Carlisle Companies Inc (CSL) 2004 Q2 法說會逐字稿

Excuse me everyone we will now begin the conference, all lines will be muted during the broadcast, if you should need assistance during the call please pick up your handsets and press star-zero a coordinator will be standing by to assist you.

There will be a question and answer session following the presentation, instructions for asking a question will be given at that time.

As a reminder this conference is being recorded, I would now like to introduce Mr. Ron Weinberg.

Thank you very much and Good afternoon everybody and thank you for joining us.

This call is to discuss our 2004 second quarter results which as many of you know we released this morning.

Conducting the call with me today are of course, myself, Joe Levendosky, Vice president and CFO of the company and Tom Gilbrad, VP of finance.

During our call we will review the financials that we released this morning and give you an operating report on the business and after that we will open the calls to questions.

I'd like to remind everyone on the call that statements made during this call which are not historical facts may be considered forward-looking statements.

Forward - looking statements involve risks and uncertainties that could cause events or results to differ materially from those expressed or implied.

For further information concerning issues that could materially affect financial performance related to forward looking statements please refer to Hawk's quarterly earnings releases and periodic filings with SEC.

Now I will get into the substance of what we want to talk to you about.

As those of you have seen the release have noted we are very pleased with what is an excellent and a historically record quarter.

Our sales were $63.4m for the quarter and that's up 21% from the year ago.

The other factor that we want to note in that is that all of our operating segments were up in sales both friction and racing and precision components were up.

The other thing that happened is that we benefited from very strong markets and if you look at some of our larger markets to touch on a few, construction which is our largest right now was up 43% versus last year, from the second quarter of last year.

Now as in most of the things that's a mixture, of course were helped by a good economy but it is also a mixture of new product introductions that we have brought online.

We have added new products with some technology involved particularly in the construction area and that's contributed very strongly at 43%.

Our agriculture is strong were up 32% of sales there.

Heavy truck where were make components for clutches for Class A trucks were very strong in that area up 31% and aero space which has been our lagger over the couple 8 or 10 quarters show little sign of daylight it was up 4% for the quarter so its beginning to come to life a little bit, I don't know whether that's a trend that's going to strengthen but it sure was good to see for this quarter.

And then some other strengths were in our racing business and in our pumps and motor market segments and we did very well there, power controls where we make precision components for that area was up 65%, it's a smaller market but it was up.

And automotive was down in large part because we sold the automotive stamping part a year ago but some of our other automotive areas have shown signs of strengths as we added some powder metal business there.

So obviously the markets are very strong couple of other things I want to comment on is that we continue to benefit from our same overriding themes that we have worked on for probably a year and a half or two years.

Globalization is very important to us we have two operating plants in China now, one in friction materials and the other in powdered metal and that gives us a very very strong presence that a lot of American companies are suffering from or they just don't have that option to offer there customers.

Even in cases where we don't manufacture everything over there for a customer to understand that we got those options as part of our tool box, very important.

We continue to push ahead relentlessly on technology , new ideas, new developments both in friction and in powdered metal and those things are playing an important role of what were doing now and as we look over the horizon to '05 that's where a lot of new things will come from.

Third theme I want to mention is that we are continuing to emphasize the after market part of our business, it's the part were there is opportunity where there is growth and given the credentials that we have got as an OE manufacturer the technology that I just talked about, the after market is going to continue to be more and more important for us and were internally readying ourselves to build up that segment of the business.

Another comment I'll make is that we have talked for the past several quarters about reviewing the strategic alternatives for our text racing business.

We have decided based on the very nice results were getting from that business and the fact that we really just did not think the offer reflected the opportunity of the offers to buy it which there were some reflected the opportunity we see in the business were going to keep it.

So its very much a can be tucked into and is a part of our racing group which goes with Quarter Master, it goes with the racing brake pads that we make, there part of Wellman but they still have a market fit with cash, so were going to continue to keep it and develop that business they came out with a great new transmission this year and its selling well.

So what we have now is that the sales were up in all three of our divisions as were the operating income and friction it was up 21%, this is operating income and Precision Components it was up 100%.

Now there's a story there I want to comment on too because when you look at last year '03 compared to '02 in Precision Components they were the laagered .

You may recall that we talked a lot about the efforts that they were putting into development of technology of Precision Components and while our eyes were focused on that operating income did not respond as well in'03.

