Crane Co (CR) 2005 Q1 法說會逐字稿

Good day, everyone and welcome to the Crane Co. first quarter 2005 conference call. Today's call is being recorded. At this time for opening remarks and introductions I will turn the call over to the Director of Investment Relations and Corporate Communications, Miss Pamela Styles. Please go ahead.

Good morning, everyone. Welcome again to our Crane Co. earnings conference call this quarter -- first quarter earnings conference call. Today have with us Eric Fast, our President and CEO, and Bob Vipond our new VP and CFO. We'll start off with a few prepared remarks after which we'll respond to questions.

Just as a reminder the comments we make on this call may include some forward-looking statements. We would refer you to the cautionary language at the bottom of our earnings press release, and also in our annual report, 10-K, and subsequent filings pertaining to forward-looking statements. With that let me turn the call over to Eric.

Thank you, Pam.

Before I begin, let me officially welcome Bob Vipond. Bob has a strong operational finance background, including over 20 years with GE in various positions. We are pleased he has joined our team and will look forward to opportunities for him to meet many of you.

We were saddened during the course by the passing of our previous CFO George Simony. He fought a tough fight against cancer until late February. His family appreciated the many gestures for concern and thought for George during his illness.

Turning now to Crane first quarter operating results. We are solidly in line with our guidance and we saw a strengthening market demand improved pricing in many of our businesses. Importantly, our core growth, that is growth excluding foreign exchange and acquisitions has been steadily improving from less than 4% of increased sales in last year's quarter to 10% in the first quarter of 2005.

In the quarter, orders were up 9% for the company overall and our backlog increased 17%, driven by the aerospace electronics and fluid handling segments. While price increases provided a large portion was improved volume from strengthening market demand. The effectiveness of our customer price increases to offset higher raw material costs was greatly improved in the first quarter.

As we anticipated, Kemlite fully offset higher costs of raw materials with price increases. Crane Merchandising Systems was able to more than offset rising material costs through modest price increases and aggressive procurement activities. Considerable progress was also made in our fluid handling businesses, as planned price increases were implemented in a disciplined manner. Simultaneously, we relentlessly drove a strategy of continuous improvement and further reduced our cost structure with additional severance and facility closures.

Costs over and above costs in the first quarter of last year for similar actions was $4 million. The after tax impact reduced our comparable earnings per share by nearly $0.05. Even including these costs we earned $0.42 per share in the quarter, compared with $0.37 last year, up 14%. The severance actions we took this quarter are consistent with our long-term strategy of continuous productivity improvement, and resulted in a cost of $4.8 million in the quarter that will be fully paid back this year. Savings from the severance will be approximately 10 million on an annual basis in 2006.

With the termination of the master settlement agreement, and no need to fund a trust, we now have greater flexibility to use our available capital for acquisition. At the end of March, our net debt to capital was a conservative 28% and our 300 million revolving credit for acquisitions was fully available. I want to remind everyone that as is our practice we do not intend to comment on our estimate of the Company's asbestos liability beyond what we have said in our form 8-K.

Turning now to specific segment comments, I don't intend to recite the numbers provided in our press release. Rather, I will share additional observations.

In our aerospace and electronics segment, I was encouraged by the progress made in our aerospace group. Even after 1.8 million in severance costs, aerospace group margins were essentially even with the first quarter of last year, before consideration of the Porter acquisition.

The Porter Seed Actuation business had margins below 10% in the quarter, due to higher costs associated with launching its new iMOTION product. iMOTION is a software controlled power actuation system for premium seats to convert to a flat sleeping position. Our electromechanical experience and in-house testing capability were useful in meeting Porter's first iMOTION deliveries. Clearly, this is the sort of strategic benefit we saw when we made this acquisition.

Other acquisition synergies included consolidation of the P.L. Porter facility into our Burbank facility, which we began in the first quarter, and will be largely completed in the second quarter. The aerospace group further modified its organization's structure to meet the challenges of the civil aerospace marketplace pressures while continuing to improve its level of customer service. This is all possible as we continue to transform this business to a one co structure, that is from five separate units to one operating company.

