Enovis Corp (ENOV) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Colfax Corporation first-quarter 2010 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, Mitzi Reynolds. Please go ahead, ma'am.

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

Our earnings release is available in the Investors 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 the Colfax website. Both the audio of this call and the slide presentation will be archived on the website 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 risk and uncertainties, including those set forth in our SEC filings. Actual results might 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 intent 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 in our earnings press release and under the Investors section of Colfax's 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 update you on my observations and some of our upcoming plans. Then we will open it up for questions.

As we announced in the release this morning, our first-quarter results came in higher than our guidance, primarily due to improvement in our General Industrial business. We also benefited from higher than expected sales in our Commercial Marine market. The General Industrial increase was from faster than expected order growth, while the Commercial Marine sales are timing related. We are now seeing gradually improving conditions in most of our end markets.

Now for a look at the results. Sales for the first quarter were $120 million, down 17% on an organic basis, which excludes the positive impact of currency and acquisitions, and were down 12% in total. The decline in sales was primarily due to lower sales in our Oil & Gas, General Industrial, Commercial Marine and Power Generation businesses, which were partially offset by growth in Defense.

As a reminder, we were still growing in the first quarter of 2009. In fact, sales were up 18% on an organic basis in the first quarter of last year compared to the first quarter of 2008. Adjusted net income was $5.7 million or $0.13 per share, a 45% decline compared to the first quarter of 2009.

Adjusted operating income was $10.2 million, a 40% decline from the first quarter of 2009. We were able to hold our gross profit margin relatively flat for the quarter at 35%, despite the 12% decline in revenues, thanks to our cost reduction efforts. Orders for the quarter were $119.6 million, down 8% organically and 3% overall. Commercial Marine and General Industrial orders were both up on a year-over-year basis.

We are pleased with the improvement in our sequential orders, which were up 22% on an organic basis over the fourth quarter of 2009, driven by broad-based strength across most of our markets. We ended the quarter with $281.3 million in backlog, down slightly from the end of the year, excluding currency.

Now for more details on each of our end markets. All changes in sales and orders are on an organic basis, so please refer to the slides for additional details. In Commercial Marine, sales were down over the prior year, but orders were up. On a sequential basis, both sales and orders were up. While activity has improved in this market since the first half of 2009, we remain cautious on our outlook.

We have a solid backlog, but we are continuing to experience cancellations, $3 million in the first quarter compared to $9 million in the first quarter of 2009, and $3 million in the fourth quarter of 2009.

Customers are also continuing to request delivery date extensions. For the year, we expect sales to be down and orders to be up in this market compared to 2009 levels.

In Oil & Gas, sales and orders were down year-over-year. Sequentially sales were down, but orders were up. Many of these projects are large, which can result in lumpy sales and orders. We are encouraged by the activity we are seeing, and it is especially strong with the national oil companies. Based on current activity levels, we hope to see order levels improved as the year progresses. We expect orders to be up for the year and sales to be at similar levels versus 2009.

Turning now to Power Generation, sales and orders in this market were down for the quarter. Sequentially, sales were relatively flat with the fourth quarter, while orders were down. We currently have a solid backlog of projects for this year and are actively working on new opportunities for our 2011 order book. We expect sales in 2010 to be at similar levels to 2009, while orders will be down.

Our next end market is global defense, where we are seeing very positive trends as the US and the rest of the world's navies are expanding. Defense now represents about 10% of our total business. Sales grew over the first quarter of 2009, while orders were down.

In the first half of 2009, we booked orders related to the Virginia-class submarine program totaling $32 million, making for a difficult comp in the first quarter as well as the second quarter. Based on our current backlog and scheduled deliveries, we expect sales for 2010 to be up and orders to be down.

Now for a look at our General Industrial end market. Sales were down from the first quarter of 2009, but orders were up. Sequentially, both sales and orders were up. This quarter marks the third quarter in a row we've seen sequential improvement in orders in General Industrial.

We've seen particular strength in the chemical, machinery support and diesel engine sub markets. Our European General Industrial activity is picked up, but we remain cautious on the stability. Our General Industrial business in the US is also showing solid improvement. We expect growth in both sales and orders this year over 2009.

