Donaldson Company Inc (DCI) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the Donaldson Q4 fiscal 2010 webcast conference call.

During today's presentation all parties will be in a listen-only mode.

Following the presentation the conference will be open for questions.

(Operator Instructions) This conference is being recorded today, Tuesday, August 31, 2010.

I would now like to turn the conference over to Rich Sheffer.

Please go ahead, sir.

Thank you, Brandy, and welcome, everyone, to Donaldson's fiscal 2010 fourth quarter conference call and webcast.

I am Rich Sheffer, Donaldson's Assistant Treasurer and Director of Investor Relations.

Following my brief introduction Tom VerHage, our Vice President and CFO, will give us a brief review of our record fourth quarter.

Tom will then turn the call over to Bill Cook, our Chairman, President, and CEO, will discuss our initial outlook for fiscal 2011 and the business conditions shaping that view.

Following Bill's remarks we'll open up the call to questions.

Next I need to review our Safe Harbor Statement with you.

Any statements in this call regarding our business that are not historical facts are forward-looking statements and our future results could differ materially from the forward-looking statements made today.

Our actual results may be affected by many important factors including risks and uncertainties identified in our press release and in our SEC filings.

One last item before I turn the call over to Tom.

We will be hosting an analyst day on September 15 at our headquarters in Bloomington, Minnesota.

We have sent out email invitations to many of you on the call, but if you didn't receive an invitation directly and would like to attend, please call me at 952-887-3753 so we can get you registered.

If you won't be able to attend, we will be webcasting the presentations in Q&A beginning at noon Central Time on the 15.

Now I would like to turn the call over to Tom VerHage.

Tom.

Thanks, Rich.

Good morning, everyone.

Yesterday we released our fourth quarter results after the market closed and provided our initial guidance for fiscal 2011.

Sales increased 22% from last year's weak fourth quarter as our early and mid-cycle businesses posted year-over-year increases.

Our sales have increased sequentially each quarter this year and were up 4% over the third quarter.

Bill will discuss this further in a few minutes.

Our gross margin was a record 36.3% in the quarter.

A year-over-year increase of 350 basis points from 32.8% last year.

Better absorption of fixed costs due to improved volumes in our plants increased gross margin by approximately 2 percentage points, while our ongoing continuous improvement initiatives also increased gross margin by approximately 2 percentage points.

For the fifth consecutive quarter replacement filter sales were over 50% of our total sales.

This quarter replacement sales were 53% of total sales despite rebounds in many of our first fit businesses.

We have begun to experience purchase material commodity cost increases.

So far we are containing the impact of these increases through our continuous improvement initiatives, but we do expect raw material costs and especially steel, which is our largest purchased material, to increase moderately early in our fiscal 2011 as we have negotiated new contracts that coincide with the beginning of our fiscal year.

While spot steel prices have recently started to decline, our prices are approximately 20% higher than a year ago, in part due to the timing of the expiration of our contracts at our fiscal year end.

Operating expenses as percent of sales fell to 21.8%, compared to 24.6% last year.

Last year's operating expenses included $3.5 million in restructuring charges while there were none in this year's fourth quarter.

In addition, this year's fourth quarter incentive compensation was approximately $4.6 million higher than last year.

A combination of our record gross margin and continued operating expense controls delivered an operating margin of 14.5% in the quarter.

Looking at our operating margin forecast for 2011, we expect an increase in our purchased raw material costs and a less favorable sales mix to reduce our gross margin.

We also plan to make several key operating investments totaling approximately $18 million, which will support our strategic growth plans.

Bill will provide more details in these investments in a few minutes.

Offsetting the incremental costs of these investments will be the absence of $10 million of restructuring costs we took in fiscal 2010 and the benefit of our ongoing continuous improvement initiatives.

In total, we expect our operating margin to be between 12.5% and 13.5%.

Our effective tax rate was 29.5% in the quarter versus 26% last year.

The year-over-year increase was due to a change in the geographic mix of earnings compared to last year.

Based on our projected global mix of earnings, we expect our tax rate to be between 27% and 30% fiscal 2011.

