Enovis Corp (ENOV) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Colfax fourth-quarter 2009 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this program is being recorded.

I would now like to introduce your host for today's program, Ms. Mitzi Reynolds. Please go ahead, ma'am.

Thanks, Jonathan. Good morning, everyone, and thanks for joining us. My name is Mitzi Reynolds and I am VP of Investor Relations. on our call today, we have Clay Kiefaber, our President and CEO, and Scott Faison, our Chief Financial Officer.

Our earnings release is available in the investor section of our website, colfaxcorp.com. We will also be using a slide presentation to supplement today's call, which can also be found on the investor section of our website. Both of the audio of this call and the slide presentation will be archived on the Web later today and will be available until the next quarterly call.

During this call, we will be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties including those set forward in our SEC filings. Actual results may differ materially from any forward-looking statements that we might make today. The forward-looking statements speak only as of today and we do not assume any obligation or intend to update them except as required by law.

With respect to any non-GAAP financial measures during the call today, the accompanying information required by SEC Regulation G relating to those measures can be found under the investor section of our website.

Now I would like to turn it over to Clay.

Thanks, Mitzi. Good morning, everyone. I will begin with an overview of our results and then review the end markets. Then I will turn it over to Scott for some more details on the financial results and our 2010 guidance. After that, we will open it up for questions.

As we announced in the release this morning, our fourth-quarter results came in as expected. While results for the quarter were down over last year's fourth quarter, our Navy business continued to grow nicely and our restructuring efforts are yielding results.

Adjusted net income was $11.2 million or $0.26 a share, a 36% decline compared to the fourth quarter of 2008. For the full year, adjusted net income was $40.1 million or $0.93 per share, a 25% decline compared to 2008.

Sales for the fourth quarter were $131 million down 24% excluding the positive impact of currency and acquisitions and were down 18% in total. The decline in sales was primarily due to lower sales in our general industrial, commercial marine, and power generation businesses, which were partially offset by growth in Navy.

For the year, sales were $525 million, down 8% on an organic basis and down 13% in total. The decline was driven by lower sales in general industrial, which was partially offset again by the strength in our Navy business. Orders for the quarter were $101.6 million, down 28% organically and 22% overall. Orders for the year were $462.4 million, down 29% organically and 32% overall. Backlog was $291 million at the end of the quarter.

While we have a solid backlog and there are some signs of economic improvement in activity, we remain cautious on our outlook given the uncertain economic environment. We are continuing with our restructuring efforts and have made significant progress on our cost reductions. During 2009, we reduced headcount by 18% and closed two facilities in the US. We expect these actions to result in annualized savings of $29 million including expected furlough related savings.

We are continuing to identify and implement additional cost reductions and believe we will be well positioned to enhance profitability as our end markets rebound.

Now for a detailed look at our end markets. In commercial marine, organic sales were down 30% for the quarter due to declining orders and delivery date extensions, but were up 2% for the year. Organic orders were down 38% for the quarter and down 55% for the year. We had $3 million in cancellations in the quarter and $22 million for the year.

On a global industry basis, there are currently about 10,000 ships on order. 2008 was a record delivery year with nearly 3900 deliveries. Preliminary 2009 data indicates about 3000 deliveries in 2009. The industry is forecasting a slightly lower level of deliveries for 2010.

With that industry backdrop, we are continuing to focus on aftermarket opportunities, high-spec marine, and market opportunities related to changes in environmental regulations such as the requirement to switch to low sulfur diesel fuel in port, which went into effect in Europe in January.

We put a lot of new vessels on the water in the last few years that present upcoming aftermarket opportunities. In the high-spec marine area, we are cultivating FPSO or floating production storage and offloading vessels business, which continues to be an active market.

Regarding the new low-sulfur requirement, we are having success in converting vessels with gear pumps to our products. Longer term, the emission requirement will become more stringent and required in more ports.