Turning to a geographic look at our sales for the quarter, about 47% were shipped to Europe, 28% to the Americas, and 25% to Asia and the Middle East. This does not include the final destination of our products shipped through OEMs. We believe our business is probably more evenly distributed between Europe, the Americas, and Asia Middle East, about one-third each.

On a sequential basis, sales grew in Europe, China, India and Canada. Orders also were up in these geographies as well as in the US and South America. This broad-based growth reflects the improvement we are seeing in most markets.

Our aftermarket sales continue to be about one-quarter of our overall sales. Growing our aftermarket continues to be a major focus area for us in all of our end markets, and we've implemented a number of initiatives to grow our aftermarket and leverage our valuable installed base.

Our financial condition remains strong. At the end of the quarter, we had net debt of $30 million. Our cash balance was $60 million, and we had $136 million available under our revolver.

We are encouraged by our first-quarter results and the sequential improvement in orders. However, there continues to be uncertainty related to the timing of a meaningful recovery in our end markets. Today we are reaffirming our current guidance, which is an organic sales decline in the range of 5% to 9%, which equates to $480 million to $500 million for the year.

And we expect adjusted EPS for the year to be in the range of $0.67 to $0.77. As a reminder, we expect the year to follow our historic seasonal pattern excluding 2009, which was disrupted by the economic downturn. We expect the first quarter to be the lightest and the fourth quarter to be the strongest.

Additionally, the first quarter adjusted operating income has historically been about 18% of our annual adjusted operating income.

Now that we've covered the financial results, I would like to take a little bit of time and talk to you about my observations from the first 100 days on the job and some of our action plans. I think as most of you know, I've been spending most of my time in Radolfzell, specifically with Allweiler. This particular facility is about 35% of our global business, and we have a lot of opportunity for an improvement.

In addition to that, I've made location visits to Portland, Warren, Monroe, Fairmount, LSC, Houttuin, Imo AB, Bottrop and Gottmadingen. Basically, I've got China and India to go, and I'm going to visit those in the summer and in the fall.

Additionally, I've been making assessments of our CBS capability, as well as providing some coaching in that area. So it has involved doing things like PD reviews, visits, gemba walks, participating in presidents' kaizens to really get a sense of how its being applied within the organization.

We've also been working on strategy. We've been developing a fairly straightforward process where we understand our core markets as well as potential adjacencies, and we are very close to finalizing our strategic priorities. That's something that we are actually going to finalize next week.

We've also been taking a look at our leadership team and making assessments, interviewing, working with people to better understand our people capabilities. In addition to that, I've been looking at our organization, and specifically alignment; looking for disconnects, what's working and what's not, those types of things.

Overall, we have a very solid business with excellent brands, products, application engineering, assets and resources. Our Imo, Imo AB, Tushaco and our Navy businesses have historically continued to perform at high-margin levels, although we need to improve our working capital performance as well as our new product innovation.

Candidly, our opportunity is with Allweiler. And as you can imagine, it is getting a lot of attention right now. So what I would like to do now is talk about four different areas of focus, the first of those being Allweiler Radolfzell.

Our organization there really needs to increase the level of urgency. That is one of the first things that I noticed as I started dealing with Allweiler in particular. The organizational structure has been driven historically, and based on a poor on-time delivery performance with long lead times and high inventory levels.

As you can imagine, this drive has inflated cost levels, resource needs, as well as a lot of sales in the marketplace. So one of the things to understand, it's really been that way for a long time. When I talk with the salespeople and the folks out in the field, this has gone on way before we actually acquired them 11 years ago.

The other thing is we have a great brand with strength to withstand chronically poor on-time delivery performance. Again, this is one of the great opportunities that I think we have. Just imagine how strong this brand is going to be when we fix the on-time delivery performance.

We have wonderful new product innovations and also people that want to make a difference with the organization. So far we've been focusing on on-time delivery. It is something that we need to resolve so that we can systemically improve our revenues as well as our cost structure. Thus far, we have improvements in especially the foundry where our on-time delivery has gone from 35% and 94% while significantly reducing scrap, and this has happened over the last five to six weeks.

As you can imagine, this feeds machining and assembly, so it is critical to on-time complete performance. We've also made improvements in on-time complete with our aftermarket improvements. So we now have people starting to believe that we don't need to have extra customer service people in that area as we see an increase in orders. So some very positive things going on there.