We continue to centralize functions and install uniform business automation and tracking tools across the facilities. This is an ongoing effort which will result in the elimination of an additional 70 management and administrative positions this quarter. We expect to fully recover these severance costs in 2005, expect to realize the full year benefit over 6 million in 2006.

In the electronics group, as we mentioned at our analyst conference in December, we are aggressively putting in corrective actions and installing the new management team in order to return this business to its traditional margin. We still feel it will take well into the second half to stabilize our production and throughput processes for this business.

Besides generally unacceptable costs from operating efficiencies, we had 2.3 million in additional costs in the quarter as a result of identifying several lost contracts for which we have taken the appropriate provision. Our markets are strong and we are in a very good strategic position evidenced by the 25% increase in orders for the electronics group overall. In fact, orders more than doubled for our power business which is our largest solution set in the electronics group. While these operating issues are clearly disappointing, we expect to see improvement each quarter throughout the year.

As the order suggests, we have strategically well positioned businesses that are winning in the marketplace. At engineered materials, fiberglass reinforced plastic sales to all our market segments were higher than in the first quarter of 2004.

Sales increased to transportation by 23% and to RV by 19% in the quarter, primarily from price increases to offset higher material costs. Transportation industry continues to forecast a 14% growth in demand in 2005. Recreational Vehicle Association's most recent forecast still indicated a 2.5% overall decline this year, this forecast was dated March. However, January and February industry actual data showed an 8.5% increase. Approximately 70% of RV unit builds are towable - that is trailable trailers and folding campers, and they were much stronger within the industry data indicating plus 14%. Kemlite sells a vast majority of panels to the towables segment.

In merchandising systems I would characterize market demand as somewhat improved. Pricing is still challenging, particularly in our coin-mech business. Both businesses now have solid foundations of excellent customer metrics and operational excellent programs driving strong productivity gains, evidenced by the margin improvement. Our focuses on accelerating growth through new product introductions, such as the new recycler, better leveraging of a direct sales model with new account capture rates and penetration of the streamware software system, as an integrated offering with vending.

Fluid handling. Clearly showed progress in fluid handling in the quarter. Total segment sales increased 12%, and operating profit increased 43% resulting in over a 100-basis points improvement in profit margin to 5.4%. I would note that this margin improvement was after 2.2 million of severance and 1.5 million of costs after the plant closures which together impacted margins by over 1.5 percentage points, without which this segment would have had an operating profit margin of 7%.

We saw more consistent results generally across the businesses, and improvement in our marine valve business. Orders were up 10%, and backlog was up over 20% for both the segment and the valve group, as we are seeing improved project and MRO activity in the various process industries we serve.

Customer price increases finally begin to cover a noticeably higher portion of our higher raw material costs. In terms of utilizing low-cost country sourcing, particularly for our commercial valves, let me expand on some comments we made in our call last quarter.

Specifically looking at Crane Valves North America, and Crane Limited, our two primary commercial valve business since 2002 to 2005. At Crane Valve North America, we are now sourcing over 75% of our U.S. commercial valve sales from low cost countries, principally China and Taiwan, 49%, but Mexico, 18%, and India, 9%. At Crane Limited ,we will have moved 70% of the production of our high volume, low value product to low cost countries, mostly China, up from 30%. We are presently maintaining production of our high-technical specification products in Europe.

For both of these businesses, our sourcing challenge today is to execute on a process which delivers product on time with competitive lead times and perfect quality. specifically in our valve group sales, increased 10%. Operating profit margin improved 250-basis points even with the 1.5 million of higher severance costs in the previous year. Improved profitability for our marine valve business and improved operations and market demand for [Zomex] were the major drivers. Although there was improvement across many of the other businesses as well. Our other fluid handling businesses, pumps, crank supply, and Resistoflex, performed well before severance and facility closure costs.

With that let me allow Bob the opportunity to say a few words.

Thank you, Eric. Good morning. I'm very pleased to have joined the Crane Company team and to be with you today.

In my first six weeks with the Company, I've been impressed with how rapidly we are able to produce our financial results at end of each month and therefore, the quarter. Additionally, as evidenced by our outside auditors' unqualified opinion, the company meets the effective internal control standards of Sarbanes-Oxley. Overall, the sound internal control practices are just frankly good business practice, which we build into the fabric of Crane Co. Now let me give you a few additional items which I understand you are accustomed to receiving on the call.

