Core Natural Resources Inc (CNR) 2007 Q2 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 second quarter of fiscal 2007.

This call is being recorded and a telephonic replay may be accessed through June 8 by dialing 719-457-0820 and entering access code 5849685. The replay will also be available at NCI's Web site which is ncilp.com.

The second 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 news 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 is 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 Web site 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 President and Chief Executive Officer, Mr. Norm Chambers. Please go ahead, sir.

Scott, thank you very much. Good morning, everyone, and welcome to our second quarter 2007 conference call.

I'm pleased to have with me this morning A.R. Ginn, our Chairman, Frances Hawes, our Chief Financial Officer, Ken Maddox, our Executive Vice President of Administration, and Mark Johnson, our Vice President of Accounting.

The purpose of today's conference call is to provide an accurate view of our performance in the quarter, the opportunities and challenges we face for the remainder of the fiscal year, and, more importantly, the actions we will take to produce the highest levels of earnings possible that are consistent with our long-term growth objectives. Then we'll be happy to take your questions.

Our shortfall in our earnings in Q2 and for the year-to-date was due to weak market conditions in the period and unfavorable weather conditions in the quarter. We attribute the shortfall to our Components group and to some slippage in buildings and shipments due to weather.

During fiscal Q2 we experienced very soft market conditions. The entire non-residential market -- commercial, industrial, institutional, rural and agricultural was down to 9% (sic -- see Press Release) compared to the same period in 2006 in terms of new construction measured in square feet.

Low-rise new construction was off 5.6% compared to 2006. Fiscal year-to-date low-rise construction was down 6.8% compared to 2006. Adding to the downward pressure, excess inventory that resulted from too much steel production in the second half of 2006 put additional pressure on prices and margins particularly in our Metal Components segment.

Our Coating and Engineered buildings group were slightly below our budget and ahead of last year's operating income, but they could not make up for the shortfall in Components. But I want to bring to your attention that the sequential reduction of $5 million in operating profit in the Engineered Buildings group was attributable to the write-off of the [Segosa] receivable of $800,000, the loss in Canada of $1.8 million and write-off of $900,000 in sales meetings. The remaining $1.5 million is a function of sales mix.

Without these three charges our margins would have been 9%. We do expect to collect the receivable from Segosa as a rebate to future steel purchases. And we have decided to shut down our manufacturing operation in Canada. We will focus on our sales and estimating in our Hamilton, Ontario operation while shipping from our existing U.S.-based plants.

While the market conditions for real-time construction were challenging, quoting activity was very strong and our backlog grew from Q1 2007 of $383 million by 17% to a record level of $449 million. The quoting activity provides an indication of market conditions some 9 to 12 months from now.

Historically our second quarter backlog, which is largely our Engineered Buildings group, represents approximately 60% to 70% of what our Building group will likely record as shipments and revenue in Q3 and Q4 of this fiscal year. The backlog that we currently have at the end of Q2 is actually about 77% of our forecast in revenue in our Buildings group for the second half of 2007.

While we're very pleased with this backlog, it is somewhat tempered by the fact that an increased portion of the backlog is in what we refer to as permit and approval which means that we have yet to schedule these jobs for production. We feel the reason for this is that our backlog has a greater number of larger, more complex types of buildings.

Having said that, we've seen a recent pickup in our smaller buildings through our SteelBuilding.com and Heritage brands. The profit margins in that backlog are consistent with our belief that our Buildings group can improve their margins by 100 basis points from last year to a forecasted 10.2% for fiscal 2007.

This is a result of significant improvement in our Buildings group and a further integration of Robertson-Ceco into our business model benefiting from procurement, new products and prepainted coil steel.

As a result of the growth in backlog, our Components group should experience a very strong Q3 and Q4. However, the deficit in operating income we experienced in Q1 and Q2 in our Components group has created a very real challenge.

Specific markets such as small building market, products for regional metal building manufacturers, mini storage and roll-up doors were particularly weak. With aggressive pricing pressure related into weak market demand our Components group experienced margin deterioration well below our budget and forecast results for the quarter.

Operating income margins in the Components group improved to about 12%. Sales in April were up 49% over March. We will clearly see improvement in tons shipped and margins in the second half of fiscal 2007.

This is an indication that the excess inventory which hurt us in Q4 of 2006 through Q2 of 2007 has abated, however, we are unlikely to recover fully from the very poor first half with margins year-to-date of only 8%. This is in contradiction to our belief at the end of Q1 that Components could rebound this fiscal year to produce both modest top line growth and profitability of 13% for the fiscal year.

