you're very comfortable, given what you've had in the way of tons shipped, you're comfortable where that is, given the generally seasonally slower first quarter anyway.

Yes. Our commercial discipline remains intact, and as I said just a minute or two ago, we're even more pleased because we're starting to see some upward movement in our backlog, with the Buildings group and the quoting rate, so that's a good thing, that's a good thing to see.

Okay. Then, now, from a metal -- from the Coatings business point of view, it's just lack of throughput there, and that's basically just still de-inventorying for the most part then?

Yes, it is, but just think about this for a second. When we get the Robertson-Ceco deal closed, they use several thousand tons, which will really help to base load these Coating plants, which will certainly improve their profitability.

Yes, but at this point in time, that -- having Robertson-Ceco come in here really gives you the kind of throughput from a consistent point of view that you can get out of that, versus maybe having to fill it in with third party activity and stuff like that?

Right. And if you missed the first part of the call, I said that the tons from the fourth quarter compared to the first quarter was off 15%.

Okay.

So that -- and those incremental funds is where the money is made.

Right. Now, just on the SG&A, side to it, year-over-year on the corporate, there was a $4 million increase. Is that part of what you're talking about?

Yes.

Okay. That's all I have for right now, thanks.

Next question comes from Michael Corelli with Barry Vogel & Associates.

My question was more or less about the lack of operating leverage, also, so it's pretty much been answered, thanks.

Hey, Michael.

Thanks.

Next question from Gregory Macosko with Lord Abbett.

Yes, thank you. Just with regard to the Robertson-Ceco situation, has anything changed there relative to your expectations with regard to accretion?

No, nothing has changed at all. And, in fact, as you heard us say last week, we are incredibly excited about their engineering in particular. They do a lot of things really well, but we see real leverage opportunities there. And if you look at part of our SG&A being up it is, in fact, because we're spending money there. And to the extent we can migrate their system over into ours, to us, that will be a very important step.

Another thing is, I think that we're very favorably impressed with the quality of people there at all three divisions, Robertson-Ceco and Star. We've met a lot of those people now, and very impressed with the quality of people that they have.

Okay. And I assume, then, that the IT expenses that were in the first quarter, that will basically be ramped down or rethought going forward relative to the situation with Robertson-Ceco?

Yes. We're going to obviously need to spend a little money as we alter our systems to accommodate their systems, but surely if you look at what our run rate was over the last couple of years, then we're expecting that to, going into 2007, to go away.

Okay. And then finally, Norm, you've mentioned the situation where you have the online selling in the kiosk. We haven't heard much about that recently, and I guess there's been a lot of excitement with regards to Robertson-Ceco, but could you just give us a little bit of an update on what's happening there with kind of creating an additional channel to sell the Building systems?

The Components group, which is leading that charge, has had their -- has got their strategy in place. They've had some recent success, which we cannot announce specifically, but we have -- moving ahead on that, and as I said before, it's a channel that it will take us a while to develop, but we like what we see, and we think that retail space is a good space for us.

Okay. But are we seeing any sales through that channel at this point?

I would expect we'd see some sales start in the second quarter.

Okay. Well, very good. Thank you.

Thank you.

Next question comes from [Court Digmund] with Fidelity.

Hey guys. When you issue the new guidance, are you going to factor in any of the potential dilution from the convert?

Probably not, because it's so dependent on share price that -- we'll try to -- we'll talk about it retrospectively, and I think we -- we'll try to look at our share count a bit, but it's a real tough thing to speculate, because we don't know what our share price is going to be doing.

Right. I mean, I guess, would you just assume the share price as of that day?

We can -- that's kind of what we're giving you today.

And just from a pure accounting standpoint, how are you running through that? I mean, is it -- obviously the interest is added back, but is there any interest assumed for the cash portion, sort of refinanced?

Let me reclarify. The interest is not added back.

Interest not added back. Okay.

More traditional -- this is not a traditional convertible bond due to the fact that our principal on the bond is repaid in cash, and that gives rise to a dilution for any dollar over $40.14.

Okay. All right. Thanks.

Thank you.

Thank you.

Next Bruce Geller with DGHM.

Hey, good morning, guys.

Good morning.

A couple questions. Back to the SG&A for a minute. Your first quarter sales were very similar to the sales level you had in the third quarter of '05, and SG&A is up about $6 million relative to that quarter. So I'm curious how much of the SG&A in this quarter was the one-time deal related expenses, and how much is pure growth from the same sales level six months ago.

Some of it is pure growth, and as you heard AR speak, we often times are doing a lot of engineering at this stage of our year for the backlog we have. And this is, again, one of the advantages that Robertson-Ceco acquisition brings is, in fact, to bring our cost of engineering down as it is with Robertson-Ceco, okay? There's probably some one-time deal costs in that SG&A, but I don't really have a good handle how much that is. I just know that we've been spending a lot of time on it.

Okay. Then in terms of your revenue growth, you said funds were up 20%, and revenues were up 20%, so that implies very little from pricing, yet your steel prices, I think you said, were up 4.5%. So was there some squeeze in the quarter from not getting those steel price increases through to your top line?