We expect we will see some cancellations and delivery date extensions again this year. Given the decline in orders in 2009 and our current backlog, we continue to expect sales to decline this year. As international trade and demand for crude oil and other commodities improves, demand for new ships will increase. But we don't expect to see those effects this year.

Moving on to oil and gas, organic sales were down 4% for the quarter and up 2% for the year. Organic orders were down 63% for the quarter primarily due to the timing of a couple of large orders and were down 32% for the year.

Industry experts expect oil demand to increase next year with growth in China, the Middle East, India, and Latin America, driven by the industrial, transport, and petrochemical sectors. Oil prices have reasonably held in the 70s and we are seeing a shift from cost containment to expansion and growth as projects come back on line.

We've seen a number of projects that were on hold now in the requoting process. However, these customers are moving forward cautiously and as a result the pace and strength of the recovery remain unclear.

As light oil reserves deplete, heavy and highly viscous oil will account for an increasing share of production and our positive displacement pumps are the best solution when developing these fields.

In pipeline applications, we expect demand for our highly efficient products as our customers continue to focus on total cost of ownership. In refinery applications, a reduction in capital investment by our customers due to recent weak economic conditions and volatile oil prices has been negatively impacting sales and orders. Based on current activity levels, we look to see order levels improve in the second half of this year.

Turning now to power generation, organic sales in this market were down 25% for the quarter and down 7% for the year. Organic orders decreased 28% for the quarter and were down 18% for the year. Given the size and timing of projects in this end market, results can be extremely lumpy.

There continues to be a fundamental undersupply of electricity in the world. Projected demand is expected to double by [20,000 to 30]. The majority of the growth is from developing regions and then a variety of fuel sources. Undersupply and economic growth are driving significant investment and energy infrastructure projects in Asia and the Middle East. Iraq, Saudi Arabia, and Kuwait have recently announced plans to significantly enhance their country's power generation capabilities.

In the developed countries, we expect efficiency improvements to drive demand. The overall outlook for the power generation market for the near term remains stable based on current expected deliveries.

Our next end market is global Navy and we are seeing very positive trends that the US and the rest of the world's navies are expanding. Organic sales increased 31% for the quarter and 41% for the year. Organic orders were up 3% in the fourth quarter and up 72% for 2009. Growth from the U.S. Navy is coming from several new build programs including the VA class submarine, the CVN-78 G Ford Class Aircraft Carrier, the DDG-1000 Zumwalt Class Destroyers, as well as new and modernized DDG-51 Destroyers.

We are also working on a number of projects with other global navies, including Europe as well as India. The long-term prospects for this market are promising. Based on our current backlog and scheduled deliveries, we expect sales for 2010 to be flat to up single digits.

Now for a look at our general industrial end market. On an organic basis, sales were down 38% for the quarter and 25% for the year, while orders were down 14% and 31% for the same periods respectively. Sequentially, orders were up 3% over third-quarter levels. The second quarter in a row we've seen sequential improvement in general industrial.

Activity levels appear to have stabilized in the US, where we're beginning to see some positive OEM trends. In Europe, the general industrial markets remain weak but appear to be flattening out.

Turning to a geographic look at our sales for the year, 41% came from Europe, 30% from the Americas, and 26% from Asia and the Middle East. Organic sales for the year were up in Asia driven by Marines sales and up in the Middle East on higher oil and Power Gen sales. We saw declines in the US, Europe, and Canada.

Our aftermarket sales continue to be about a quarter of our overall sales. Growing our aftermarket is a major focus area for us and all of our end markets and we have implemented a number of initiatives to grow our aftermarket such as the products to address environmental regulations and commercial marine, spare part kits, and quick-serve warehouses.

Now I will turn it over to Scott for more details on the results in our guidance.

Thank you, Clay. I want to point out to everyone that at December 31, 2009, we standardized the definition of an order as well as methodology for calculating the currency impact on our backlog. These revisions, when compared to the prior methodology, resulted in an increase to our year-end 2009 backlog about $22 million and an increase to 2009 orders of approximately $8 million. We have provided revised quarterly comparable data for 2008 and 2009 in our slide presentation.