Our Components group has solid initiatives for growth in new green products called Energy Star, cool metal roofing, our sound wall, highway sound barrier system, which has been approved in ten states, insulated panel systems, retrofit roofing systems, and retail channels with the recent signing of a contract with a national retail chain, and a new Web-based 24/7 order entry system which will reduce back office costs and improve efficiency.

It is unlikely that these initiatives will provide meaningful improvement to our Components group results until 2008. Having said that, we will make every effort to increase our margins during the remainder of 2007, and I'll speak more about that in a moment.

Our Coil Coating group continued to produce good margins at 28% on lower sales volume in Q2 due to a predominance of toll coating in their revenue mix. We have seen early signs of growth in our package sales during Q2, up 44% over Q1. This is another indication that excess inventory has abated.

This should result in revenue and net income growth in Q3 and Q4. The effect of the synergies from Robertson-Ceco should enable the Coil Coating group to end the fiscal year 2007 with profit margins in excess of 26%.

Plant utilization for Q2 reflected the slow market conditions we experienced. Our Coating group had utilization of 72%, Component factories were at 61%, and the Buildings group was at 63%.

Our overall weighted utilization was only 62%. We expect to have weighted average utilization for Q3 and Q4 between 80% and 90%. With the slow first half we will be challenged to show substantial increase for fiscal 2007 over 2006 in terms of plant utilization.

We remain on target to reduce our budgeted 2007 SG&A expenses by $20 million. The test will be to do so through our busiest periods in Q3 and Q4.

Regarding our use of cash, we purchased steel throughout Q2 ending the quarter with higher inventories than Q1 of $191 million versus $188 million. We will bring those levels down in Q3 and Q4.

We expended $11.4 million in CapEx during Q2 focused on equipment automation, technical engineering systems to capture the greater synergies from Robertson-Ceco acquisition, and a new plant in Richmond area replacing an older, less efficient component plant.

Our year-to-date CapEx is roughly $22.4 million. Additionally, we purchased 202,600 shares at $48.83 per share for approximately $10 million.

I'd like to turn to our revised guidance of $3.30 to $3.80 and the assumptions underlying our revised view of fiscal 2004 -- I'm sorry, fiscal 2007. For fiscal 2007 we expect the non-residential construction sector measured in square feet will be flat with fiscal 2006, recovering power fleet from the slow start in the first half of this year.

The positive American Institute of Architects billing and survey, combined with our strong quoting activity, points to excellent demand for our products for the next nine to twelve months.

Our backlog is a solid foundation for growth the remainder of our fiscal year. We expect tons shipped to be up 4% mainly as a result of Robertson-Ceco acquisition. More specifically, we expect our Coating group to be off in tons shipped by about 7% for the year as a result of a larger amount of tolling revenue in Q1 and Q2.

We expect our Components group to finish the year having shipped about 5% fewer tons than 2006. This would mean that Q3 and Q4 will need to be very strong to compensate for the Components group being off 15% in tons shipped year-to-date.

We expect that our Engineered Buildings group including Robertson-Ceco will be up 16% in tons shipped 2007 over 2006. After the steel price increases in May and June, we expect steel prices to remain flat for the remainder of the year broadly in line with our original assumptions that our weighted average cost of steel would remain about even with the levels of October 2006.

Regarding margins. To attain the lower end of our range of guidance, our Coating group will have margins for the year of about 26% on third party sales, and a shift to 60/40 package to toll Coating during Q3 and Q4. Any Coatings contribution to the upside from the low end of the range will be a function of sales mix and margins greater than 26%.

Clearly, the greatest area for improvement in the short-term will be our Components group. The lower end of our revised guidance assumes year-end margins of about 10.4%.

We are taking four steps to improve our performance. First, we have introduced additional pricing discipline focused on each product segment. Second, we will take advantage of lower cost steel inventory.

Third, we will have improved absorption rates reflecting additional manufacturing efficiencies and, fourth, we will lower our transportation costs with our recently initiated backhaul strategy. Our Components group will recover.

Regarding our Engineered Buildings group, we expect to achieve 100 basis points improvement in operating income and profit margins over last year to 10.2%. Generating that improvement would be a significant achievement. There may be opportunities to achieve operating income margins closer to 11% for the fiscal year if we can convert a greater number of quotes to contracts driving up our plant utilization.

Our ratio of backlog to forecasted revenue in Q3 and Q4 is higher than historical levels. This provides the potential to do better, but we'll have to see.

Finally, we expect SG&A reductions against our 2007 budget to be on the order of $20 million. This will require continued discipline while continuing to spend appropriately on growth initiatives and transferring the Robertson-Ceco engineering systems to our NCI Buildings group. We will, of course, review our progress at the end of Q3 and reflect the same in our guidance for the fourth quarter and year-end.