Goodwill as a percentage of our total assets was a little bit more than 27%. Interest expense was lower year-over-over for the first quarter, due to higher debt levels. In most of the first quarter of last year, and last year we had an 8.5% debt traunch that was expired at the end of March. Obviously extinguishing that lowered our borrowing cost.

Our average working capital, as a percentage of sales was 21.7% for the first quarter, compared with 21.9 for the full year of 2004, and 22.2 for the first quarter of 2004. Last week Crane now plans to adopt Basby 123 on options expensing when it becomes effective for us in January 2006. The company has disclosed its options expense amounts in the footnotes to its annual reports for several years, and these amounts range from $0.07-$0.09 per share.

I do look forward to the opportunity to meet many of you in the near future. Now let me turn it back to Pam.

Thank you Bob, and thank you, Eric. And I'd like to add my personal welcome to Bob. We look forward to introducing many of you to Bob, you analysts and investors in the coming weeks and months. This marks the end of our prepared comments.

Before we open up the call for questions, most of you are familiar by now with the fact that we take questions in the order received. As a courtesy we ask that you limit your number of your questions to just one or two at a time to in order to give each of your colleagues a chance to ask questions. We welcome you to come back into queue again to ask more. Dustin, please open up the call now for questions.

Thank you. [OPERATOR INSTRUCTIONS]. We'll go first to Deane Dray with Goldman Sachs.

Thank you, good morning. Eric, can you give us more color regarding the lost contracts, what those were associated with, and whether that has been fully resolved this quarter or will there be any spillover into the second quarter.

The lost contracts were, I forget exactly, two or three--

This is Bob, Deane. We had lost contracts on a couple of our businesses there, and we've gone through our entire backlog of contracts across the electronic segments. And as you know there's accounting guidance out on the lost contracts so we've provided for the costs that are going to exceed our sales price for the duration of each of those contracts.

It was four contracts specifically, Deane.

What products?

It's in the electronics business.

Okay. And then regarding the core growth, it was a 10% core growth and you walked us through a number of price increases across individual businesses. Can you aggregate that and give us a sense, out of the 10% core growth, how much was price and how much was volume?

We haven't done that, Deane.

And last question, can you comment on second quarter guidance, and what are you assuming in terms of restructuring activities that you flow through your reported results?

Haven't, again we gave another $0.10 range to allow us flexibility to do what we think we need to do for the business. But, haven't assumed any specific restructuring in that guidance.

Eric, Is there a core growth assumption that you're thinking about for the second quarter or broadly for the year?

Not anything different than the current guidance we've given which is unchanged, Deane.

What is that guidance regarding core growth?

I haven't given it that way. I given the $2.10 to $2.25.

Thank you.

Next to Wendy Caplan, Wachovia.

Hi, good morning. If we, predictably, I'd like to talk about the fluid handling business. I was again surprised to see the valve group so low. I understand there were mitigating factors there.

But with a 7% overall margin, my question I tend to ask, is can we get to double digits and a follow-on to that is if I were a fly on the wall in your most recent board meeting, would you tell me or could you share with us what kind of thoughts the board has considered relative to this segment that seems to be a perennial poor performer?

First off, keep in mind that in fluid handling, first quarter is a seasonably low quarter and that it's the upcoming quarters where historically, where margins are stronger. Secondly, and I felt that in the quarter we started to demonstrate some real improvement certainly over the comparable quarter last year, and in terms of making some progress and headway on the business. I think I commented on it pretty specifically.

With respect to, I won't speak for the board, I will speak for the management. We remain confident we've got improving markets share, improving competitive position and pricing environment, and that we can continue to show improvement in our margins in fluid handling. Again I see -- it is clearly, we've had this conversation many times. Totally agree it's taken longer than we thought, but, again a lot of these markets are late cycle and I think you're starting to see us benefit from that improved demand and our solid market position.

Could you give us some idea, Eric, when you expect to see double digit margin in the segment? Could it be this year?

Wendy, I gave specific guidance in December, I think we talked about fluid handling going from 6.1-7.7 % is the guidance we gave in December. We remain unchanged on that guidance. That's over a point and a half improvement on fluid handling.