Given the economic climate, we implemented many restructuring actions in 2009 which helped to offset the declines in our margins. Despite the decline in revenue and the larger decline in our production book, our gross profit was essentially flat for the quarter and for the year.

Adjusted operating income declined to $18.3 million while adjusted EBITDA decreased to $22.1 million, down 36% and 31% respectively for the quarter. For the year, adjusted operating income was $66.2 million compared to $90.8 million in 2008.

Adjusted EBITDA was $80.6 million for 2009 compared to $105.6 million in 2008. Operating margin was 12.6%, down 240 basis points while EBITDA margin was 15.4%, down 210 basis points.

For the year, SG&A declined by about $5 million excluding the impact of currency. The reduction is comprised primarily of reductions in selling and commission costs of $2.2 million and restructuring savings of $2.5 million.

During the year, we also incurred incremental public company costs and pension costs of about $5 million, which was offset for the most part by lower legacy legal costs and favorable hedging results.

Turning to the balance sheets, our financial condition remains strong. Our debt to adjusted EBITDA is about 1 times. At the end of the year, we had net debt of $42 million. Our cash balance was $50 million and we had $136 million available under our revolver.

Inventory and receivables declined by about $27 million excluding currency effects from 2008. We continue to focus on working capital improvements.

Net cash flow from operations was $38 million for the year which includes $20 million of asbestos-related cash outflows as well as restructuring cash outflows of about $8 million. At the end of the year, the asbestos insurance receivable related to Imo claims was $46 million. We received a court ruling in the fourth quarter that clarified the calculation related to amounts currently due from our insurers as well as amounts we expect to be reimbursed for over the next 15 years.

As a result, we increased the amount currently due from insurers by $12 million and decreased the insurance asset for future periods by $10 million and recorded a pretax gain of $2 million.

The recurring asbestos liability and defense cost was $1.1 million for the quarter. Also the trial in one of our insurance coverage litigation began in January and we expect to have resolution this year.

With that overview of our market and an overview of our performance, our guidance for 2010 is as follows. We expect sales to decline organically in a range of 5% to 9%, which equates to $480 million to $500 million for the year. We expect adjusted EPS for the year to be in the range of $0.67 to $0.77. As a reminder, adjusted EPS excludes the impact of asbestos-related items and restructuring costs.

For 2010, we budgeted $9 million for asbestos coverage litigation costs and have budgeted $4 million for asbestos liability and defense costs.

We expect an incremental increase to our G&A expenses of about $5 million related primarily to bonus and stock comp as well as pension costs, which we expect to be -- incur evenly across the year.

The economic downturn disrupted our normal historical seasonal pattern during the 2009 year and for this one time we are giving quarterly guidance. We expect 2010 to return to our historical seasonal pattern, which result in the first quarter being the lightest and the fourth quarter being the strongest.

We expect sales in the first quarter to be about 22% to 23% of sales for the year, but we expect our profit to be more back-end loaded given our fixed cost on a lower revenue base, resulting in adjusted EPS of $0.08 to $0.10 for the first quarter. All of these amounts are based on exchange rates as of last Friday with the euro at $1.36.

As a reminder, about half of our business is Euro-based and we have significant revenues in both Swedish and Norwegian kronor. Foreign exchange rates happen to work out essentially neutral to our 2009 actuals.

Also I would like to point out that we generally manufacture and sell in the same currency, so our exposure is primarily translation, not transaction [driven].

Changes in the value of the dollar typically have not affected a global competitiveness to any degree. We remain cautious on our outlook for 2009 given the later cycle nature of our business. Our end markets continue to be under pressure as reflected in our current order rates and our results for the year will be dependent on the timing of the recovery in these end markets.

Now I will turn it back over to Clay.

And now we would like to open it up for questions.

(Operator Instructions) Jim Lucas, Janney Montgomery Scott.