We are attacking working capital. And from the month of February through March by really focusing and utilizing this CBS tools, we were able to reduce inventory EUR3.1 million in Radolfzell alone, and we have a goal to reduce that by over 50% as we continue to work with the CBS tools. We have a wonderful team working on that right now.

We are also -- we've inserted a lean executive, and we are focused on building the best team. We've made some changes a few weeks ago, and the energy level is already taking off in this organization. We are in the process of consolidating a supplier base. It's a supplier base of over 1800 suppliers right now. We know that's going to have a significant positive improvement on on-time delivery, cost, working capital, as well as the number of support people required in that process.

We are working diligently to rationalize the product lines, to simplify the structure, the number of parts that we have, which will flow through and provide us with some enhanced profit opportunity.

We are also rationalizing the front and back office functions, as well as manufacturing for Europe, Middle East and Asia. What we are going to do is align this with our customers and streamline our operations based on a great on-time delivery performance, as well as a rationalized product line.

And lastly, we are focusing on really creating a CBS culture, running the business with policy deployment, CBS tools, and ensuring that everybody is passionate about that and living it in their daily life.

Next I would like to talk a little bit about the Colfax business system. Here again, I feel we have solid institutional knowledge, but we have a lot of opportunities to improve things like manufacturing cycle time, sales, new product development, all this by applying the CBS tools.

And I think the EUR3.1 million inventory reduction in Radolfzell is representative of the kind of improvements that we can see as a result of actually applying the tools.

We need to improve our immersion process when we acquire businesses to make sure that they are steeped in the CBS tools and they hit it right out of the gate. We also need to drive a culture of breakthrough thinking and objectives and get away from incrementalism. We have a lot of opportunity to do that.

This is what gets us outside of our comfort zone and thinking about truly innovative breakthrough kinds of ideas. We need to more actively apply voice of the customer. An example of that would be something as straightforward as on-time complete, but in addition to that a new product innovation to make sure we get out there and really understand what the needs of the customer are and come up with very creative, innovative solutions.

So in order to do this, we are promoting leaders that live it, and we are going to hold ourselves accountable, myself included. We will establish one global fluid handling policy deployment linked to our strategic priorities. That is going to be completed next week, and we will continue to drive point-of-impact action plans with countermeasures.

There is a phrase I use that's called convince yourself. As you put that action plan together, you ought to know exactly what each step is going to drive in terms of improvement, and hold ourselves accountable to that and make it happen.

Next, I would like to talk about strategic priorities. Basically, I think we need to focus on the vital few. We also need a more global manufacturing and supply chain strategy and a more comprehensive Asian strategy.

There has been a tendency to chase large project orders even if it didn't necessarily exist in one of our target markets. So that is what we are going to work on, as well as maintaining some strategic discipline.

In focusing on the vital few, as I take this by end market in General Industrial, we think we are pretty good at providing high-speed rotating equipment solutions. We are going to continue to grow in that core market for us and attack that with innovative solutions.

In Oil & Gas, we believe our core is really heavy crude transfer in the Americas, but we are going to expand that some as we go outside and provide more SMART pump solutions as we move up the value chain.

In addition, we are going to attack the Middle East and China for growth and rationalize our two-screw product offering. In defense and valves, our core is really SMART fluid handling solutions. We are going to expand the application of SMART fire suppression, as well as leverage Fairmount when it comes to providing total solutions to the government.

We'll also expand our waterfront repair facilities where we've had great success thus far, and we think that is a good growth area for us. In Power Generation, we focus from a core perspective on fuel injection and lubrication pumps and systems, basically for turbine and rotating equipment OEMs, looking to expand in India and China as well as rationalize our product portfolio for this particular end market, especially the fuel injection pump.

And in Commercial Marine, our core is really engine room lubrication and fuel transfer. We believe we can expand the PD Technik service model for aftermarket. We definitely need to elevate our on-time delivery performance and customer service for the Allweiler brand. And also we are looking to cost reduce our centrifugal product offering in a fairly significant way.

Across all these end markets, I want you to understand that we are also going to jazz up and charge up our product development efforts where we want to make sure that we go out and offer voice-of-customer solutions that really create value for our customers, but they do it in a differentiated way.