Our fourth quarter CapEx came in at $15.4 million.

We approved increased spending for strategic projects during the quarter such as tooling for new product platforms and capital investments that allow us to achieve cost reductions.

Our fiscal 2011 CapEx guidance is between $70 million and $80 million, and we expect depreciation and amortization to be in the range of $60 million to $64 million.

Free cash flow was $39 million this quarter.

Working capital increased in the quarter mainly from the continued sales growth as our DSO was comparable with last quarter and inventory turns improved slightly.

We expect free cash flow to be $160 million to $180 million next year.

At the end of the quarter our debt-to-cap ratio was 29.5%.

Debt to EBITDA was 1.0.

Debt-to-cap increased from Q3 due to spending $43 million for our share repurchases in the quarter, which used our available credit lines, but our debt to EBITDA remained unchanged from last year.

More importantly, both are well within the financial covenants in our various debt agreements.

We are expecting interest expense in fiscal 2011 to be between $12 million and $14 million.

Our balance sheet remained strong with $232 million in cash.

So, with that I will pass it over to Bill who will provide more background on our business conditions and additional details in our outlook for fiscal 2011.

Bill?

Thanks, Tom, and good morning, everyone.

I am also very pleased to be discussing the results of a very good quarter.

First to recap a few of our fourth quarter highlights, we had solid top line growth with sales up 22% year-over-year and probably more importantly also up 4% sequentially from our third quarter.

Our fourth quarter operating income was up 115% from last year resulting in an operating margin of 14.5%.

The combination of our solid revenue growth and record operating margin performance delivered a net income increase of 117% and EPS record of $0.65.

Now, stepping back from what happened in the quarter, there were two major themes to our fiscal 2010.

The first is that we transitioned from the deep recessionary conditions we are in a year ago to today where many of our businesses are in various stages of recovery.

While there is still a lot of uncertainty in the global economy, we believe that these positive trends will carry us into fiscal 2011.

The second major theme has been our strong operating leverage and performance.

We completed our planned restructuring activities during our third quarter which we had begun the previous year.

These actions allowed us not only to reduce our cost space to better match our current sales volumes, but also to improve the efficiency and effectiveness of our operations.

In addition, it may be even more importantly for our future was our relentless focus on our continuous improvement projects.

These projects contributed over $20 million in annualized cost reductions during the year.

These initiatives are the ongoing work of our people all around the world who are tasked to find ways to reduce the costs in our products and processes through our Donaldson production system, which uses a combination of tools including lean and Six Sigma.

As I mentioned, this is ongoing work, we establish new stretch targets each and every year.

These continuous improvement initiatives are key to our ability to meet the cost needs of our customers while dealing with the volatility and increases in many of our material and labor input costs.

Maybe needless to say, but I will anyway, I am very proud of our performance and very thankful for the outstanding efforts of my fellow employees who delivered these wonderful results.

Now I will talk about a few of the details in our fourth quarter results.

We saw a broad based strength as most of our business units reported higher local currency sales as compared to last year.

Starting first with our Engine Products segment, local currency sales increased 37% over the previous year.

In this segment our aftermarket or replacement filter business was up 40% as utilization rates of existing truck and off road equipment fleets continued to improve.

We also continued to aggressively add distribution through the recession and believe that we have increased our market share as a result.

Our two engine OEM businesses were also both up strongly in local currency terms, our off-road products business was up 59% as both the construction and mining markets have rebounded.

Our on-road product sales were up 65% as the North American heavy truck build rates schedule has begun to rebound and our Japanese sales nearly doubled due to strong export demand.

Now, switching to our Industrial Products segment, local currency sales increased 9%, sales of our special application products grew about 9% as both our disk drive filter and membrane product lines had good quarters.

Sales of our industrial filtration solutions business increased 15% as sales of replacement filters were strong and sales of new dust collection equipment has begun to pick up.

Now, looking at our sales by region, we also see evidence of how broad based our sales increase in the quarter was.

Local currency, our sales in the Americas were up 28%, in Europe 25%, and in Asia Pacific 18%.