In summary, our focus for Q3 and Q4 will be to convert more quotes to backlog, ship the backlog we have, achieve operating margin growth in our Buildings group to 10.2% or better, recover from a poor first half in our Components group in both revenue and margins, capture the Robertson-Ceco synergies in our Coating group and achieve at least a $20 million savings in our budgeted 2007 SG&A.

Let me close by adding that throughout the Company my colleagues in management and in our plants own an increasing amount of NCI shares. I know from my travels across the Company that our people are incentivised by their share ownership, and they are focused on creating long-term growth in the value of their shares. NCI remains very well positioned to achieve this growth and we are committed to fulfilling this potential.

Now we'll be happy to take your questions.

Thank you. (OPERATOR INSTRUCTIONS) We'll go to Arnold Ursaner, CJS Securities.

Good morning.

Good morning.

I want to try to focus on the issue of the backlog because I think there are two issues here worth some explanation. You mentioned in your prepared remarks that one of the things impacting your view of it is a thing called permit and approval, and you also indicated that you have about 77% of what you think you would ship in backlog already which is a dramatically higher percentage. I assume these two go hand in hand.

So can you give us a little better feel for what moves something from a permit and approval to what you would call more traditional backlog and is that a key factor in your more conservative view of the backlog you have?

What you have, Arnie, is that we will always have a portion of our backlog in permit and approval. That portion traditionally increases with the complexity of the work.

All that means is that we are awaiting a final shipment date, okay, and that date is largely driven by the final permits. So knowing that, our team can focus specifically on those jobs working with the builders to get a better view of when they will fit in the shipping schedule, okay?

So that is not an abnormal type of situation, and it is a function, as we said, of the fact that the complexity of the buildings we have in the backlog is a bit higher than normal.

Can you give us a sense of your revenue view by segment looking out for the balance of the year, please?

I can't really do that now, but I' be happy to try to do that later.

Okay.

And just a final clarifying question. I think on the Building segment I thought I heard you mention a 10.5% margin, and then later I think in your final concluding remarks I think you mentioned a 10.2 or better for the year.

Yes, it was 10.2. It might have been my Boston accent.

Okay. That's all right now for me. Thank you.

Okay. Thanks.

We'll go next to Jason Feldman, UBS.

Good morning.

Good morning, Jason.

First one real quick, I missed the share repurchase numbers. How many shares did you say were repurchased?

202,600.

202,600. Okay. Thanks. Okay.

The next one is on the revised guidance. From what I remember, basically the midpoint of the guidance range for the full-year has come down by about $1.13 I think since March 1st give or take. The shortfall in the second quarter relative to the guidance provided March 1st was about $0.20. So since March 1st your outlook for the second half of the year seems to have come down by $0.90 or so.

But it seems to me that almost all the assumptions or the moving parts for the second half of the year actually maybe even look a little bit better now. You have a record backlog, the outlook going forward is for solid non-residential construction activity, stable steel pricing environment, so I guess -- and the additional SG&A cuts which kind of were announced I guess at the same time on March 1st, so I guess I'm just kind of confused.

What's deteriorated over the past three months looking forward the next half of the year? I understand what the issues were going back six months.

Yes, you know, really, Jason, the view we have, and again, this is, the context of this is that we are more than just a little disappointed to miss our guidance for Q2, all right? We're not at all happy with that, and that was a surprise for sure, okay?

So when we look forward, we are definitely going to apply more skepticism and be as cautious as we feel is prudent to not over assume the recovery that we will have in the Components group. While we will do all the things, and we've got a superb management team there that is a great part of our company, but until we start producing the numbers and can turn to you in retrospect and say, well, we did better than we thought, assuming that's what the outcome is, then we're going to continue to be cautious.

Okay. Then let me ask this a little different way, then.

Is your view of the conditions for the, say, April through October period of this year materially worse than it was in March or is it that for the creation of guidance you're essentially taking a more conservative approach to that calculation?

That's a great question. We clearly have a backlog that was -- is definitely in the higher levels of my wishes and hopes. It really is a good backlog. Okay?

Uh-huh.

And we know that historically that has foreshadowed a pickup in our Components group as well, okay? So that is more positive than we would have had at the end of the first quarter for sure. Okay?

Okay.

I continue to be happy with the levels of quoting activity we see, right? And I think that I'm happy on all fronts, but we disappointed ourselves and our investors in Q2, right? I mean we're going to try to make sure that we're not -- that we're cautious and prudent in what we say about the future.

Okay. One quick clarifying question.

When you're giving the numbers, the 77%, forecast revenue for the second half in Building, say it's (inaudible) current backlog, are you talking about third party sales or total sales when you're talking about numbers?

It's third party.

Okay. Third party sales. And then I had one other question but it's escaping me.