Lastly, I would like to talk about our global organizational alignment. We made some announcements a few weeks ago in terms of this. We fundamentally have a pretty autonomous internally-focused business unit structure. We felt that that inhibited us from working as a unified team and leveraging the strengths of Colfax.

We also had a situation where our global sourcing efforts weren't giving us the results that we were really looking for. In addition to that, we had councils typically throughout the organization, and more of a matrixy kind of organization for Commercial Marine, Oil & Gas, and we just didn't feel it was enabling us to execute our strategy.

So we designed one unified global organization, as it's really aligned with our customers as we have very global customers across these end markets. In addition to that, we promoted two very experienced lean leaders with demonstrated results.

One is Bill Roller who was elevated to Executive Vice President. He has been with us for over 10 years, has had increasingly responsible positions within Colfax. He's been responsible for Imos, Zenith, LSC, Imo AB; has been passionate about driving CBS through the organization.

We also have Arne Forslund who is a former Danaher executive. He also is a former CEO of NOTE, and currently is our Imo AB Managing Director. He has a lot of experience with the Danaher business system as well as the Colfax business system, and is very passionate about implementing that.

So we really feel good about having the right leadership in place from an operations standpoint to drive this transition to a more global functional organization.

We are going to take it in two steps. If you look back historically at some companies, sometimes they try to do it one, and that can be troublesome at times. So we are going to take it in two steps. The first phase is the globalized Commercial Marine. There has been a lot of excitement about that within the organization. A number of people saying, hey, this is great.

The same thing with Oil & Gas, as well as global sourcing and product development. That will be our first phase in terms of globalization. Within the next 18 to 24 months, we will take the next step by globalizing operations and power generation, and eventually merging this into a global functional structure.

We will be finalizing our more detailed financial modeling of all of this over the next couple of months as our newly-appointed leaders assess their areas of responsibility. These changes will lead us toward our goal of best-in-class results in a very fragmented industry.

Those results being to grow at two times the market rate organically to attain 20% margins, to significantly improve our working cap as a percent of sales, to have industry best leadtimes as well as on-time delivered.

We've been working diligently on all of these for the past couple months, as you can imagine, and we're already experiencing progress as evidenced by our improvement in our on-time complete, especially the past dues, improvement in our working capital inventory in particular, as well as cash flow.

The effort and the velocity of improvement will increase with the current leadership changes. I will be sharing more detail in June as I come out to meet with many of you.

Now, I will open it up for questions.

(Operator Instructions) Darren Yip, Barclays Capital.

You had mentioned you were rolling out some initiatives to grow the aftermarket business. Can you just provide a little color on some of those?

Sure. One of the initiatives in particular is to put together kits for our customers and be able to go out and actively market those. In addition to that, as I mentioned PD Technik, that actually is a waterfront facility, if you will, that focuses on not just aftermarket parts. Also the service portion of that as well.

Then in addition to that, we've got some just different programs that try to focus on some target customers, specifically in the industrial area, that kind of thing.

I guess further along the lines of growth, could you give us an update of growth breakthroughs and maybe how that is trending over the past few quarters? I don't know if you tracked it by number or revenue opportunities, but any kind of color around those opportunities as well.

I'm sorry, clarify that a little bit, Darren.

With regard to growth breakthroughs. I'm not sure if that is something you quantify, but as far as those kind of opportunities going forward.

Yes. That is not something -- I mean we have a lot of very innovative ideas. That is one of the things that we're working on right now, but that really wouldn't be appropriate I don't think to share with everybody. We probably have some competitors out there listening to us as well.

But one of the things to understand, especially in the application of the CBS tools, is that first of all, that is a very important element of it, to get out there and think about breakthrough thinking, especially when it comes to new products and processes. And that is a significant part of what we're working on right now with the organization.

What I have found are some pockets where we've had some very creative thinking and actually some opportunities I think to really change some things out there in our particular customer base. But now what we are going to do is brainstorm those a little bit more, get them into detailed action plans, and then go make them happen.

Got it. Thank you very much.

Jim Lucas, Janney Montgomery.

One industry question and one strategic question. Within industrial, you gave a little bit of color on the end market. On the chemical market in particular, is that new capacity you are seeing; is it retrofit? And geographically, what are you seeing within that particular market? I was surprised to hear that is where you are seeing some of the strength.