The story is playing out just like we talked about, our new management has been focusing on the short term everyday results of that business, not to the detriment of this strategy were installing the long range strategic things we talked about and Precision Components for the second quarter was up 100% in terms of operating income, so that story is beginning to play out nicely.

Racing while it's much smaller was up 200%, a lot of it because of the new product that I mentioned.

So it was a good story all the way around.

Let me touch a little bit on our guidance and then I will turn this over to Joe Levanduski in a minute.

As we mentioned in our release our guidance for Q3 is for approximately an 8 %-10% increase in revenues and if you do your comparisons, which some of you either already have and I am sure the rest of you will, that reflects a slightly lower pace that we were running at in the first two quarters and here's the logic behind that.

Point number one of that logic is that traditionally our third and fourth quarters are a little bit lower than the first two something like 8% sometimes, now this is a little bit further down and we are A. being cautious as is traditional and we might well get a fortunate if the economy stays this strong the downturns won't be that much and we are really just exhibiting I think , maybe extra caution if you will lots of threats of terrorism around and all that sort of thing so we are sort of playing a little close to the vest and that's why the guidance is where it is.

In the year as a whole we have continued to talk about our guidance of 10-13% on the sales line we're sticking with that a lot of it being the same reasons, I mean if you just extrapolate the first two quarters that leads you to something higher than a 10-13% above last year but similar things.

Seasonality in the fourth quarter plant closings on account of European shutdown in the Summer, so we are being cautious there frankly hoping and expecting the strong economy will continue and there will be less shut downs.

A similar thing to the operating income we are still forecasting our guiding that to be e up 55% and if the sales are a little built slower in the last two quarter than they are the first two then we put this in a range, we think that we are every comfortable we can meet.

So with that having been said I am going to turn this over to Joe Levanduski, who will run through some of the income statement in more detail for you.

Thank you Ron.

I would like to start by looking at the gross profit line our second quarter gross profit finished at 24.9% up slightly from 24.6%.

The company benefited from the higher volumes that we experienced in the second quarter an year to date but those benefits were diluted by the impact of the surcharges that we have experienced in several of our raw materials, especially steel and the operational disruptions that are being affected by sporadic delivery schedules of that steel and customer priority shifting which has caused some drop in orders to affect the production efficiencies out on the shop floor.

Moving down the income statement line selling technical and administrative expenses was $9.3m or roughly $1.1m higher than the second quarter of last year.

This relates more to new product introduction, engineering support additional marketing expenses that have been directly attributable to the new program that we just announced our national rollout of our performance break line with our Pep Boys retail chain.

There is also some additional benefit costs associated with the fact that the operating results are better and certain incentive compensation programs are linked to operational performance, so the incentive compensation costs are higher this year than last year.

Moving down the line interest expense is down slightly from last year finishing at $2.5m from $2.7m in the second quarter of the prior year.

Now the final point I would like to make on the income statement is the income tax provision line.

As you may have noticed by reading the press release we recorded an effected tax rate for the second quarter off 55.8% which is astoundingly high, I would like to take a step back and explain the reasons for that.

In the first quarter when we calculated our effective tax rate we did so on full year basis and as you may recall our guidance as we exited the first quarter was for a 10-13% or 10-15% growth rate on the operating income line.

Very conservative outlook and based upon that we had an effective worldwide tax rate of up to 39-40%.

That is what was reflected in our first quarter operational results.

In the second quarter in July we put out a revised guidance that shifted to 10-13% of range up to 55 or 60%.

Our positive outlook in the change in the mix between our foreign locations and the domestic locations forced the recalculation of our effective tax rate on a world wide basis to be more in the neighborhood of 48% so the, effectively what we have done is year to date for the end of June we have calculated the tax provision at 48% rate the fact that we had a lower effective tax rate in the first quarter has forced a "q" up if you will of the tax division line effectively creating the 55.8% effective tax rate that you see in the second quarter.

As this has been a full year of tax rate we anticipate 48% to be the rate to be used in certain (inaudible) quarters however I want to make sure everyone is aware that the company is actively pursuing strategies to reduce that effective tax rate but for the time being we are going to take more of a conservative approach and use the 48% rate ongoing.

The bottom-line earnings per share, 16cents per share on a fully diluted basis compared to 5 cents per share in the prior year.