Okay, and if I might I have one more question on your lost contracts to follow up. I don't recall ever hearing about this problem. Could you help us understand how such a thing happens and what measures you've put into place to keep it from happening again?

You didn't hear about the problem before this because we didn't know we had lost contracts. But in going through with the new interim leadership that I have in electronics and in going through these programs, and taking a hard look at them, we felt there were four that should be, we needed to take this provision on.

We have -- the management team there has gone through the rest of the contracts and looked at them. We're comfortable these four were appropriately written down and that there's not a lot of this going forward that we have to deal with. I will tell you there are operating inefficiencies in the electronics group, caused by programs where we may not be losing any money but we're not making money on them and that's holding down the margins there, and a there will be a period of time while we work out of those programs, and as we work out of the programs to recapture the margin improvement. As I've said, either in my script or the press release, we expect the electronics groups performance to improve each quarter this year.

And the operating inefficiencies you cited are related to these contracts?

These contracts and some of the other contracts that don't have the margins that they should have.

And if I can just add on, Wendy, it's also related to a couple of the factories were going through some extensive ramp-up periods to meet this increased demand, and we're not getting -- as we're going to that extensive training -- we're not the same type of productivity you would expect when you have a more seasoned work force.

Thank you.

Our next question from Matt Summerville, McDonald Investments.

Morning. A couple questions on aerospace. First, Eric, when do you think margins in aerospace and electronics segments start comping positive on a year-over-over basis?

I haven't looked at it that way, Matt. We are holding our guidance for the year with the aerospace electronics group.

On our top line, I think the first quarter in aerospace, again staying with this segment, came in a little bit higher than what you may have originally thought. Is that not cause for you to change your guidance for the full year from a revenue standpoint, which if I go back to the December, I believe, you were kind of looking to be up in the low single digit kind of range, and then also in that context, talk about from a topline standpoint what's doing better than what you would have thought. Is it commercial? Is it military? And then also comment on the after market.

I would say both commercial and military are -- and OEM is better than what we thought. That, historically, particularly in the commercial as you know -- Commercial OEM is relatively lower margin, and that's where the increased orders are coming from.

Okay. And then my other question is in terms of -- you a really good first quarter on the top line. Why not up your revenue guidance for aerospace for the full year, which in again December was low single digits and talk about what you're seeing in your after market business.

I think it's a valid comment on the revenues for the aerospace group. On the other hand, we didn't adjust any of our guidance and we do clearly have poor performance in our electronics group, in terms of operating profit in the first quarter so we just left it alone. I don't think there was meant to be any other signalling there than just that. I'm sorry, what was the last part of your question?

Well, what you're seeing with your after market business?

The after market business, both in commercial and military, was flat to up a touch offset by a decline in our retrofit business where we had one particularly nice program that ran for most of last year. I would call it about flat.

And at what point is it going to be this year that you think the electronics business is fixed? Are we out of the woods in the third quarter, fourth quarter or is this more of a '06 kind event?

No, we'll see improvement each quarter, and that improvement will ramp up as we work through some of these problem contracts jobs, and you'll see it in the second quarter and it will be a better in the third and better in the fourth.

And lastly, on fluid handling, how much of the raw material cost inflation do you feel now you've offset with price increases?

We have not quantified it. I said that we clearly have done a far better job than last year. I think we're better at it. I think we've been more disciplined about putting in the price increases. I think our customers are coming to expect it. It wasn't the significant negative it was last year. I saw it more as a neutral in the first quarter, particularly if you take out the marine valve business and our distribution business in Canada.

Thank you.

We'll go next to Scott Graham, Bear Stearns.

Good morning. I have three questions. One is to maybe ask a previous question in a different way. On the aerospace margins, when would you expect, Eric, the year-over-year comparison in terms of mix to improve? When do we kind see at least the stabilization of that mix?

Not quite sure I understand the question, Scott. Let me be specific here. Aerospace Group, not the segment, but Aerospace Group, pre-Porter is still running at 20% margins. Porter is below 10%, but we expect those margins to improve as we go through the year. A big reason for the margin, low margins, at Porter. One, we're moving the plant right now, and number two, the new product which we are having a lot of success selling has got a lot of costs in it.