Thanks. Good morning, folks. Clay, first question, you know you've had a long five weeks now. I was just wondering what your initial impressions are as you've been making the rounds throughout the Company?

Yes, I think it's been a little longer than five weeks, but anyway, I've got people counting days now, Jim. So my wife is number one on that list by the way. It's interesting. I have had a pretty packed schedule, frankly. After we talked in the first week, I took off and was able to go see basically our engineering systems group, which that consisted of a visit to Fairmont, Portland, and Warren in particular.

Then I headed overseas for a couple of weeks, where I spent a lot of time in Radolfzell particularly. I also went Bottrop, Gottmadingen, Houttuin in the Netherlands, and I also went to Stockholm for Imo AB. So have been able to get around to a significant number of locations.

And in terms of my impressions, Jim, first of all, it just reinforces that I think we've got some very talented associates that are fired up to do some great things. That is a very positive thing and that ranges from people on the shop floor where they have welding, specific welding certifications to people obviously in the leadership positions as well. So that has been very, very encouraging and everybody has been really receptive to my visits.

In addition to that, we have some great customers and one of our biggest assets is our installed base. I think you can see that with a lot of the markets that we sell into, and that's something that we obviously want to continue to nurture and grow.

In addition to that, the products and the brands, just fantastic brands that we want to grow and we think we can and the products that we have are super as well.

So that is sort of the first part of it, but I will tell you what I want to be candid with everybody about, I'm going around looking for opportunity for improvement. And I think we have a great deal of opportunity for improvement. That is all positive for our customers. I think it will be positive for our associates as well as our shareholders ultimately.

And so I've spent a lot of time talking about the new values that we've rolled out and explaining those to people in more detail, trying to get active dialogue going on what those values are. And I think if you've gone out and checked the website, you know what they are. The best team wins. That is something that we're really trying to focus on. The best global team wins. Overall, the team for Colfax and try to build on that kind of a culture. Customers talk and we listen.

Hey, that's all about quality and speed. So we are having very frank discussions about throughput times and eliminating ways to really applying the Colfax business system to drive waste out of the system and provide differentiated solutions for our customers.

Continuous improvement is a way of life. It is our third value and that is something that I think you could sense my passion for the Colfax business system and we are definitely turning up the intensity on that as I get into the detail on what is applied and what isn't being applied out there and what we can do to actually drive it.

Let me just give you an example of that, because the last -- when we first got together on that first call, we did talk a bit about the Colfax business system. I was on a PD or a policy deployment review line a couple of days ago and we had an example from one of our business units where if you look at that process, it all starts off with breakthrough objectives. And those objectives are meant to be a stretch in a big way because we want people to get outside their comfort zones and think of totally different ways of doing things and implementing those kinds of processes on our organization to make us stronger in the long term.

And in one of those cases for an improvement priority, which is supposed to be something that really drives breakthrough objectives, I sensed that one of them was more like motherhood and apple pie, just sort of continue to improve working capital, those kind of things. But those priorities are meant to be very specific. It really is the how in the heck are we really going to drive those improvement priorities?

And so we had a good dialogue about that and just threw out a different example. If we really want to improve our sales, if we really want to improve in a breakthrough way our earnings as well as our working capital and our on-time delivery, wouldn't it make sense to have a more focused kind of improvement priority, something like reducing your manufacturing throughput time by 75% and putting together an action plan very detailed on how exactly you are going to do that so that it drives activities on the floor like putting together strings of kaizens to link up processes as well as the detail of setup production that you would need. Or maybe a consolidation of suppliers so that you get consigned inventory and just-in-time deliveries, those kind of things. That is the level of detail that we are going to and that we are going to continue to have as we try to drive CBS through the organization.

There's so much opportunity that we have as a result of doing that. As I reviewed the first PDAs that I am just very excited about it. So that's our third value.

And then of course our fourth one is leading-edge innovation defines our future. That really is about using the individual and collective creativity of our associates to really focus on our customers and provide them with breakthrough technology products and processes that are really going to solve problems that they have. And that is going to be critical for us as we try -- as we grow not just through acquisitions but also organically. Innovation is absolutely critical with doing that on an organic basis.