No, we really passed them on. I think that's the point. What we have is we had a little drag from our doors group, which is a small group, but their revenue was off, so that's -- to the extent there's been drag on the segment, it's been there. And just to make it clear, we're focused on getting that thing turned around, and we've got that clearly in focus.

Okay. And I think your original guidance on the top line for this year was something like 6%?

Yes. That was the guidance we gave on 6% growth in tons shipped.

Right.

Okay. We don't generally give guidance on our top line. We're really focused on the bottom line. And our point that AR made, I think, is we're really very excited about that our growth in the first quarter was well ahead of that.

Yes, that's amazing, and that leads to my question in that -- I realize you're waiting until the acquisition is closed to reissue new guidance, but barring that, would it be fair to say that based on the start to the year you've had that your initial guidance for shipments could be too low?

Well, I know you would like me to answer that, but I would rather wait until we give our guidance. What I will say is that we have seen sequential drop, I think, of 7% in our backlog in Buildings. We expect with the quoting activity that we have right now and our ordering activity, that that backlog will grow nicely. So we've got some work to do, but we like the direction we're heading in.

Okay. And two more really quick questions. Your steel prices, you said you expected another increase in the second quarter. Are you seeing any opportunities from imported steel? I know I've seen that there -- the imports are increasing, and with the U.S. market price well above the rest of the world, are there any opportunities you're seeing in the second quarter to lower your average price through imports?

We have historically purchased foreign steel. It's been as much as 30% in a given year. We're nowhere near that level now. We work the market as hard as we can, and we will do everything we can to get the lowest steel prices that we can on the quality of steel that we buy, which is the top quality. We, as -- some of you -- most of you know, we buy generally one quarter in advance, and we'll continue to work that space. Baked into our guidance for the year that we gave in December was a 9% increase in steel costs. So we're -- we're still within that band.

Okay. And lastly, with respect to the Robertson-Ceco deal -- congratulations on that, by the way. Do you have noncompetes and nonsolicit agreements in place with the key people there? Because I would hate to see you end up in a type of situation you had with your former CEO.

That's a good question. We have the best possibility, which is our respect and appreciation of their folks, our ability to offer them a comprehensive compensation plan and bonus plan that we have that's served us well. We don't expect to have any issues there.

Okay. Thank you.

[OPERATOR INSTRUCTIONS] And we'll take a follow-up from David Yuschak with Sanders Morris Harris.

Yes, just -- I think you said, Norm, that in that SG&A there could have been some component of extra costs associated with Ceco, you just can't at this point in time nail that number down.

Yes, that's--

But it sounds like, though, it's not going to be -- it wouldn't that be a big enough number compared to other costs in the SG&A that you do have control over that you can bring down.

Absolutely right. And I don't want you guys to think we took our eye off the ball, because we haven't, but let's put it this way. We are not happy, as AR said, and you guys that know AR, when he says something like that, we get focused. So we're going to keep focused on getting that in line, and we generally deliver what we say we're going to deliver.

Which begs the question, you guys have historically been very good at keeping your costs in line, managing the process well, managing your facilities well, that something like this kind of jumps off the page like, what could have been so glaring that you kept the eye off the ball.

Well, the fact is that when you compare it to our budget, it's not that far out of line. Okay? But when we compare it to past quarters, it is. We're going to continue to focus on those areas that we know that we can trim back, but really some of the big initiatives, in IT, are really where a lot of our expenditure is.

So you're saying from a budget point of view it wasn't that far off, so is it basically the IT stuff then?

Yes.

There's another component to that. And there's two parts of that that we don't have any control over. One is FAS 123R, and the second part is Sarbanes-Oxley, and both of those are costs that we didn't have prior to '05, really.

Now, as far as that Sarbanes-Oxley, shouldn't we begin to see a little bit of a fade from the previous years?

Well, it's going to be less than last year, but it's still going to be an expense. I mean, it's an expense on operations, and it's an ongoing expense, and then they keep changing the rules, and every time they change the rules you've got to spend money to comply with the new rules.

There's a suggest, though, once you get Robertson-Ceco, that Sarbanes-Oxley could get -- go higher again, just because you need to--

Well, we--

Because these guys aren't public, they--

But the good thing, Dave, is they're on 11i already, so that gives us a really good opportunity to achieve what we're trying to achieve here, because 11i gives us the opportunity to bring our Sarbanes-Oxley costs down by virtue of the visibility that'll give. So in some respects, Robertson-Ceco is well ahead of us.

Well, and the other thing is, is we have all the procedures in place for the Buildings group, and then we have 18 months, roughly, to get all of the procedures in place for Robertson-Ceco. So, I mean, the big cost in '05 was getting all of the procedures in place, and so we don't have to go through that. We just have to actually put them in place, we don't have to form the procedures.

Okay. Let me just go -- let's just revisit this gross margin one more time, too, because you have indicated you're pretty comfortable where the gross margin finished out in the first quarter, but from a competitive point of view, and you mentioned, AR, in your commentary, that competition still remains pretty intense, would you -- is it fair to say that the gross margin was held back a bit because of competition?