We are taking those costs out with procurement activities and extensive value engineering. So that's going to take us, between the move, which we'll try to finish mostly this quarter and then the value engineering and the costs out of the iMOTION product will take us most of this year to flesh out of the system to get more attractive margins in iMOTION.

I expect the aerospace group to continue with the benefit of the severance, the severance just moves the profitability from the first quarter towards the end of the year, I expect the aerospace group to be in good shape, and I've got an absolutely first class management team driving towards achieving those kind of results and we are very confident about it.

Electronics on the other hand clearly had more operating issues than we expected in the quarter. We wrote off the contracts, and we've not given and I'm not going to give specific guidance except to say, you're going to see improvement each quarter here in that electronics business. I'm very comfortable -- we are very comfortable with the strategic position.

As I mentioned in my script, our orders are up 25% in the group segment, which validates the strength of our strategic position in these niche markets and this is a short-term operating issue, which is why we replaced the senior management team last fall, that I'm confident we're going to work through on a quarter-to-quarter basis. I don't have another way to answer that. That's honestly what the story is.

That's fine. Two other questions are: We've seen some pretty good organic sales growth in the merchandising business for two straight quarters.

Yet you said you're seeing signs of improvement and didn't really sound, Eric, if I may, you thought that was significant improvement. The way I'm looking at that, that looks like a noticeable improvement to me particularly with the coin stuff still kind of weak.

What are you seeing in that market specifically and did I read you wrong on the level of excitement in merchandising right now which seems to be improving?

You're a good listener. I'm a little -- listen, we like everything that's going on in the merchandising segment. We've got our costs in line. We've shown good ship sales, shown a dramatic margin improvement. We've got a lot of investment going on in the business to try and grow it. We are hesitant on just how strong the demand will be going forward. We tend to have one real good month, and the we have the next month is not quite as strong. So far we're continuing to see the demand and I'm confident about our market positions and the direction we're going. I'm just not as confident about how quickly it ramps up here, Scott.

That's fair. Last question. On the $10 million in savings, 10 million into the aerospace -- I'm sorry. 6 million into the aerospace benefit, I assume the rest is fluid handling. Can you give us an idea how that kind flows through that second half beginning and full year annualized next year or none this year.

The aggregate severance we've taken in the first quarter is $4.8 million, and we will get that all back and then a little by the end of this year. To me I'm just being, we're just driving productivity here and we shifted some of that profitability from the first quarter into the third and fourth. We expect on an annualized basis, with all that severance. What was the number?

A little over 10 million.

A little over $10 million on an annualized basis in '06.

Thanks a lot.

Next to David Smith, Smith Barney Research.

Good morning, guys.

Hi, David.

You talked about in the past, several times, about the new products in the merchandising business, Eric. And not to belabor, but it's gone on for a year and a half to two years. More in this case the products are out there and haven't gained traction yet due to the market?

I would say, first off remember we've got three new products we've got out there are all old products, that many of them haven't been invested in for a dozen years that are reengineered and reintroduced. This is the coffee, this the refreshment center. It's not like you're looking for some huge delta change. We just reengineered and upgraded. We are seeing some success in the marketplace, with those three core new machines. We would like to see more.

The other product that we've introduced here is our recycler which we are very excited about which is for the first time -- offers a coin mech you can get both bills and coins together as a change which allows you to vend high price operations. That's in very early kind of introduction stages, but we have pretty high expectations for that. I would give us a B on the new product introductions at this point but too early to really call.

Most of the manufacturing cost as far as that segment goes, have been put through like common platforms, and that type of thing and reducing the number of units that were up there?

I think we're -- the leadership there, and the management team are driving continuous productivity improvements, both on the shop floor as well as a lot of improvement in value engineering which is driving more common parts, fewer parts through all of our product line. I think we're still at early stages of getting the benefit of we're working on a common electronics platform throughout all of our machines for example. So there's plenty more to get there, David.

Can you comment a bit more, shifting gears, onto the engineer materials business. It looks like core growth with about 5% in the quarter. Would you say if you look at Transport and RV it was more like what the industry, I think you said 14% and 2 or 3%, or would you say it's a little higher than that?