Just to fill you in on that a bit, so, okay, so 77% is higher than our historic (inaudible) types of levels, so what does that really mean? It means one or two things, either the guys and gals over there have to finally 23% to make their numbers for Q3 and Q4, or if they get their historical levels of success, there could be some upside there. That's kind of what it boils down to.

Okay. And then last quick question.

With the Components division today, are you seeing that the inventory overhang has materially improved? I'm not talking looking forward but what the conditions are in the past week, the past two weeks? Is it better?

It has improved. I mean there's no getting around it and I said so in the script.

I mean we can see it in terms of our tons shipped and our price per ton in the Components side. We can see it in the Coating group with a slight improvement in the mix in terms of packaged to toll coating. We can read about it through your analysts as well.

Okay. So not perfect but materially better?

Yep.

Got it. Okay. Thank you very much.

We'll go next to Matt McGeary, Sentinel Asset Management.

Good morning.

Good morning.

Could you help me with the linkage? I'm trying to get my arms around if all the things I read about the ABI indexes and trying to get a handle on non-res construction, those readings have been pretty good and yet your segment was not so good. Now you're assuming flat non-res, flat with 2006.

I guess, how do I reconcile kind of what happened in your business with the low-rise being down so much versus the overall readings, the 30,000-foot view being pretty good?

Yes. There's a couple of things. First of all, we take the McGraw-Hill Dodge data and we recast it in our fiscal year, okay?

Yep.

The second thing is if you were to look, if we just take the year-to-date, so the first six months of our fiscal year, you will clearly see that non-residential is down from 2006, but it's actually up over 2005, up over 2004, up over 2003, okay? 2006 was an anomaly in our first two fiscal quarters in terms of the level of growth both in non-residential and the hurricane-affected areas, okay?

So when we look at it, when I look at it for the half year, total non-residential, and this is in square feet not in dollars, in square feet, is down 7.3%, and if I look at low-rise, low-rise is down 6.8%.

So what this tells us is not dissimilar to 2005. We had a similar cycle in 2005, and in fact we're down about the same amount and came back very strong in the second half of the year which, again, is the view that we have on 2007.

How much of that, I mean what do you think causes that? I know we had some tough weather throughout a lot of the country. Is that part of it or what do you think causes that?

Sure. It is part of it, but again, and I think that this is not easy for people to get, but within any given year you will have cycles that fluctuate throughout the year, okay?

So in 2006 the first two quarters were much stronger than had traditionally been the case, and in fact the fourth quarter of -- I'm in fiscal year ends, the fourth quarter of 2005 was very strong. Q3, 2 and 1 of 2005 were weaker.

Q4 of 2004 was incredibly strong, and Q3 as well, so we get kind of get cycles within the cycle, okay? And it's a function of, you know, weather is a function of what's going on in the industry, but that's what we manage to.

Okay. That's fair enough.

Yep.

You talked about, you mentioned the inventory build on the balance sheet, just sort of curious what's going on there, what was your strategy with the steel purchase and how does that, I'm trying to get my arms around free cash flow generation for the year.

Well, the last one, or the first one first I should say, we, while being hurt in our Components group by excess inventory in the marketplace, that's the downside of it. The positive side of it is that our folks can look to purchase steel at discounts.

So we believed and believe in being a little on the aggressive side in purchasing steel if we believe that it can advantage us in the second half of the year. So we purchased -- we continued to purchase steel. We now believe we're in pretty good shape for the second half of the year, so we'll be working that down through Q3 and Q4.

And what was the second part of your question?

It's not really a question. I'm just trying to get a handle. I mean if we look at free cash flow comparisons doesn't look that great but it seems like your back half ought to be pretty nice in terms of free cash flow generation.

Right.

So the full-year number could be, should be fine?

Right. It will be -- I think we said we expect to have free cash flow of about $150 million.

Yes.

That was at the beginning of the year and, clearly, we're going to, you know, with the slow first start we'll be off that pace by maybe as much as $40 million or so, but we will be squeezing our working capital. We'll be doing a lot of things to free up some cash flow.

Yep. That's good.

And just lastly, how much do you have left on your repurchase program and authorization?

We had 1.4 million shares, so we bought back 202,000, 203,000.

Okay. Great. Thanks so much.

You're welcome.

We'll go next to John Diffendal, BB&T Capital Markets.

Good morning.

Norm, I just want to drill a little bit deeper, I guess, on like you say, what's happening at the margin on the components margins. Did I hear you say that in April even though we're talking about a 6.6 or less than 7% margin for the quarter, that the margin had recovered to 12. Is that something I heard you say?

The margins had improved in Q, I'm sorry, with April, there's no question about that.

April was back to about 12?

Something like that, yep.