That included the discontinued operations of last year of 9cents of a loss and thanks to the efforts of many individuals at the motor division, the discontinued operations net of taxes is basically a break even a zero per share basis, so tremendous turn around in a one year time.

Earnings from continuing operations finished at 15cents share compared to 14cents per share last year.

Moving on to the balance sheet I just want to touch up on a few highlights.

The first due to the higher volumes that we have experienced and the need to stock up as much on the deal from a raw materials stand point and also on somewhat advanced preparation for our relocation project that is ongoing as we look to move into facility in Tulsa, Oklahoma that is currently being constructed, our accounts receivable and inventories have both increased since the end of last year.

Our accounts receivable finished at $42m, inventory is at $37.9m.

Our inventory turns have actually improved since the end of the first quarter, so although the volume in inventory levels have increased our turns are improving.

Property plant and equipment, we finished the second quarter with capital spending of $4.5m for the quarter, years to date we are at $7.4m.

We're still on pace based upon our earlier guidance of 15m of full year capital spending we are pretty much right on track with that capital plan.

Down below into the liability section on thing I want to touch up on is the bank facility.

We finished the quarter at roughly $29m of outstandings under the bank facility that's up roughly 5m from the end of the year but it is actually down roughly $2.5 m since the end of the first quarter.

So we constantly are looking for ways of improving our cash flow, and the ability under the bank's facility became strong, at the end of the second quarter we had approximately $17m to $18m of availability under the bank facilities to utilize.

Our long term debt has decreased slightly from $58 to $58.4 at the end of the year.

Share holder's equity, due to the benefit of our improved earnings and to a lesser extent the foreign exchange currency translation finished at $44.8m.

With that I will turn it back to Ron for concluding remarks.

Okay, at this point we are happy to take questions from any of the listeners, so operator if you can queue that up for us.

We will now begin the question and answer section of the conference.

If you would like to answer a question, simply press star and one on your touch tone phone.

If you are in the queue and no longer wish to ask your question, press star, then nine.

The first question comes from Saul Ludwig of Key McDonald.

Hey good afternoon guys

Hey Saul.

How are you?

You know - just focusing on operating income, in the first quarter your revenues were up $5.6m, year over year and you brought an incremental at $2m down to operating income or sort of an incremental margin contribution of 35%.

Now in the second quarter, your revenues are up a little over $11m and you brought only $1.6m incremental to the bottom line in terms of additional operating income, or an incremental margin contribution of only 14%, which is much less than the 35% that you had in the first quarter.

I know you talked about the steel surcharges and other charges that impact you on the cost side, but going out for the third and fourth quarters, what can you do to mitigate those and bring a higher percentage of you incremental sale down to the bottom line as you did in the first quarter?

Well, here are the things we are doing.

You asked the question in a good way Saul, because we know the actions we are taking, we have talked before about the surcharges and they continue to be more persistent in their arrival.

I guess that is a way to put it and we have been working with them and we are working to get them under control.

As you can well imagine, there was a lag when we get them as we start pushing the through to our customers, everybody fights for a time lag and so some of that, things that we are doing are starting to take effect ---and on a delayed basis.

So that is part of one of the things we are doing, we are still working with that and all of those issues.

The other thing that was happening is, when you encounter shortages like we have in the last few months, it is not the things that are completely unavailable but, the idea of a just in time factory that is running and the raw material rise just when you want it to, is not reality right now and so when you have that happen, delays in receipts, you have disruptions to your production schedule where you are running the plant with what you can make, then the stuff that you need comes in four days later and you shifted your production, so it involves extra set-up times, involves overtimes, because we have made a strategic decision that we will do what it takes to keep our big OE customers happy.

If not happy, at least satisfied.

So we are working with all of those things, we are very intense and re programming, how we schedule, how we work with our vendors and all of that to try to minimize the disruptions and as time goes on these things do get a little more fluid, you know one of the things they day is the best high prices is high prices, because it tends to balance and clear the market if you will and so I think these things are beginning to get better.

Not making any guidance on that issue exactly, we are not at all happy about the lack of pull through be cause we did a great job with sales, we benefited from it, we still have not hit our guidance, but we are working hard on the issue you just touched on.

Well having said all that and we saw the much lower retention of profits in the second quarter, do you think in the third quarter, if you have a dollar increase in revenue, you think you will do better or worse than the 14% variable contribution that you got in the second quarter based on all the things that you are doing, coupled with the continued pressured from your suppliers and sticking you with surcharges.