Then of course the last one is competing for shareholders based on performance. If we want to attract and retain shareholders, we have got to put up best-of-class performance not just in profits but in working capital and cash flow as well.

So we are having an open dialogue about these kind of things and I really believe that we need to unleash the power and the creativity of our associates to solve problems for our customers. And that's what these values are all about.

Thank you for that color. And then an overview question. I was wondering if you could just give us a little bit of color on what you are seeing on the pricing environment. You know, is there any competitive response out there? And then from a housekeeping standpoint, CapEx and D&A assumptions for this year?

I'm sorry, what was the last one? CapEx and what?

D&A, depreciation and amortization.

Yes, Scott will get that for you. On pricing, do you want to get pricing?

Yes, pricing is definitely -- it has gotten more competitive out there. There's no question about it. We are seeing more pricing pressure especially with regard to foremarket sales. I think when it comes to aftermarket, which I think most of you realizes is higher profit margin for us, that we still seem to be doing a pretty good job in terms of holding our own with regard to that environment.

But there is no question that pricing has gotten more competitive. Anytime you have available capacity in a pretty fragmented industry, then that's what you run into.

Just to let you know as we have discussions about that, especially in Europe, what we continue to do is obviously try to differentiate ourselves in terms of the kind of solutions that we can provide so that we can get the right price for the actual value that we provide.

Regarding D&A, we don't expect it to be materially different from this year. It was about $15 million and CapEx should be between 2% to 2.5% of revenue.

Okay. Great. Thank you very much.

Kevin Maczka, BB&T Capital Markets.

Good morning. I guess the first question, I would like to be clear on this restructuring plan. The $29 million in savings that you expect in 2010, how much did you actually achieve in 2009 and how much is incremental then in 2010?

The savings in 2009 were $17 million. Annualizing that into this year is about $29 million. The vast majority of that is really direct labor related and we need to take that out to maintain margin at the gross profit line.

Okay, and then Scott, as I look at the guidance, it looks like you are suggesting maybe another couple hundred basis points comes off the EBIT margin line, which looks like the decrementals in 2010 would actually be a little bit worse than they were in 2009. Is that the proper way to think about it? I guess if so, why would that be? Is there some mix change or pricing change that would drive it?

I think your margin now is on. There is -- as our revenues go down, there's a larger fixed cost and so we expect some type of degradation related to that.

Okay, so it's just simply decremental leverage on the revenue decline? There's nothing unusual in terms of mix or anything else?

Well, the drivers, some of the drivers of the G&A items I pointed out this year, stock comp and bonus are small numbers. And so in our forecast going forward for 2010 our guidance, we have those going back to normal levels as well as a couple million dollars worth of pension costs that is incremental as well.

Right. So Scott, I think you called out the G&A portion would increase by about $5 million and presumably the S portion would decline as sales come down. So is it fair to think about a flattish SG&A line in 2010 based on your revenue guidance?

That's accurate.

Okay, I will get back in line. Thank you.

John Inch, Merrill Lynch.

Thanks, good morning. Scott, what are the compensation headwinds in 2010 versus 2009?

The whole basket of them is about $5 million if we include the bonus stock comp as well as pension costs.

Okay. Then can you quantify the pricing changes that you are seeing? What would you expect pricing to contribute as part of your guidance in 2010 and what did it do in 2009? If you want to put that into the context of a spread or something, that's fine.

John you know in our engineered business it's a little difficult for us to measure price. There's a lot of one-off jobs that we are bidding on. For that type of business, we really haven't changed our margin targets at all. It's still -- it's competitive, but right now, we don't expect any major reduction in our sales related to price on the assumptions that are flattish price-wise.

But what about for products like specifically products or prices quoted on pump products? You are the one who said pricing was getting more challenging. Is there a way to quantify that or are you just talking about the market, not Colfax?

Just referring to the market.