Okay.

And so looking at the way that the, I guess, with the Q3 guidance in effect if you look at the range of it, sort of flattish if you take it sort of in the middle maybe up slightly and then up better in the fourth quarter. Is there anything to imply about that?

I mean if the base Engineered Systems business is better with a backlog, is part of that a function of where your backlog hits in the third and fourth quarter? I'm trying to get a little bit of sense of how you sort of see the Components margin building in the third versus the fourth to kind of get where we are.

Yes. I mean I think I said that we had in our low end of our guidance we expected margins to improve for the year to 10.4% in our Components group.

Yes. An overall number, yes, when the year is done that's what the number will be.

So year-to-date I think we were at what, 8%?

Right.

Right? So that means we have to have, you know, we'll have substantial recovery in Q3 and Q4, and that will be probably biased a little bit higher in Q4 than Q3. Yes. I guess your comparison in Q3 is almost 16%, so it's a little tougher comparison there as well. Right.

Okay.

And you mentioned the integration and synergies with Robertson-Ceco is going well. Give us a little more update in terms of the programs you were bringing on in the second half and into '08. I mean is everything going pretty much according to plan there?

I tell you right now, A.R. and I are just really pleased. We're going to be showing the Board today an example of the Engineering Systems work. We've got (inaudible) of Robertson-Ceco guys one of our better guys there. We've got some great guys there so I (inaudible) but one of our better guys there is rolling that out to our builders.

I was over last week, the training is going on. It's really going well. The contributions that the Robertson-Ceco folks are making to us is just first class in terms of their technical systems and just their commitment.

We have one of our most senior people whose heading up the rationalization of the products, John Scarborough, who is heading that up, the Robertson-Ceco man, to get us moving along as quickly as we can with the hub-and-spoke, A.R., and the guys have completed the installation of the roll form as in the plants, and I think we'll be fully operational by the end of July there, and procurement's going well.

Just across the board, John, it's first class. And you roll in the Garco acquisition as well, and the team there is just doing a first class job.

And just remembering back, I think the overall synergies when you bought them were sort of mentioned to be somewhere between 6 and 20. Given what you've just said, are we talking about where do you think you'll ultimately hit within that range when it's all said and done?

Well, I mean what I've said is that if we see the margins come up 180 basis points in the Robertson-Ceco side, we expect that is something we could see this year.

We know that we're going to have 3 or 400 basis points of improvement in the Coating group directly there as well, so when we go across the board it looks pretty close to mid-range on that 6 to 25. The big gains will be in 2008 and 2009 with the Engineering Systems in the hub-and-spoke. That's where the real opportunity lies.

Got you. And then just one last (inaudible) question.

On the, Frances, on the base shares, what are the base shares we should be using to drive the dilution number off of right now?

If you take our weighted shares outstanding and a million related to the converts.

Yes, but I'm saying is it, are we running, I guess, with the share buyback for a couple hundred thousand shares, is it something like 20, it's almost dead on 20 million, isn't it?

It's pretty close to 20 million, slightly under.

Just slightly under 20 million.

Right.

Thank you.

We'll go next to Michael Cox, Piper Jaffray.

Good morning. Thanks a lot for taking my question.

Yep.

My first question is on the capacity utilization assumption for the back half of the year of 80 to 90%. I'm just curious as to what order of magnitude that is just a seasonally stronger period versus an expectation of improved business trends?

It's a seasonally strong, and it's a function, as we say, of we historically earn anywhere between 65 and 78% of our profits in the last two quarters of our fiscal year, okay? And when we look at the utilization, our forecast of that, it's a function of our backlog and how that backlog will flow through the Coating group, the Components group, expectations as well.

So we had set a goal to improve our utilization from where it ended this past year, I believe, from 75 to 80%, and with the first half of the year we're going to be challenged to get to the 80%, but we'll see where we come out in the second half of the year. But we expect it to be in the 80s and 90s during Q3 and Q4.

That's great. And in terms of the, looking at the back half of the year with the improvement in cash flows in the seasonally stronger period, how would you prioritize between repurchase activity versus paying down debt?

Good question. And the -- we want to pay down debt for sure. I mean we've not unhappy with where we are right now, but we'd like to see us steady at 2.5 times, you know, trailing 12, but the economics for buying back shares is compelling. That's why we didn't exactly have a lot of cash sloshing around the first half when we bought back 200,000 shares, so we're probably a bit more biased in that direction.

Okay.

In terms of the backlog I was wondering if you could give us the contribution of Garco to that backlog number for the end of the quarter?

Pretty small. I think it's like 15 to $17 million.

Okay.