Well, competitors -- I mean the markets are competitive. There's no getting around that. But as we showed in 2005, we've been able, particularly on the Building side, to grow market share and improve our margins. And the Components business is definitely functioning well right now, and I think the market conditions, as AR explained them, are very different today than they were this time last year. So we're -- we like the direction that our margins are going, and we're going to continue to push that.

But the market is extremely competitive today. It is -- it's not as bad as it was last year at this time, but it is -- it's very competitive, Dave.

Would you suggest that the -- was last year's first quarter -- give me a frame of reference as to when the most competition you felt. Was it last year's first quarter, or was it previous quarters in previous year compared to where you've seen it today? Because, as you said, this business is always going to be competitive, but the point is you always [inaudible] -- how far along the curve are we, that that's not going to be as much of an issue as just good business picking up around the country on nonresidential construction.

Well, Components had commercial discipline all through 2005, even in the face of giving up [few] market share, and our plan was once the market started to pick back up, to go out and rifle shot approaches to get some of that share back. And you see that that occurred in October of last year, and it continued through the first quarter. AR can speak historically, but from my perspective, recent perspective, the first couple of quarters of last year, really into the third quarter and part of the fourth quarter, was really tough.

Well, and the other thing that affected the first quarter last year is steel was in short supply in '04, everybody bulked up on steel, and then they were trying to dump steel to increase their cash flow to keep their business doors open, and so it was extremely competitive in the first and second quarters of last year.

Okay. So from a comparable point of view, then, competition should not be as much of an issue throughout most of this year, relative to what you experienced last year. And if we get a pick up in nonresidential spending like we should be expecting to see, that may not be as much of an issue to restrain gross margins the rest of the year.

And that's right in the context, Dave, that's from the context of competition -- it's fierce out there, but still, I mean, I think you're right in general. An increase in spending in the nonresidential sector is good for us. It's good -- it takes some of that new pressure out.

We've been waiting for that a long time, too, haven't we?

We have. We had the three down years that are 2001, 2, and 3 and it's nice to see some pickup.

Well, it seem likes the nonresidential construction has been beginning to broaden out enough that you guys, where you've been kind of lagging, are starting to show some signs of a pickup, so I think that that's -- from my point it looks like it will be very encouraging.

Good.

Thanks.

Thank you.

And we have a question from Eric Ribner with NorthStar Capital.

Two questions. First question, you stated in the press release for the second quarter that you expect product shipments that ordinarily you would see in the second quarter will move to the third quarter? Am I misreading that, or can you explain why that is?

That's exactly what we tried to explain, and we're talking more about our Buildings group, and what we said was that we, as we have in the past and said in the past, we have a backlog. That backlog generally gives us six months of visibility, and the trick is to make sure that we're moving projects out of backlog into shipments. And as we said, we're -- February is good, March is good, we're still filling up -- filling up our April shipment, and the guys are working at that, they've been successful in the past of getting that done, but we still have work to do.

We've -- actually what happened was, the first quarter was so good that we actually pulled some work out of the backlog that was scheduled for the second quarter, and it went into the first quarter and shipped, and then there will be some slippage of the backlog into the third quarter out of the second quarter, and that always happens because of permitting problems and so on, so forth. So we're actually filling up April, if you will, with new orders and orders out of the backlog.

So this occurs every year at this time?

It certainly does. Sometimes a little bit more than other times. If you remember, we guided down in the third quarter, going into the fourth quarter, because, that -- we had that same issue when we talked about it extensively, and then the guys pulled it out. So we -- it's in our control, it's just a question of us executing, and we have in the past, and we will certainly endeavor to do so in the second quarter this year.

But one of the reasons that work pulled up into the first quarter out of the second quarter was because of the weather. We had an unusually mild January and so on, and so some work pulled up, people were able to get slabs in, and they were able to pull that work forward, and that's one of the reasons that some of the work came -- that was scheduled for the second quarter actually shipped in the first quarter. The weather in January, February, March has a big effect on shipments. As you know, with all the snow we've up in the northeast, it's hard to erect buildings or ship buildings into those conditions.

But with the bidding activity that you are seeing, and you indicated that it's improving, it sounds like a lot of these issues -- well, I guess we're hoping that a lot of these issues are going to be addressed and that this guidance looks like it could prove to be conservative?

Yes, well, I'll not going to comment on that, but I will say that we really are pleased with the quoting activity in Buildings, with the orders, with the pricing levels. We're encouraged. If it weren't the case, then we'd be saying something else.

Okay.

Okay?

Thank you.

You’re welcome.

And it appears there are no further questions at this time, so I would like to turn the conference over to AR Ginn for any additional or closing remarks.

We appreciate each and every one of you participating in the call today. We hope we answered your questions to full satisfaction. If you have any further questions, you might give one of us a call later on today, and we'll endeavor to answer them. But again we appreciate your interest in NCI, and thanks for your support.

That does conclude today's conference, ladies and gentlemen. We thank you for your participation and you may disconnect at this time.