And what do you think the bottom line is of all the puts and pegs, does the variable margin get better or get worse.

I think we are going to get a little bit better, but I don't want to put any big percentages on that, I think the thing we are doing are going to help and we will start doing better on a variable margin basis, by two points but I don't want to (inaudible) precise?

You know, like you die for these higher sales and it is sort of a sad to see you know - a lot of that eaten away with the fox (ph) that your suppliers are sticking to you, but you are not able to stick back to your customers.

But we're pushing hard on that score.

I don't want to give the impression that we are not ale to, but there are always delays, you know, and so when you go to a customer with that they jack, the negotiate, that goes on for a while and then they say aright can we start it, you know September 1st.

That is really what happens and so we are working on those things and I couldn't agree wit you more, every division is working on making sure and doing our best when we have a dollar of sales and we keep this much of it as you can and you may remember that we worked a lot with keeping our eye on the theoretical pull through which is like we had in the first quarter, it is like 30% to 35% that is what we should be able to obtain, but these have been tough times on production.

And one other question here, Okay Ill ask it later, thank you.

Okay, next question

The next question comes from Evan Greenburgh of Meddlebrook Capital (ph)

Hi Evan, how are you?

Hi I'm sorry about that.

I just wanted to - by the way thank you for hosting me Joe and Ron, really appreciate it

You are very welcome

This tax rate issue, I tend to normalize the numbers and what I did was I took out the restructuring charge which I guess was the move of facility from Oklahoma?

That was some of the upfront planning costs, architectural fees and legal fees - that kind of thing yeah.

So I factored that out normalized the tax rate and came up - by normalizing the tax rate at about 39% which is normally what corporations do, came up with a number that sounded more like what the analysts were at which was (inaudible).

It is actually a little higher than 23, is that the right thing to do, do you think that is the proper way to look at it?

The challenging thing you would have is analyzing or smoothing out that extra tax rate, you know, right now we're at 48%, I would love to wave a magic wand and make it 40% but its going to take a lot of hard work to get to that level, that's what we're focused on, we're looking at trying to reduce that 48% rate, but -

Has that been the normal rate in the past, that 48%?

No, it has not

Was there a reversal of credit?

No it wasn't a reverse of credit, and this is a - I almost hesitate to get on this call, not that its any secret, but its tedious, but let me try and explain.

We make a provision - or the accountants make us make a provision for taxes based on the estimated results for the year, and as we've upped our estimate those results are higher as you would imagine as we've changed our guidance.

There's an interplay between foreign and domestic tax rates and there's an interplay between schedule M [ph] items, and so it produces some bizarre results.

We really are doing a deep dive ourselves into this, because it's the first time it's happened to us like this.

Yeah, cause I - its really - its really not fair when, you know - to you or the shareholders when you see a number like that, and then - I don't - did you know this was going to happen when you made the original pre-announcement?

The original - no

No, you - this is just something that came up very recently I guess.

Yeah, and its very much, you know audited and, you know, worked out with the accountants as you would imagine, in other words, while they will say the provision is ours, it's still very much looked at and analyzed and we really are diving right into it.

I think at this point, we're aware of what you're saying, business is good enough where we're making our numbers, you know, even giving effect of 48% provision, don't lower it yet, you know.

No, that's fine, if you're making the numbers effect at 48%, that means your operating income is going to be higher than you would even state it.

I'm reading between the lines -

We're examining every jurisdiction, I mean, you know, we do business all over the world, we pay taxes in Italy, we pay taxes in the States and of course you've got the regular old American taxes, we're looking at all of them.

Thanks a lot, good job.

Excellent job.

Thank you.

The next question is from Bruce Geller of BGHM

Hey, good afternoon guys.

Hi, how are you?

Good.

You point out in the press release and the conference call record sales and I congratulate you for that.

When I look back at your history the last time you were running at record sales levels, you were running operating margins anywhere between 14% and 18%, really, you know, really high levels, symbolic of very high quality business and you know, I wonder why with record sales you're really struggling to get back near those levels.

I'm wondering what structurally has changed in your business that's preventing you from getting there.

I think the answer really is a combination of some of the things we talked about in couple of the questions earlier.

I'm not sure anything structurally has changed except that, as you well know, we have the surcharge issue, prices are all in you know, dislocation right now, and we have not been squeamish about building up ST&A.