I'm not quite ure I know how to answer your question, David.

I guess I'm looking at the core growth was around 5% and pricing was 12%.

That's right.

If I look at the core parts of those, I'm trying to get a bead on is the RV driving the numbers down from the core numbers we've been seeing?

Not in the first quarter. We saw good RV orders. I think we said RV was -- transportation was up 23%, RVs were up 19%, so we saw pretty strong demand in both those lines. If you look at the industry statistics, it would say that the demand we saw was a little ahead of the industry maybe, but too early to call on that.

That improve includes pricing, right?

Yes.

If I back up the pricing, I'm just trying to get a sense of the core industry demand. Would you say you're more in line or getting market share still?

I would say we're holding, generally holding market share, and I can think of a couple different small situations where because we're the price leader here, we've led with the prices for the industry and competitors will kind of try to pick off tertiary accounts by lagging our pricing by a couple of months and pick that account, and then raise the prices. I would say, generally holding market share.

One other thing on the margins and engineered materials being down year-over-year, is it more a function of mix is the commercial construction side playing into that?

It's really a function of the pricing covering the material costs but not getting the incremental 20% margin above that.

Okay, so you're good on -- you're covering the increased material cost.

Covering the increase, but it squeezes the margins a little bit. We cautioned about that in the last call.

Sounds good. Thanks.

Well go next to Ned Armstrong, FBR.

Yes, good morning. With respect to the merchandising systems business, margins have made very good progress. Do you have any thoughts to how high they can reach over the next several quarters?

I'm not going to -- first off let me thank you, Ned, for commenting on the margin improvement we are seeing in merchandising systems, which I think is the attribute to the management team and the job we've done. We've not given specific quarter-to-quarter guidance on margin improvement here but we are looking for continued slight modest growth in demand, and I'm very comfortable about our ability to leverage margins in this business. We remain confident about a goal of 15% margins in this business.

Okay, and as far as the demand aspect goes within the North American market, are you seeing better activity in any geographic areas relative to others?

Not that I'm aware of. I just would have expected demand to have been a little bit better here. We have 2 million more people employed. Commercial office vacancies are being soaked up here, as more people work. I would have thought it would have been a little bit better but it's such a late cycle business.

I think it's being a little impacted by gas prices, because of the route operators, that's a big part of their cost structure, so they are more inclined to kind of refurbish old machines. Generally, it's getting a little bit better, but it's not quite as strong as I thought it would be at this point in the economic seek.

Great. Thank you.

We'll go next to Ron Epstein with Merrill Lynch.

Good morning. Can we just walk through what the exposure to the civil after market is? We're seeing with other folks that have exposure to the commercial aerospace after market, we're in the early stages, arguably, of commercial aerospace recovery and I'm surprised to hear that year-over-year your after market growth is flat.

In the aggregate, the commercial spares and military spares up a little bit but they were offset by this pretty significant one off retrofit opportunity we had through most of thar last year and that in the aggregate makes it flat.

You've got to -- in the after market business, a lot of it depends upon who's got what product in the after market, and to some extent -- particularly in our fuel pump business, is on some of the older McDonell Douglas planes, and clearly the low cost carriers are driving and keeping those older planes on the desert. So. I would generally agree with you, that assuming the airlines stay financially viable we should be on the early stage of stable to steadily improving after market here.

So if that equipment never comes back, which some of t may not, how do you fill that revenue hole?

As long as they don't put more equipment in the desert we're all right.

But isn't there sort of an implied after market stream? Perpetuity of higher margin business that's going to disappear?

Constantly, after five years, new planes coming off warranty. We're all over the 737. This is both in terms of brake control and proximity sensors.

I'm not sure what else ships that we have there. I think it's $85,000 that ships out. We're all over that airplane. We've got our proximity all over the A320, and we own -- I shouldn't say we own -- we have very strong shares in terms of Embry Air's regional jet and Bombardier regional jet. Our strategic position here is outstanding.

Can you walk us through it. I was really surprised about the electronics group. Sounds like you guys were, too. What caught you off guard? How did it happen? Just trying to understand the financial controls of how you get caught by that kind of surprise.