And my last question is on the, I believe as you're entering this year you were going to increase your level of imported steel. Has that already started to flow through to the gross margin line and attributable to the increase in gross margin year-over-year in 2Q and should we expect that to continue as that flows through the P&L?

Certainly, foreign steel purchases have helped somewhat, but the guys have done a good job at trying to buy steel in an intelligent way, and hopefully we're going to be on the right side of that equation and there should be a benefit in the second half.

Great. Thank you very much.

We'll go next to Joe [Tushinski], Century Insurance.

You mentioned Components had a big recovery vis-a-vis March which I suspect might always be the case on a seasonal basis. Could you discuss how April looked year-over-year or how it looked year-over-year versus how March looked year-over-year or any metric to put that in better perspective?

And secondly, have you seen a Component recovery kind of continue into May?

Yes, you know, we continue to see improvement in the Components group. When we look at tons shipped, and in the quarter, for Components and break it down by month, you will see -- you would see that our tons shipped is down compared to Q2 month-by-month in 2006, and that, again, is a function of two things.

Number one is the underlying non-residential market is softer. And number two, we did not have the benefit in Q2 of this year that we had in Q2 of last year of the hurricane-affected area where we shipped a lot of product to.

So we -- if memory serves me, I think we're down 5 or 6% in tons shipped in April compared to April of 2006, but we saw a pickup in price per ton. We certainly saw improvement through the month. March was better than February, April was better than March.

In May our tons shipped per week is up, and our price per ton is up in the Components group.

Okay. Thank you.

We'll go next to Mukul Kochhar, CIBC World Markets.

Hi, guys. This is Mukul Kochhar. Good morning actually.

Good morning.

Actually just most of the questions have been answered, just a couple of quick questions. Are you assuming a charge in the second half of the closing of the Canadian facility?

No, we actually have taken the lion's share of that into our opening balance at the acquisition for last year, so it'll be a charges you'll see in the Q against goodwill. There may be some small costs moving people to a new office, that kind of stuff, but it shouldn't really be material, I don't think.

And the national retail chain initiative you spoke about, could you please elaborate on that a little bit with some idea about long-term opportunity there?

Sure. I'm not at liberty to say which of the big four it is, but I will say that it's something we've been working on for a very long time, in fact, some of our investors are probably get being tired of me talking about it, but the guys in Components have worked very hard.

As you know, we really run our small buildings business from our Components group because they're very quick turn and focused in that segment, and so they have leveraged the Web-enabled system that we have in Steel Building.com, which was our plan from the beginning as well, and effectively put a new storefront on it to meet the needs of this retail chain. All of those transactions will flow through our back office piece that we have in Little Rock, Arkansas, and be managed and produced by our Components group.

Is there any idea about long-term potential revenue opportunity here?

Well when we did the analysis, we felt that there was an opportunity for us to sell $100 million worth of product if we got this channel right and we're still very positive about that.

And time frame you're talking about is a couple of years, two or three years?

It's probably something on that order of magnitude, and of course, if we add another retail, you know, one of the big folks to it, that will accelerate it some.

All right. Great.

On the sales mix shift that you spoke about that impacted Engineered Building Systems margin this time, were you trying to imply that's one-timish and it should go away and if yes, then why?

The sales mix was largely in the Robinson-Ceco piece and it was more a function of shipping schedules of material, and I think we believe that our backlog has the quality of earnings that I keep talking about, so I don't think we'll see that again. The sales meetings Sigosa piece, and the loss in Canada I think we've nailed on the head.

Got it. And then last question.

Are you -- I mean you mentioned that you may be doing more share repurchases in the second half. Are you assuming any accretion from that in your guidance?

No.

Great. Thank you very much.

Thank you.

We'll go next to Stan Westhoff, Paradigm Capital Management.

Good morning, guys.

Good morning.

I was just trying to get myself wrapped around the revenue growth. Can you comment on what the level of growth or decline was possibly excluding the acquisitions of RCC and Garco?

We certainly were down a little bit in our Buildings group and that was more a function of us being more selective in our focus on particular kinds of work and jobs, and that's a good thing.

As you remember, you may remember both A.R. and I were not at all happy with some of the progress or lack of progress this time last year in our Buildings group and made some changes both in terms of process and people, and we're both very, very pleased with the team we have and the direction it's heading. And part of that change was really being a bit more selective in not chasing every single job with the same vim and vigor.

So we probably have, you know, we'll be down a little bit there, and we picked up -- if we look across the piece, our Buildings group was probably off $9 million in revenue in the quarter compared to 2006, and we picked up $65 million or so from Robertson-Ceco.

Okay.

With the new backhaul thing that you mentioned with the Components group, is that going to kind much go across to the Buildings Systems as well? Do you think that you might be able to actually almost wash out your freight costs entirely with that?