When we look at our sales growth specifically in the brick countries, sales in the quarter were up 25%.

I would like to switch gears and talk about our fiscal 2011 outlook.

First we expect our full year sales to be approximately $2 billion or an increase of between 4% and 10% over this past year.

Our engine segment sales are forecast to be up between 6% and 11%, as we expect sales to our engine OEM customers to continue improving as their production rates increase to match growing end-user demand.

We also expect our aftermarket sales to remain strong as utilization rates for heavy trucks and off-road equipment continue to improve.

In our Industrial segment we're forecasting sales to increase between 3% and 8% in fiscal 2011, expect within that segment our industrial filtration solutions sales to be up between 3% and 8% as we expect demand for new industrial filtration equipment, or dust collectors, to continue improving as capital spending increases.

We also anticipate our replacement filter sales continuing to grow.

In our gas turbine business we expect sales to be stable as it now appears that the large power generation market appears to have bottomed out.

Finally, within special applications forecasting sales to be up between 6% and 11% as the end markets for both our disk drive filters and membrane products are expected to continue growing.

For the Company, we're expecting our full year operating margin to be between 12.5% and 13.5%.

As Tom mentioned earlier, we are expecting higher raw material costs in fiscal 2011.

In addition, as Tom mentioned, we're planning to significantly increase the level of reinvestment in our business to support our strategic growth plans.

During the past year we completed a complete update to our strategic plan and our growth goals for the future.

Our new strategic plan is the road map for where we will grow and how we will achieve our goals.

Our updated sales goals are to achieve a sales target of $3 billion in fiscal 2016 and then $5 billion in fiscal 2021.

These represent an average annual growth rate of between 9% and 10%, which is about what we did over the past 20 years prior to recession though I believe that while it is ambitious, it certainly is attainable as we have done it before.

In order to accomplish our long-term growth objectives, we're also planning very deliberate investments, both operating expenses and CapEx beginning in fiscal 2011.

Some of our key investment initiatives include adding resources for our growth plans in Asia, Europe, and Latin America, very specific and significant growth initiative in China.

We also plan to increase our technology and product development investments for liquid filtration and finally we've recently initiated a significant global supply chain project to increase our logistics effectiveness around the world.

These incremental growth investments will increase our operating expenses by about $18 million in fiscal 2011.

Another indicator of how we're investing for our future is that our global R&D spend will increase about 12% in fiscal 2011 to $50 million.

In addition to our operating expense investments, our capital spending budget is increasing by about 75% to approximately $75 million for fiscal 2011.

Some of the major categories of CapEx for next year will include tooling for new products and programs, R&D related investments to support our growth plans, finally to support our continuous improvement initiatives.

Over the past few years we've highlighted one example, our PowerCore technology, of our goal to continually reinvest back into our business and introduce new break through filtration technologies.

We raised the bar again with the second generation of power cord, or G2.

This has already been very successful in the marketplace as we have won 26 platforms, 10 on-road and 16 off-road with G-2, and we have another 14 programs currently in the proposal stage with our customers.

On the industrial side of our business we also introduced our PowerCore technology and our Torit Dust Collection business.

We achieved a major milestone last week when we announced that we had now sold over 1,000 Torit PowerCore systems globally.

Our PowerCore technology and its new generations is just one example of our strategic plan.

Our objective is to grow sales and profits by continually reinvesting back into our business to allow us to offer new technologies which offer improved performance and better value to our customers.

Now to close and summarize, we had a record EPS quarter marked by solid top line growth and great operational execution.

While there is still a lot of uncertainty weighing down on the global economy, we are in a much different and much better place than we were this time last year.

Our plan going forward is to deliver a full year EPS record in fiscal 2011 based on sales growth and our continued strong operational execution.

That concludes our prepared remarks, Brandy, and now we would like to open it up to questions.

Thank you, sir.

We will now begin the question and answer session.

(Operator Instructions) Our first question comes from the line of Hamzah Mazari with Credit Suisse.

Please go ahead.

Good morning.

Thank you.