As frugal as we were in 01 and 02 and maybe part of 03, as we could see this ramp up coming, I mean business didn't suddenly just get good in a week or two, we have left the divisions engineers and prepare themselves for some of this growth, we think its necessary right now to get the production out and we look at it as part of our sales and product development and sales engineering effort going forward.

Bruce, the other thing I want to point out is, you know, the historical break that you quoted there, you know, the company was a little bit different in terms of its complexion, the markets that were more dominant back then were more heavily into the Aerospace side, which carried better margins for us, in today's day even though Aerospace is up slightly, its till down significantly from those prior years.

So there is a structural difference between today and back then in the mix of your business.

Yeah, proportionally.

I mean when do - when is the back then, you mean four or five years ago?

97 -98

Yeah, well I think that's a fair statement.

Aircraft - as we've grown it hasn't been in the aircraft sector, and there's been some shrinkage certainly in percentage wise in that part of the business.

How come you guys have not been able to get through surcharges of your own, most of the manufacturers I follow that have been squeezed by some surcharges on their end have been able to get the bulk of it through.

I think people are a little bit more understanding these days of what's going on in some of the raw material markets and the customers have been a little bit more accepting, so how come you think that you guys have had more trouble getting some of your own surcharges through.

I think it's more of a delay, I don't know any reason we should have more trouble.

We're working on it, we're getting in many, many places.

I think we've only had a few customers that really pushed back hard at us and I think it's happening.

That's why I think we will have better pull through in the third and fourth quarter than a 14% off of a sales increase.

Okay.

And could you talk a little bit about the prospects for restructuring of your debt.

I don't remember off-hand all the exact terms, but my recollection is that there would be the potential some time next year of restructuring some high cost debt and can you give us some of the things that you're looking at in that regard and what it might mean for earnings potentially.

Yeah, as you know - what we have to refresh your memory, we've got a high yield debt that's got approximately a 12% coupon, its about $67 -66m, $67m in principle amount.

The maturity on that is December '03.

We've been watching that - I'm sorry December of '06.

The maturity is that date, above that is bank debt which has got floating right attached to it led by group with JC Morgan as its lead - JP Morgan.

We've been looking at reissuing the high yield debt for a number of months now.

We held off thankfully because of a pre-payment penalty, I mean we were aware of how great the markets were earlier this year.

We're aware of how good they are right now again, and the pre-payment penalty burns off in December.

So we're watching the market very carefully for what our opportunities might be and what's the best kind of structure to put on it.

In terms of what it would mean, I don't want to time forecast anything right now, because it will mean will be what the market is, I mean our rate will surely go down, whether its 50 basis points or 300 basis points, you know, I don't know, but we'll get it done and we're watching it carefully and we've had a number of investment bankers interested in helping us with the project.

Thank you.

The next question is from Eli Lovgarden of JB & Howard.

Good morning or good afternoon, depending on which part of the world you're in these days I guess.

Ron Weinberg, Joe Levanduski: Hi Eli, How are you?

A couple of questions just to quantify - I'm going to put some quantifying (inaudible) because I have had trouble with some of the numbers.

Based on your comment it looks like the pull through, the surcharges despite the restructuring cost you about 2, $2.5m in operating income in the quarter is that a fair measure?

Is that a question?

Yes.

I'll have to look back at the numbers.

Ask your next one while we take a look at that.

Well my question is, the follow up to that piece is given the pricing that you should have instituted all along how long do you think it would be before you're basically neutral on these issues?

Can you be neutral by the end of this year?

That's a good question.

I think that we will have gotten price increases by the end of this year, we'll do that much.

Now everything in the lack of pull through wasn't just surcharge prices.

Production just (inaudible) location and that kind of thing.

You know when you run a plant on a Sunday that's not a chief day to be doing things.

Well I understand that but again I guess what a lot of companies are beginning to figure out is that if you do an special then maybe you ought to get paid for it occasionally.

Well we're working with those things.

I mean we're doing all the shop floor stuff and we're getting a little but more rigorous in how we schedule.

And all the things that you would mention that your people are doing we're aware of and we work on it.

Which is why is it possible for your to be basically neutral on these items in other words have achieved enough with a supply chain efficiencies or price increases that by the end of the year you should have had neutral on this, assuming that they would have change very much from now.