How did it happen? I would say that last May we started to have reservations about electronics in the management team. I spent, I think I had either three or four separate trips to see the facilities, sit down with the management team, and last fall I changed the management team. I changed the leadership, I changed the CFO, we changed the head of operations there and certain other changes, and as a result of that we knew there were issues there. We did not know they were quite as significant as what we realized in the first quarter.

Now are there controls in place to prevent that from happening again?

I certainly hope so.

The best control is people spending time on it, and we're busy rebuilding that management team with the right focus and metrics to really understand the business, and dig into it and embrace the Crane acronym of making it ugly, so we can get through these issues and get sequential growth, so we think we made a lot of strides on that here in the first quarter.

That was just sort of a cultural thing, where good news only floated out, not bad news?

I'm going to take responsibility for this. A group head in place, he's retired. The head group for the segment. I had operating leadership that had done a good job with a $50 million business but didn't do a good job with a $230 million business, in tracking it.

I saw it, I got on it and we're dealing with it. Inherently after we -- we're in this business at a strategically three EBITDA mobile points below where people are currently in this business and what they've been paying for them. Both the price we're in this business and the strategic position, we feel very good about and I feel strongly that these are short-term operating issues.

Okay. Thanks.

We have a follow-up from Matt Summerville, McDonald Investments.

Couple of questions. First, with engineering materials and fluid handling, are you fully implemented right now as far as your price increases, Eric?

No. We've got rising material costs. Everything is on plan in engineering materials. We continue to have rising material costs, but frankly we have planned price increases, some in June, and some in July which we've already announced. But that's - again that's all according to plan. And then in fluid handling, we assess our prices every month.

So with engineered materials you're already getting twelve points-a-price. You're looking to get more than, can you quantify that?

No.

And then, with respect to engineer materials, sounds like you're upbeat on the RV space.

Given some of the commentary, out of, let's say, Winnebago, more recently, I guess I'm a little surprised with how upbeat you are. Sounds like in some of the public commentary, they say inventory in the channel is a little high. The bill rate looks like it is coming down. Can you talk about that?

I commented that what we saw in terms of orders and shipments, in the first quarter seemed to be a little bit ahead of where the industry was. So we could see a bit of a pause, here, I don't really know.

Secondly our real focus is on the towable segment, that's a 15-$40,000 towable. That's where our market presence is. That has shown relatively stronger performance than the A and the C motor coaches, which have gone for $100,000 to $150,000 and our market share bears a lot less. So I think the relative mix of product benefits us also.

In terms of my worries here, as always, I'm worried about interest rates. Worried about the gas prices. But again, the towables, that's going to effect the high-end motor homes -- what they call the As and the Cs -- much more than the towables.

I've seen in your prepared remarks, and I probably just missed it, you how much towables are a percent of your mix?

70, I think.

So the remaining 30 would be the AMCs then?

Yes.

And can you also talk about in fluid handling, what percent of your overall end market mix in that business do you think is moving in the right direction for you right now?

I think I'm pretty comfortable it's pretty much across the board. I'm feeling pretty good about the chemical processing industry, we're seeing project activity in Asia and Middle East, although very price sensitive.

We're seeing good study MRO business in western Europe, and here that's both in the chemical process industry, pulp and paper is in good shape, we're seeing good ethanol activity here in the states in that market.

We certainly have good shares there. Power business has clearly picked back up in Asia. I see, when I look at our end markets and fluid handling, there's no reason for us not to have several years here of good end market.

And back to engineered materials, can you talk about what you've saw in the first quarter and what your outlook is for the building products piece of the business?

We saw increased orders. All the products, all markets served were up quarter-to-quarter and -- going to be relatively stable, I would guess.

Okay. And then last.

Hello?

The line disconnected. There appear to be no further questions.

Let give Matt a second to see if he dials back in. Otherwise are there any other questions?

Not at this time.

Everyone, thank you very much for your time and we will look toward to speaking with you. Okay, we'll look forward to finishing up with Matt later. Everyone, thank you very much for your time and we will look toward to speaking with you. Please feel free to call me directly if you any other questions. and have a great day.

That does conclude today's conference call. Thank you for your participation and you may disconnect at this time.