It is a little bit of both, Jim. As I got an update -- I mean, things are definitely picking up in Europe in particular. We've had some activity in China as well. But that -- as you talk about General Industrial overall, that definitely is something that has been strengthening. You know that with the sequential order growth. We are pretty optimistic about that particular end market.

Okay. And then from a big picture perspective, I mean your assessment of the first 100 days was very helpful and a lot of great color in there. But I was wondering just in -- a little tougher question here -- but with CBS having been a part of the culture for so long, why do you think the Company, at least from an outsider perspective, seems to be a little bit behind?

The good news is there is a lot of opportunity here. And secondarily to that, what metrics as outsiders do you want us to track to know whether you are on the right track or not?

Fundamentally, Jim, and I think you know this, CBS is about results. I mean it clearly starts with voice of the customer, and then it drives it with a very process orientation to drive results.

So I guess from an outside perspective, some of the metrics that I would evaluate there would be things like working capital. I mean, that is something that we are driving with a passion right now. I think people are starting to understand that.

Certainly margins, any kind of leadership efficiency kind of improvement is the way you can sort of analyze that from the outside. From the inside, the way I evaluate it is are we living it? Are we really using it to drive our business every day?

And it is has been pretty straightforward for me to understand where we are and where we aren't. We have some bright spots within the organization where it is being applied, and I think we are doing a relatively good job in those areas.

But we've got some other areas that -- where you can tell if there isn't the detail in terms of looking at the KPIs, or if you go down to the detail of the action plan by line item, if they don't understand what the target value is and they don't have countermeasures in place, then that's -- from my assessment, that is something that we need to improve.

But from the outside perspective, like I said, I would really evaluate the actual metrics there.

I'll follow up offline on that. Thanks.

Jeff Hammond, KeyBanc Capital Markets.

Just on the -- can you give us a sense -- it looks like you beat, if you took your guidance, by about $10 million. Can you give us a sense of how much of that you felt was industrial strength versus maybe the timing issue on Commercial Marine?

I'm not sure we understood your question. Could you repeat it?

If you just take the $10 million beat roughly versus where you were guiding revenues for the first quarter, how much came from general industrial-strength versus that pull-forward or timing issue in Commercial Marine?

I think it's about the same. It's about evenly distributed, Jeff.

Okay. And then just given the solid start to the year, given the better order activity, certainly it seems like you are getting some early traction on organizational realignment. What gives you pause in at least not tweaking the guidance here?

You mean pause for the year?

Yes.

I would say out of all of this, it is sort of my assessment as we look at orders, if you will, General Industrial we are pretty optimistic about that. We feel pretty good. You can see that there has been a significant trend over the last three quarters.

Oil & Gas, we are pretty optimistic about that as well. We've seen an increase in the quotation activity, the scale of the projects. That's really going to be more a matter of timing of actual book and ship. Navy, we are optimistic about that, solid.

While you will see a difference in terms of the actual comparison of bookings because of how lumpy it is like the Virginia-class subs of last year, we feel pretty good about not just the sales but also the continuing business development there.

Aftermarket, we feel pretty good about that as well; and Power Gen, we think there is a lot of opportunity, especially in India and China even as we've seen a decline with some of the key OEMs.

The one that I guess if you use the phrase that gives us pause we are more guarded is Commercial Marine. That is where we've seen some positives in terms of improvements, but we are going to continue to be guarded about that as we look at the indicators like the percent of the fleet that is laid up as well as the capacity that is coming online with the 10,000 ships that are on order, those kind of things.

So we think there is going to be some overcapacity there for a while, and we are just going to take a guarded approach with that. In the meantime, we have a real positive asset in that specific market, which is aftermarket. And that again, we are going to continue to focus on. It's higher-margin business for us, as you know, and we feel pretty good about our ability to do that.

Let me add a little bit too, Jeff. It is still kind of early in the year, and we are encouraged with the sequential order growth that we've displayed across most of our end markets. But like Clay said, there is still some risk in Commercial Marine of cancellations.

And while our activity in Oil & Gas, we are seeing a lot of quoting activity and some larger projects than historically seen, it's getting them booked and shipped this year. So those are some of the reasons why we haven't taken up the guidance based on the first quarter.