Could you comment a little more on the growth investments you're doing, specifically I know you quantified the expense, but specifically how should investors think about the benefits and the time frame of those benefits that we could expect to see from reinvesting back into the business through these growth investments and much higher CapEx.

As well as is it fair to say that given that you're spending more on growth now, mostly restructuring seems like it is behind you, is it fair to say that further upside is primarily going to be driven by volume and mix rather than the cost side of the business given the focus on reinvestment?

I am sorry, this is Bill.

I think I will start and maybe Tom has a few things he wants to add.

First on the restructuring, I think as Tom mentioned, we have completed all of our restructuring activities, and we talked about that last quarter in terms of how much it costs and I think we wrapped it up in the fourth quarter as well.

So, to some extent that's all behind us.

As I mentioned, we think we had to match our cost base with our revenues, but I think we also worked on improving our efficiency and effectiveness.

That's one of the reasons why you see the improvement in our operating margin in the year even including the restructuring.

This isn't the current year fiscal 2010.

Going forward what we've decided to do in conjunction with the update of our strategic plan is to set the goals, the $3 billion and $5 billion that I mentioned and figure out where we need to invest in our business in order to achieve those.

We're forecasting average annual revenue growth between 9% and 10%, which is a lot higher than either GDP or the filtration market is growing and the way we're going to do that -- one of the ways that we're going to do that is that it's a function of these investments in terms of new technologies, new products, investments in our global footprint, and so they're incremental investments over what we have been doing over the past couple of years in support of those growth plans.

Hamzah, this is Tom.

I will just add a couple of other comments.

I think you will see the growth in the future, particularly in EPS, coming from volume, and then as both Bill and I have mentioned, our continuous improvement programs.

And then just one comment on CapEx, you saw an increased guidance there, and I think that's a good thing.

These are good ROI projects.

There is tooling in there needed for new wins that we have already sold on the engine side.

So, the fact that CapEx is increasing and as you know we have plenty of balance sheet power to make these capital expenditures, all in all we think that's positive.

Thank you.

Just one last question.

On your guidance could you just help maybe add some more color on the less favorable sales mix that you talk about in your guidance?

It seems like replacement parts is still continuing to grow there, as well as does your guidance bake in the incremental margin flow through of the 30% that you quoted?

Does that bake that in for the entire year?

Hamzah, this is Tom.

Good question.

So, the mix issue is primarily OE and aftermarket and you're right, clearly aftermarket is going to continue to grow, but as we continue to come out of the recession here, OE should grow even faster.

So, that OE aftermarket mix will have a little bit of a dilutive impact on our margins going forward.

Then you had one other question?

Yes, just the other question is just does your guidance bake in incremental margins flowing through?

You said you see incremental margins of 30% on the first 10% of sales growth, and I am just curious whether the $2.28 to $2.48 guidance bakes in incremental margins?

Yes, Hamzah, Tom again.

You're right.

We did talk about 30% incremental margins that first 10% of sales growth, and we actually beat that target.

We think it was closer to the 40% range.

We have exceeded that 10% sales growth, so now our incremental margins will be pretty much normal, that we would expect would come with a little bit more leverage from the sales increase that we see next year.

On the incremental sales next year, maybe just on those incremental sales a couple of percentage points of incremental margin, but certainly nothing in the 30% range.

Great.

I appreciate it.

Thank you.

Thank you.

Our next question comes from the line of Charles Brady with BMO Capital Markets.

Please go ahead.

Thanks.

Good morning.

Just with respect to the revenue guidance of $2 billion, I guess as I look at the current quarterly run rate that you did, not only in Q3 but now in Q4 right around $500 million plus or minus, it looks as though sequentially that $2 billion seems a bit conservative in that you're not looking for any sequential improvement particularly in the back half of 2011, and I am just positioning that with your commentary on the investments that you're making given the underlying growth you're seeing and I am just trying to square that up as to where is the piece that I am not seeing here?

Charlie, this is Tom.

I will start off and then maybe Bill will have a comment, too, and Bill went through our specific product lines, but I think two thoughts.