By neutral do you mean back to where we're pulling some 30% of the sale --.

A little bit closer to that.

You're not going to sit there and you can't blame the surcharges on at least what the current ones that exist.

Yes I think - I'm not sure how to quantify what you're saying but I do - by the end of the year we will have done a lot more on the surcharge issue passing it on I can assure that.

And is there a way for you to change the way you give guidance?

I know you love giving it on the basis of operating income and stuff.

But we don't -- or even some of the sales numbers, we don't have all this historical numbers that you refer to, to use a basis.

So it's nice to say a 55, to 65% but I don't know under what basis or what number.

That is the 55 to 60% is operating earnings above '03.

Yes but you stated a whole bunch of numbers last year, you know with the discontinued operations, the numbers do move around.

We can give you that, that's public knowledge; we'll have to check on it.

But --.

Do (inaudible) youhave trouble trying to figure out exactly what the basis is.

Is there a way to translate it down into an EPS guidance or something more meaningful that you give us - I don't know what restructuring numbers you do put in or don't put in it and we start to get into a problem of not knowing how to translate your guidance into reality.

In future guidance then we will be putting out more in third quarter shortly, we will take that under advisement.

We'll provide that additional information such as the restated numbers since that does put the market at a disadvantage.

From an EPS stand point once you get to the operating income our, borrowing any changes to our set structure, our interest expense is then normally in the $5m range on an annualized basis (indiscernible).

And our effective tax rate is now somewhat of a known item so I think it would be very easy for you to get to --.

No I understand, I can do the mathematics is just the base keeps moving on me.

We're trying to be more precise on that sometime.

And could you talk about how much exactly restructuring you saw or didn't see in the quarter and how much were you are expecting next quarter in the next two quarters and is that a part of your guidance or not part of your guidance?

Restructuring are Hurricane in Oklahoma.

The guidance includes the impact as we are providing guidance on GAAP basis so it does include the restructuring costs in this quarter was $221m.

We have estimated about $6000

$221m was an ideal number.

$221m nothing else that said

There is - as far as you know restructuring costs that are upping cost of sales you cannot put that out separately on the face value of the income statement.

They are none in the second quarter.

As we get further into the year they probably will be some costs that will affect cost of goods sold.

We won't be able show that on the face broken out separately but we will disclose it in footnote disclosures and press releases.

Now what is included in the guidance for the third and forth quarter in restructuring?

We haven't provided the specific guidance on the third quarter we'll do so when we provide the guidance of the - in the near term we'll be providing third quarter guidance.

On a full year basis we anticipate approximately $2.1m of possible sales or in that ball park range.

How much of it have you done year to date?

$221, 000.

We still have basically $2m for the next two quarters.

Approximately yes.

Okay thank you.

Alright thank you.

The next question is from Mark Coughlin of Lazarus.

Hi it's Mark Coughlin with Garth Bhears, how are you?

Hi Mark how are you?

Okay I had a question just about the asset side, inventory, the receivables I noticed they are up.

I just wondering is that more from unit volume or just basically the pricing that you're talking about here I'm trying to catch up on?

It's more volume related than it is the surcharge impact.

Surcharges did influence the top line but not to a very great extent.

And in addition I noticed that the provision component numbers, I thought were clearly strong.

Do you see that - what I'm getting at is have you seen more pressure in pricing in the (indiscernible) product area.

And with the expansion in China the - I'm just curious which business you might see growing more quickly friction or precision?

Maybe I'm not phrasing it properly friction versus let's say the metal molding powders.

Yes I mean I understand what you're talking about.

I think they really - the relative growth rates are guided by probably something different from the market.

It's probably governed by the managements of - you know kind of getting launched.

Friction is probably a year and a half to two years ahead than where powdered metal is in terms of a lot of their initiatives, new products and new sales efforts.

And their plan in China is about two years ahead of where the powdered metal business is.

So we're - our powdered metal business factory was just opened in November.

So what you've got is a little bit of a time edge on the friction side but our powderer metal business is smaller so we give it sale increase and we work on percentage difference.

And I think you're going to see it kind of catching up in terms of growth rate which is why I pointed out that last year where powdered metal was (indiscernible) it's posting nicer results this year.

Thanks very much.

Again if you would like to ask a question simply press star then one.

There are no further questions at this time.

Thank you very much everybody, we always looks forward to talking to you and we'll talk to you next quarter.