Okay, and then finally a little bit of a big picture question, Clay. I think when you were hired and you had a conference call, Mitch Rales talked about growing Colfax into a multibillion-dollar multi-platform organization.

As you spend -- you certainly sound very focused internally. Does that keep you on the sidelines in the near term as we start to turn the corner and see more M&A activity?

No, not at all. We are continuing to explore things from -- with regard to that type of activity, been involved in that, and we will continue to. We have some great ideas on that, I think, and we look for some positive things moving forward. So no, we are definitely not staying on the sidelines with regard to that.

There is no question, I mean as you can tell from my comments, that we are focusing on getting some things right operationally within the organization, getting aligned strategically, those kind of things.

But I am very optimistic about our ability to do that relatively quickly, and at the same time continue in support of our long-term vision of building out that multiplatform, multibillion-dollar organization.

Thanks.

(Operator Instructions) John Moore, Robert W. Baird.

Good morning. Just one question on the operating margins in the guidance. If you look at the high-end of the guidance range it seems like, if I'm doing the math correctly, that the decremental margins you've got to assume to get to the high end are something north of 45% or even close to 50%. And that is before taking into account the cost savings you expect to realize this year.

I know in the past you've talked about incremental margins being something in the range of 35%, or 30% to 40%. I am just wondering is there something unusual going on this year that make the decremental operating margins so high this year?

Well, you need to take into account a couple of things. One is currency that is part of that, plus as we discussed in the last call, we had an additional $5 million or $6 million related to pension as well as the stock and bonus.

So that is something that if you like, we can work with you offline, but that definitely has an impact on it. Our decremental margins, just to clarify, we feel are between 30% and 35%. And I think if you look quarter-over-quarter, first quarter compared to last year, it was about 34% as we take those things into consideration.

Okay, I'll follow up, but that's helpful. Thank you.

Joe Mondillo, Sidoti & Co.

Good morning. I apologize if I go over anything here. I actually got on the call a little late, but I just had two quick questions. First, I was wondering if you could give your thoughts on the overall picture in terms of Commercial Marine, but just a long-term view of that market. And also, were the orders up or down sequentially from the fourth quarter?

For Commercial Marine?

Yes.

Yes, for Commercial Marine, organically orders were up about 85% from the fourth quarter. Just to give you an idea for our perspective on Commercial Marine, though, as I stated earlier, it is guarded. When we take a look at the indicators that are out there, there is probably 10%. There's been a little bit of an improvement there in terms of the fleet that is laid up.

They are adding or projecting adding significant capacity. The way we calc it, it is about 38% of deadweight tonnage and capacity for the 10,000 ships that are on order. They are slow steam -- I mean some anecdotal things like that, but it appears there is going to be an overcapacity for some extended period of time, and that is the way we sort of look at it.

How long it's going to take to work that off, we really don't know, probably just like anybody else. But there is a range there certainly that we are evaluating. So we also think that there will be an opportunity for aftermarket as we sort of work through that. We are seeing some of that activity right now where, as they do start to utilize the ships again and we will see a pickup and that kind of thing, but we are pretty guarded on it right now, Joe.

In terms of that business, what is the book-to-ship leadtime on that?

Well, that varies. Those are typically pretty long leadtime kind of projects. I mean, they can put something out for an order three years from now. It could be something that is less than that, but I think probably somewhere in the, what, 9 to 12-month range anyway.

So with your orders down the last two years in that segment, should we expect sales in that segment to be down this year, and possibly next year?

Yes, sales were projecting to be down for this year most definitely. We are projecting orders actually to be up, though.

Okay. Then just in terms of your overall book-to-bill, the overall company, do you expect that to continue to increase here in the second quarter above 1?

Yes, we -- right now as we take a look at the market, you can see that it is around 1 right now, which has improved some. We are continuing to feel good and see positive activity from an order standpoint. But I wouldn't want to try to predict exactly what that would be. But we do feel good about the order activity right now.

Okay, great. Thanks a lot.

Thank you.

Thank you. This does conclude the question-and-answer session of today's program. I would like to turn the program back to Mitzi Reynolds for further remarks.

Thank you again 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.