One, be very cautious about taking our fourth quarter revenues and extrapolating those going forward because I think you're aware that we're quite seasonal in Q3 and Q4 are stronger generally than Q1 and, as I think you know, Q2 is generally quite weak.

And then maybe just one other point as you look at the sales guidance.

Given the FX rates that we provided, we expect that to be a negative 2% next year.

So, approximately $40 million to $45 million of loss there from FX.

Okay.

That's great.

Thanks.

Thank you.

Our next question comes from the line of Brian Drab with William Blair and Company.

Please go ahead.

Good morning, Bill.

Good morning, Tom.

Good morning, Brian.

Just first question on the goal of getting the $3 billion in revenue by 2016 and the 9% revenue growth, what contribution if any would you expect acquisitions to make toward that goal and also what kind of contribution would you expect from these new wins that you're seeing in the intake market?

Brian, it is Bill.

I will start off.

As we've talked about in the past, we're basically an organic growth story.

The majority of that 9% to 10% is going to be growing organically.

We look on average for maybe a couple of percent over time from acquisitions, but say 7% plus or minus from organic growth.

We think that's also organic growth as we have done over the past 20 plus year.

We have done about that, so again we think that we can continue to grow organically at about that rate.

The organic growth, not only do we see the opportunity, but we think it is also less risky and allows us to deliver more consistent financials, so it sort of fits in the whole model.

We see the opportunity to grow organically, and it also fits in our model of delivering consistent financial performance.

We will do acquisitions, the bolt-on types like we have in the past, the last one was through filter about two years ago, and something that's in a market space that we're typically already in that adds products, geographical reach, or some type of technology.

That would be our pattern going forward.

Okay.

Great.

One more question regarding the proportion of your sales that are related to the aftermarket.

It is clearly of course been above 50% in the last few quarters, and from your comments today it sounds like you're expecting as OEM catches up that that's going to affect that mix.

But you also have improved distribution and you're winning -- you mentioned winning some share.

If you take all of that into account, where do you think the proportion of your mix related aftermarket levels off?

Is it right around 50% or where is it going to end up?

Brian, this is Bill again.

We have talked in the past in analyst meetings around our goals would be to achieve more diversification on three dimensions, the split between NAFTA and international, between our engine and industrial and between first fit and replacement parts and our goal was to hit a 50/50 split on all three of those, and one of those, the international versus NAFTA, we have been beyond 50% for about a half a dozen years.

The other two including replacement parts, we have been in say the mid-40s up until this current year when replacement parts, as Tom mentioned, was up for the full year over 50%.

Some of that is related to what we talked about in terms of increasing our market share and replacement parts through new technologies like PowerCore and added distribution.

Some of that, as Tom mentioned, was sort of a cyclical anomaly because aftermarket came back sooner than the first fit, but as Tom mentioned, we're going to see a little bit of pressure if that's the right word in the first half of fiscal 2011 because our mid-cycle OEM first fit businesses have now been coming back.

So, they will grow we think a little bit faster than the aftermarket.

We want all parts of our Company to grow, so it is just a question of which rate and where they are in the cycle.

Longer term when we get to the $3 billion and $5 billion, we see aftermarket certainly being -- aftermarket or replacement filters being over 50% of our Company on an ongoing basis.

Significant opportunity to do that and with things like the distribution changes and the proprietary technologies, those are the keys to making that happen.

Thanks very much.

Thank you.

Our next question comes from the line of Laurence Alexander with Jefferies & Company.

Please go ahead.

Good morning.

First question is could you give any sense for or quantify the supply chain savings either dollar amounts or targets for working capital turns?

Laurence, this is Bill.

We haven't published what the benefits are yet.

We'll talk about that maybe in preparation for the analyst day.

It is a significant -- it's a major investment both in CapEx and operating expense and it is really key to both improving our distribution expenses as well as our working capital investments.

So, we presented it to our board in May to receive approval, and it has a very healthy ROI on it.

How should we think about the growth investments over time?

That is, are they going to be increasing steadily?

Are they going to be fixed as a percentage of sales?