Okay, so you are holding prices. You are not cutting prices. That is what you are saying?

That is what we are trying to do. We are also working the material side, so our assumption is that there is really no significant change to a profitability from pricing.

How did you -- I think you said exchange rates were a push, right, in 2009? What do you expect the translation impact based on current exchange rates today, which I am assuming is how you've done this? What do you expect the translation impact on the EPS line to be in 2010?

That was what I was saying, John. From 2009 to 2010 using the exchange rates as of last Friday and the basket of currency that we do business in, that it's relatively neutral for the year, 2010 guidance to 2009. 2008 to 2009 is not neutral if we are looking at that.

Yes, I was wondering about 2010 given the dollar has declined, right? You guys are obviously a big global company. So why is that a push? Why isn't that more of a headwind?

Because the kronor has moved the other way and so you have to look at kind of the basket of currency. That's why I was reminding you guys that we have more than just a euro out.

That's fair. Now did you say the first quarter was $0.08 to $0.10? How do you go from $0.08 to $0.10 to over $0.70 for the year? What is -- how does that math work?

I would suggest you guys go back and look at our historical quarterly pattern without 2009 in it and I think it will become a lot more apparent to you.

Well, let me ask it this way. Is the -- you are assuming incremental -- do you expect restructuring benefits to scale toward the end of the year? I'm not asking for the quarterly pattern. I'm just more interested what is it about the first quarter from a cost headwind standpoint that maybe is frontloaded versus the back half, right? That's sort of the question because I think you said that the revenues largely should fall to your normal pattern.

So how do you think about the costs sort of being front-loaded, back-loaded? Is that the way to think about it?

I don't think the fixed costs are going to be the same obviously in the four quarters. We have the G&A cost, which in the lower first-quarter revenue really hits earnings. The fourth quarter is going to be our strongest quarter. We expect it to be our strongest quarter and historically that has always been the case other than 2009, when the economy kind of reset.

I'm sorry, did you give a number for what you think restructuring is going to be in 2010, what you would call maybe -- what you would not include as part of just continuous restructuring but maybe if there is still like holdover from 29 actions so down 18% of people or something?

In our EPS reconciliation, you can back into the amount. That only includes actions to date, quarter to date through February 15.

Well, you've given $0.67 to $0.77 and $0.41 to $0.51 including asbestos defense costs, restructuring, etc. What is the restructuring component?

It's about $4 million, John, that we have built in.

Okay, just last question. Europe is obviously a topic of debate, right? Just that it's just given sort of the financial considerations going on there and just questions about growth in Europe. You guys are obviously a big Company in Europe. What are you seeing generally speaking in terms of your European end markets? What kind of expectations do you have this year?

Well, John, we actually saw some growth in the general industrial market there sequentially. I think it's a little too early to really say that it's a trend, but it's positive. Our forecast really doesn't require any large growth in our European business over the year. But we are expecting some modest growth in the back half of the year from an order point.

Okay, great. Thank you.

Jeff Hammond, KeyBanc Capital.

Good morning. Just wanted to come back to the whole decremental margin discussion. Scott, what do you think of as your normal decremental margins?

Well, historically that has gone about 35%.

Okay, because just as I'm doing the math and the guidance, it looks like your 40% at the midpoint and if I understand it, you get an incremental 12% of restructuring and maybe $5 million of headwind. So if you kind of layer that in, your guidance implies something close to 70% decremental. So I just want to understand if there's been some discussion on price pressure, there's been some discussion on mix, what am I missing here that drives those higher decremental margins?

You know, it's just that for the most part, those G&A costs are going to be straight lined over the year and it's just the impact of volume.

Okay. I will follow up on that off-line. Just Clay, on the oil and gas orders, I think you said the weakness in the fourth quarter was timing the large orders, but then you followed on with a statement that orders wouldn't really start -- you wouldn't start to see a pickup in orders until the second half of the year.

Can you just further clarify the visibility on a forward-look in oil and gas on the order front?