Let me explain that a little better for you, then. The backlog is in our --

Not the backlog, the backhaul operations in shipping.

I'm sorry. I'm sorry. The backhaul initiative is really looking at maximizing the value of our fleet, and we've been studying this here for a while, and I don't know how much we'll be able to reduce the transportation costs, but we spend on the order of $100 million in transportation, so getting 5% off that would be a very positive thing.

Right. How much of the transportation do you do yourself and the other that you, I guess sub out in a sense?

Well, we do all of -- well, I'm going to ask A.R.

Just a second. You know, we're probably about 50/50 with company-owned trucks versus common carriers, probably in the 50/50 range. We have about, oh, in the range of 130 trucks running, and so it's probably about 50/50.

Okay. And do you think, like you said, be almost wash out maybe even gain some income in profits from backhauling?

Yes. I mean that's our -- that's exactly what we're trying to do. We're trying to reduce the costs by getting some revenue.

Okay. I guess one kind of housekeeping item.

I noticed in the last Q that you guys didn't report your D&A in the cash flow. I mean, I understand with the press releases, but I was wondering why you did that in the Q as well and if you could give the numbers out?

We actually, in the release we definitely have D&A in there, and I think we didn't, is that correct, we didn't last quarter?

Well we summarized our cash flow segment from the top line so you couldn't see the depreciation and amortization, so we've now put it on the face so we have clarity in what that number is.

Okay. But it is in here someplace, then.

The front page of the income statement on the press release, so it's 8.7 for the quarter, 16.5 for the six months 2007.

Okay. All righty then. Thank you very much.

Thank you.

We'll go next to David Yuschak, SMH Capital.

Good morning, guys.

Good morning.

Norm, last conference call I addressed your $20 million cut in spending. There's a concern on my part that you may be cutting some spending going into what was a very robust market. But looking what happened in the second quarter and what your outlook for the rest of the year is, it almost likes like, whether it was intuitive or whatever, that you needed to do this to get something done because something wasn't right.

Could you help me out? Is anything, when you took that action on the $20 million, was there some things there that said we could be in for a tough period here and we needed to do some of these things as kind of a preemptive effort to make sure we get our costs in line or given what's happened here with the quarter and your outlook? Help me out.

We go through our SG&A as part of our budgeting process and do that in a formal way every year, but I just felt at the time that we had an opportunity if we could take 5% off our budget SG&A which was about 310, $311 million. This was before our Christmas break, it was actually to have upside to our guidance to have an opportunity to blow through it.

We had all just received our bonus checks, and I said, hey, listen, this is a great opportunity. We did not anticipate the second quarter that we had, and in retrospect, are we glad we did it, dog gone right we are, but it was really more an offensive act than a defensive act, it's turned out it be a defensive act, but that wasn't the intent at the beginning.

And is some of the problem, then, just because of the nature of your work, you're working on short cycles. Help me out on that as a concerned as what happened three months ago versus now and how much of that, because this Building Systems shipped in four weeks (stuff) off the Component businesses off the shelf, so you're really dealing with relatively short time leads on stuff that you're bringing to market, in the construction market that can have a high degree of variability to it.

Help us understand as you look into the second half of this year how much of this potential that you're seeing in backlog and where it's coming from that can get investors comfortable that the guidance you're giving here can be conservative?

Well, I'll speak to what we see and I'll let you guys decide whether it's conservative or not. What we see is our backlog is consistent with larger kinds of manufacturing, warehousing types of projects. 70% of our backlog is in industrial and commercial applications.

As you know, the complexity range in our buildings go from 1 to 10. I think that our backlog average now is about 6.5. We have 20% or a little higher, right now actually, in institutional. We are strong in education, healthcare, churches, and then 10% in rural and agricultural.

You know, that backlog, it really represents the part of the economy that is really showing a commitment into improving. I mean if you look at us, I mean we built a new plant. We spent money to improve the efficiency of our plant in Richmond. I think people very similar to us.

So you're kind of saying that with the Ceco acquisition, is it fair this to say that some of the strengths that you're seeing in backlog right now are because of the some of the complexity issues and it's just been merely more of a market function right now that's kind of derailed you this year versus the kind of capabilities that can get you kind of back on track to really go after some of these markets where you may be as a standalone haven't been as strong as you were?

Well, I won't characterize it that way. We're very pleased with our performance in the Buildings group, and as I said, we had some one-off charges in the quarter, but our profit margins would have been a 9% and we're 10% in Q1.

The Buildings group is doing well. They have the benefit of a backlog. That backlog gives them a buffer against the current conditions that we have.

Our Components group doesn't have that. Our Components group is real-time. They're in the market every single day the men and women there trying to get work. They sell it and they ship it in the same week. It's quick turn.