Are they going to be lumpy?

Are they going to peak early and then come down and we see the benefits?

How do you see that playing out?

Laurence, Bill again.

I would say probably lumpy, based on the opportunities that we see and the resources that we can deploy.

We see actually more opportunity to do things than we have people to effectively manage all the good ideas that are out there, so we sort of pick and choose based on ROI, and the paybacks.

We spent a lot of effort in the last two years managing through this recession and we're very happy.

I am very happy with how we have done that.

We had a good performance in terms of our operating margin improvement in this past fiscal year, and now we think we're well positioned for growth.

So, we're back in growth mode and I would say probably maybe a little bit of pent-up demand both in the CapEx side and some of the operating expense improvements so that it will be maybe a little front end loaded in terms of being lumpy going into fiscal 2011.

Lastly, could you briefly address near term order trends?

There is a great deal of uncertainty about the direction of the US economy as we head into a seasonally weak period.

Any perspective you have on areas or end markets where you think there might be pent up demand that provides you some insulation?

I think we follow what is in the papers or the press, and as I think both Tom and I mentioned, there is obviously a lot of uncertainty in terms of the various indicators, but probably the best measure for us is what our customers are saying and what they're doing, and we have seen with recent public releases by Caterpillar or John Deere some pretty positive signals.

Cat when they announced their second quarter two months ago or a month or so ago, they increased their earnings and sales guidance, and so we're in daily contact with our major customers reviewing their orders and making sure that the demand that we're seeing is real and is being pulled through to the end markets, and we're pretty confident that it is, so that it is real and that there is not an anomaly there.

Now, there is a lot of uncertainty and there is a lot of press in talking about what could happen, but our visibility is probably just -- we take a look over the next 90 days and we baked what we see into the guidance that we just released.

So, that is our latest guidance based on what we see today.

Thank you.

Thank you.

Our next question comes from the line of Gary Farber with CL King and Associates.

Please go ahead.

Okay.

Thank you.

Good morning.

Just a question on your margin outlook.

Can you prioritize for us what are the key -- maybe in priority order whether it is the product mix, the steel, or your investments that are the major issues as far as the margin outlook, which would be number one, two and three in that scheme?

Gary, this is Tom.

The largest individual contributor would be commodity costs and I covered those in my prepared comments.

Just roughly, the commodity cost increases could be about 1.5% of sales, so that would be a negative.

Another from a margin standpoint would be this mix issue that we talked about a couple of times, the mix from aftermarket to an increasing percent of OE, and that's in that 1% range.

Okay.

And the other one.

And the third item are the operating investments that Bill mentioned of $18 million, and that's just -- you can do the math, but that's just a shade under 1%.

Those would be the three largest items impacting our margin next year.

Right, so you're talking almost like basically over 3 percentage points?

Yes, and then as you know, we're actually providing increased operating income percent guidance if you go to the midpoint of our range.

So, that's where our continuous improvement programs come into play and a little bit of leverage that I mentioned earlier, and maybe some steel indexing for the steel commodity price increases, and that sort of helps you with that bridge from where we are this year to the midpoint of our guidance for next year.

And for some reason if demand were to weaken, is the only thing that is variable -- is even this investment line, is that variable or that's a firm number basically?

Yes.

We're committed to these operating investments.

We believe they're key to our strategic growth, so we're committed to that, Gary.

Okay.

I would add, Gary, that if demand starts to weaken which we hope doesn't happen, probably takes some of the pressure off the commodity costs, so it probably some of that back in terms of less pressure on commodity cost increases.

Just the last thing, can you give some color on how you see the pricing environment for your products right now?

Gary, Bill, I will take the lead on that.

Generally we take a look at the ASPs of all of our products over long periods of time that go down.

We use a combination of our continuous improvement initiatives that we talked about, new technologies, new materials, whatever it is to take costs out of the product, and so that is our goal over time.

We can selectively, and Tom mentioned agreements we have with some customers, recover some specific commodity costs like steel, So, we can do that when some raw materials spike, and we do have some pricing power in replacement parts, but generally over time our goal is to take costs out of our products and reduce prices.