As we stated, it's still uncertain out there. I mean certainly one of the things we feel good about is some of the activity that we are seeing right now. So that's really the basis for the statement about our feeling for the last half of the year.

Okay, but were there some chunky orders that maybe didn't get placed in the fourth quarter that moved into the first half of the year or --?

No, it was more the comparison to 2008.

Okay, okay, that's helpful. And then as you went through the different segments, you talked about I think power gen being stable, Navy being up low to single digits, commercial marine being down. How would you characterize general industrial and oil and gas from a revenue trend standpoint?

Could you repeat the question?

As you went through the different end markets, you gave some forward-looking revenue color on I think three of the five. I am just looking for a little more color on the trend in general industrial and oil and gas.

Well, oil and gas, like we said, we feel good about some of the activity that we are seeing right now and that's the basis for our feeling on the outlook for the second half.

You know, general industrial is sort of interesting. That is such a wide range of things and it's something that we really got into as we were going through a pretty detailed strategic discussion, which I haven't hit on that either. We spent a couple of days with various leaders going over that.

But general industrial right now, we are seeing some indication. I was in Europe for a while and we are seeing some indication there as well as over here that things are picking up a little bit. But I think it's still from our perspective too early to suggest that there's going to be a robust recovery in the short term.

Okay.

Let me just -- if I could take a minute to explain what we are doing to understand the end markets and really lay out our plan for the future, we went through a couple of days session where we are applying a process where we are looking at the five end markets to really understand what our core is in each one of those end markets. And then also understand some of the adjacencies that we are playing in and really try to scrub that and see what the economics look like and determine exactly what our strategic priorities ought to be.

Let me give you an example with -- if we talk about oil and gas for example, we are really good at heavy crude transfer and as you know, that's 70% of the market out there in terms of oil is going to be in those more -- the heavier crude, that kind of thing. That is something that we think we do pretty well. And we have -- we do that especially well in the Americas region. It's the application of two and three screw pumps, which obviously is some of the core of our product lines.

So we have a pretty good understanding of our market share there, the growth rates, how cyclical it is. We want to understand that and then determine what we need to do to strengthen that core if we feel there's opportunity there as well as understand some of the adjacencies like new product or new market segments, new products, new channels, new geographies, certainly vertical integration, those kind of things and actually determine where we want to play and how we want to play.

That has really opened up a great dialogue and some great ideas in terms of providing more organizational focus or more strategic focus for Colfax as a whole so that we then put the full force and power of Colfax behind going out and attacking in very specific strategic areas on those very specific priorities. And that is something that we view is really going to help us expand in the future because we will be deploying our resources in the right way on those areas that are really going to help us grow.

By the way, that is going to drive our -- it certainly will drive once we decide what those priorities are, that will drive our brand strategy. That will drive our product strategy. That will drive our acquisition strategy, certainly our pricing, those kind of things, and really focus the organization so that we can go out and grow aggressively.

Okay. Thanks, guys.

I want to go back to the decremental margin question. You know, my statement on currency being neutral applied really to the year, to the first quarter, to the first quarter this year. It is not neutral. If you look at it on a currency-neutral basis, I did that pretty quickly. It looks like decremental margins are about 31%.

So if we want to -- if you guys want to follow-up after the call with me, I would be happy to.

Thanks.

(Operator Instructions) Joe Mondillo, Sidoti & Co.

Good morning. I was just wondering if you could quantitatively just break down each of the end markets in terms of your sales guidance, what you are expecting for each of those.

No, we don't want to give guidance at that level.

You don't give that? Okay. And then also just to clarify, the first-quarter EPS guidance that you gave, is that GAAP EPS or adjusted?

That's adjusted.

That's adjusted, okay.

There's a reconciliation posted if you'd like to look.

Okay, that's all I've got for you. Thank you.

Thank you. There are no further questions in the queue at this time. I would like to turn the program back to Mitzi Reynolds.

Okay. Thanks again, everyone, for joining us today. We look forward to updating you next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.