As I said in the pre-release, four of the end markets that we have in the Components group were particularly weak, and that is the group of their products that's more commodity-based even though they get a premium of 3% above what our competitors get.

My point being that we'll see a good half of the year, second half in the Buildings group, and we'll see improvement in the Components group, and the reason for the spread in the guidance is, frankly, the uncertainty that we created in the first half of the year. We're going to give ourselves plenty of room here to get the job done.

Okay. Go ahead.

Let me add a little. This is A.R. Let me add a little to that.

I've been in the industry a long time, and I've talked to some of our major competitors from time to time, and without fail they've told me without exception, I'll say it that way, they told me that January, February and March was their worst in history for their components groups, and it just went right along with what we're doing.

We're seeing marked improvement in April. We see further improvement in May, and the Components group is the same group today that it was six months ago, and there's nothing broke there. Like Norm referred to, we weren't happy with the Buildings group and we've done work to fix that, and we're very happy with what's happening in the Buildings group today, but the Components group is not broke, it's just the work just was not there.

And we could have went out and run the machines for practice, I guess, and took a bunch of jobs at low margins, but all we'd have done is brought the whole marketplace down, and that's certainly not something that we want to do, but I think you'll see marked improvement in the Components group in quarters three and four of '07.

One last question on that Components versus the Buildings systems. Isn't it possible that as you gain more presence in the Buildings Systems and you really start kicking in real (goodwill) on make gaining penetration maybe more complex buildings whatever it is, that you may be -- the Component business may be feeding you more of your material needs there and so looking at your internal sales to Buildings System from Components may increase, just wondering about that.

And then second, it would tend to potentially cannibalize your off the shelf market if in fact you're gaining penetration in markets (at) the Components. And third part is may in fact falter, but is that one reason why maybe you're taking a look at some of these newer initiatives and products to help stabilize and then maybe even grow that business longer term?

I mean there's three things there, Dave. We clearly see an opportunity to sell more components to our builders. That's something that the team has had as initiative and are focused on, and that will happen.

The second thing is that, you know, and I've had the advantage of last three or four years of really looking at what A.R. has done. I mean he created the (inaudible) Components group, and I got to tell you, they have changed their go to market from year-to-year.

This order entry system will bring down our costs substantially in the speed and efficiency to provide the product to the market. None of our competitors will have that. So the team there continues to look at new products and new markets.

The sound barrier piece that I mentioned that they have approved in ten states is a great product line, so that team has as part of the modus operandi, always looked at new products and new offerings and will continue to do so. But they also, the small buildings piece continues to play a big part of their business, and they're the best equipped in terms of speed to produce those buildings for us.

So that's the reason why initiatives like this new retail to mix makes a lot of sense.

Absolutely, and they've been working hard on that. They invested, they $1.5 million in the study on that thing. This is a group that is just like the rest of our company, they're great people, and they know how to get the job done.

$1.5 million over what time period?

That was through last year and part of this year.

Okay. Thank you.

Yep.

And we'll take our final question from Mark Traster, FAF Advisors.

Good morning, guys.

Good morning.

I had a couple just kind of quick clean-up things.

The 10.2% in Engineering products, I'm assuming that that backs out the write-offs in the second quarter here? In order to get to the 10.2?

Well, let me answer the way I, let me answer, what we say in our, that in our margins given our results for the first half of the year, even though we've been hit by those charges, we will get to 10.2% for the whole year.

Okay. Even with the charges. Okay.

And then secondly, the sales staffing levels, can you talk to that a little bit about where you're at with that with the cuts that you've been making?

Well, we've cut really across the board. We ended up, and this is a bit misleading, but I'll give you to you straight.

In January we took 7.2% out of our headcount and salaried staff of 1148, and, but that's a bit misleading in that we didn't hire some people we were going to hire. So it wasn't a straight headcount reduction but that was like 84 folks I think, or 85 folks including people that we let go as well as folks that we didn't hire.

We've been managing our variable costs across the board in terms of commissions as well. We've been managing our things like discretionary spend on consulting and those kinds of things, and it boils down to about $20 million or so in savings over what we had budgeted, okay?

Okay. And finally, the depreciation and amortization for the full-year, any guidance there?

I think you can take this quarter and annualize it or add it to the rest of the year. We don't see any changes to that.

Okay. Thanks a lot, guys.

Thank you.

And having no further questions, I'd like to turn the conference over to Norm Chambers for any additional or closing comments.

Well, thank you all for your comments and we, and questions. We appreciate your support, appreciate your commitment to us and we to you.

So thank you very much, and we'll be happy to take calls after this call as well. Thank you very much.

This does conclude today's conference. Thank you for your participation. You may now disconnect.