Right.

Okay.

Thanks again.

Sure.

Thank you.

Our next question comes from the line of Adam Brooks with Sidoti and Company.

Please go ahead.

Good morning.

Could you maybe talk a little bit about any impacts from the tax center in Belgium and maybe if you're seeing any share gains with European OEMs because of the tech center over there now?

Adam, this is Tom.

The tech center in Belgium is sort of in the process of being wrapped up, so there really hasn't been a significant impact yet.

We're looking for that in the future.

Okay.

I will add, this is part of our strategic road plan to move R&D and technical capabilities closer to our customers, both in Europe and Asia, and we're planning on doing similar types of things in Asia.

So, it is part of our long-term growth plans to have those capabilities closer which we believe will help us win more business over time.

Sure.

And real quickly, I guess now that you've had Western Filter a little bit longer, are you able to approach new customers now that you can be on the air in liquid side or is there not much of a change?

Adam, Bill again.

I think as we said probably from the on set, the very interesting thing is that while we shared some comment, major customers, Western had major customers we didn't have on the air side, and we had major customers the air side they didn't have on the liquid side, so that synergy is what we're working now.

It is working.

Thank you.

Thank you.

(Operator Instructions) Our next question comes from the line of Rob Mason with Robert W Baird.

Please go ahead.

Good morning.

Bill, we talked about the market share gains really throughout the year.

What do you think those wins, as you define them, what do you think those contributed in the quarter to growth or to the year if that's more identifiable?

Rob, Bill here.

We haven't broken it out, but if you take a look at the numbers that we talk about in terms of our replacement -- our engine aftermarket revenue growth, and you take a look at maybe some of the market or industry comps, we're growing a lot faster than that, and we believe the reason is because of both new products and new geographical distribution that we're adding which is taking shares.

We haven't broken it out publicly.

Would you say the share gains are greater internationally versus domestic?

It is both.

We have seen some very strong business growth in replacement parts on the engine side in North America, and we have also seen it as we entered new geographies internationally.

Okay.

And just did want to clarify on the $18 million you've identified in growth investments, how should we think of the timing of those being phased in?

Is $18 million a good annualized rate to think about or will those phase in more gradually this year?

Rob, this is Tom.

I think you're going to see them somewhat ratably in F '11.

It won't be exactly that number divided by four each quarter, but we don't anticipate any significant spikes in any individual quarter.

Okay.

And just last question, around your engine guidance of 6% to 11% growth, maybe just in terms of order of magnitude, how would you think the OE parts of that business do relative to the aftermarket and again I guess relative to the 6% to 11%?

Rob, Tom again.

OE is going to be at the top of that range for the most part, and the aftermarket shouldn't be much below, within engine I think Bill mentioned, Aerospace and Defense is going to be relatively flat, so that will pull down the averages a bit.

Okay.

That's helpful.

Thank you.

Thank you.

(Operator Instructions) At this time we have no further questions.

I would like to turn the call back over to Bill Cook for any closing comments.

Thanks, Brandy.

Before we conclude, I would like to remind everyone of, as Rich mentioned, our upcoming analyst day on September 15 which we'll be holding at our headquarters here in Minnesota.

If you plan to attend and haven't registered, please do so via the email invitation you received.

If you have any questions, please contact Rich at 952-887-3753.

Now, to conclude our call, to everyone on the Donaldson team, your efforts and relentless focus on what we can control helped deliver a record EPS quarter and a near record year.

Looking into our future, we are continuing to perform very well on all fronts by developing leading technologies and products, by delivering the best customer value and service, and by executing on our continuous improvement initiatives.

All of these are why our customers buy from Donaldson and why we are the best filtration company in the world.

Sincere thanks to all of you.

Now onto fiscal 2011.

Goodbye.

Thank you.

Ladies and gentlemen, this concludes the Donaldson Q4 fiscal 2010 webcast conference call.

If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325 followed by the pass code of 4329954.

ACT would like to thank you for your participation, and you may now disconnect.