Enovis Corp (ENOV) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Colfax Corporation first quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. Later we'll conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded.

I would like to turn the call over to your host, Scott Brannan. Please go ahead, sir.

Thanks, Stephanie. Good morning, everyone, and thanks for joining us. My name is Scott Brannan and I'm Colfax's chief financial officer. With me on the call today is Steven Simms, our President and CEO, and Clay Kiefaber, President and CEO of ESAB.

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

During this call, we'll be making 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 forth in our SEC filings. Actual results may differ materially from any forward-looking statements 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 company information required by SEC Reg G relating to these measures can be found in the earnings press release and supplemental slide presentation, again in the investor's section of our website.

Before Steve begins, I would like to orient everyone to our 2012 reporting. We will be reporting in two segments, gas and fluid handling, which is the legacy Colfax fluid handling, and Howden, and fabrication technology which is the ESAB welding and cutting business. We were also report corporate and other. Other is principally pension and costs related to divested businesses which are unrelated to the two current segments.

It is important to note that 2011 and prior historical reporting included corporate and other within fluid handling. A break-out between fluid handling and corporate and other for the first quarter of 2011 is included in the non-GAAP reconciliation in the appendix of the supplemental slide deck.

It is also important to note that we will be able to report proforma sales, including Howden and ESAB for 2011, but we do not have proforma income, net income, or earnings per share. As such, we are unable to make comparisons of results on a proforma basis other than sales.

Finally, the first quarter had numerous significant financial events -- the closing of the Charter acquisition and the issuance of new debt and equity. So please refer to our guidance in the slide deck for metrics appropriate for the remaining three quarters and the full year. It is also noteworthy that the results for ESAB and Howden are included from January 13th and represent less than that full quarter of results. The proforma sales discussed today are based on a similar period for 2011.

And with that, I would like to turn it over to Steve.

Thanks, Scott and good morning everyone.

Today, we slated three years for review in this morning's discussion, and we'll begin with an overview of first quarter results, followed by a status update of the integration of ESAB, and finally, updated earnings guidance for 2012. I'll handle the first area and then Clay will join me to discuss the ESAB integration and then Scott will follow and provide more detail on the financials and updated 2012 guidance. Q and As will follow then.

With that, let's begin with covering our first quarter results.

For the most recent period, we are pleased to announced adjusted EPS for 2012 was $0.23 which is 10% higher than the $0.21 per share reported in the first quarter of 2011. Howden had a higher than expected level of sales and profitability during the period, which accounted for this above planned performance. Net sales for the 2012 quarter were $886 million, an increase of 11%, and 10% organically, compared to $797 million of proforma sales for the 2011 first quarter.

Turning now to our business segments -- for gas and fluid handling, net sales for the first quarter are $425 million. This represents an increase of 24%, and 16% organically, compared to $343 million in last year's first quarter. With respect to the end markets associated with the newly created platform, our market definitions now reflect a combination of Howden's air gas products with Colfax's fluid handling business. You now have these markets in the respective growth rates in today's presentation. As you review that data, you'll note currency has a negative 2% drag on sales and orders for the quarter.

In reviewing end markets for the gas, air and fluid handling segment, I'll begin by focusing on our largest end market, which is power generation. This is served extensively by product offerings like axial and centrifugal fans, lubrication pumps, and rotary heat exchangers.

For the 2012 first quarter, sales increased by 30% both in total and organically. Sales were particularly strong in China, which in response to a local environmental legislation. Growth is strong in southeast Asia for new build projects and South Africa for maintenance projects. Volume remains robust for pumps in the Middle East as power stations continue to come online. Orders were essentially flat for the quarter, both in total and organically, due to a slight softening in demand for North America as well as several project delays in India. We expect that other than coal projects in North America, these markets with bounce back later in the year. In the meantime, strong demand for environmental upgrades and maintenance work is offsetting these areas which are lagging in demand.

Next, oil and gas and petrochem is a very robust end market for our screw and piston compressors. Multiphase boosting systems, pipeline transport pumps, and total lubrication management service offerings are very successful. The recent price levels for oil globally continue to drive record levels of new product quoting and activities across all of our served markets. Sales for the 2012 first quarter increased 69%, and 23% organically, while orders increased 55% aided by the Thomassen compressor acquisition in March of 2011. Organic orders declined 18% for the oil, gas, and petrochem market, while the overall bookings and sales were bolstered by Thomassen acquisition. It is important to note Thomassen growth has accelerated since the acquisition date, as a result of an effective integration process focused on practical synergies.

Overall, the oil and gas market remains very strong. Upstream global investment reached record levels in 2011 as we continue to grow as we move into 2012. Strong double-digit organic revenue growth is forecasted. We expect mid to long-term prospects for expansion of refining capacity in the Middle East and Brazil and significant investment and upgrades for low sulfur fuels in the Russian refinery market. Emerging markets continue to provide growth opportunities related to heavy oil transport and multiphase solutions, and we're excited about the prospects for our lubrication service businesses.

Turning now to the Marine market -- this industry segment is comprised of both commercial marine as well as defense customers and served primarily by fluid handling. Sales for the 2012 first quarter were essentially flat organically compared to the year ago time frame. Bookings softened for the quarter as supply/demand dynamics continued to rebound and we expect new shipbuilding activity to continue its decline from the peak in 2011. Defense is now a very minor part of our overall business, when is noteworthy, as we received a large order in the first quarter for aircraft sprinkler systems. Despite the industry softness in this sector, we anticipate our overall sales into this market to be relatively flat for the balance of the year.

Next we'll turn to the mining end market where we send centrifugal and axial fans. These products are used by customers in this sector to provide necessary mine ventilation. Sales for the 2012 first quarter increased 7%, and 10% organically, while orders increased 22%, and 26% organically. Demand from developing nations more mined raw materials like coal, iron ore, copper, gold, and nickel will continue to stimulate very positive demand for our Howden range of products. It's worth noting goldmine production is now at record levels and iron ore production is expected to double over the next 20 years. Howden continues to focus on this market, as these demand factors provide strong growth opportunities over the long term.

Finally, I would like to touch upon the general industrial segment, which is actually the combination of several subsegments which are served by our gas and fluid handling products. More specifically, products in demand in this segment would include a variety of industrial fans, compressors, tunnel ventilation, pumps serving various industrial needs such as elevators, waste water, diesel engines, and chemical processing. For the first quarter of 2012 sales increased by 9% in total and organically. However, we have experienced a recent decrease of 4% in orders and 6% organically. This drop-off reflects a general industry softening due to primarily the weakening economic condition in Europe. We expect this end market decline to moderate over the balance of the year.

As I stated in our release, the profit margins did improve this segment driven mainly by mixed volume and 2011 restructuring, and the early success of a number of CBS events. Margins improved in most geographies, but of particular note were major gains in China and Africa. Our fluid handling team has accelerated their drive toward Lean as well, with a focused methodology towards implementation of process slow and demand pull. We'll continue to turn up the CBS intensity level across the entire platform, as we know that there's a significant improvement potential on number of fronts.

Now I'll hand it to Clay to speak about the ESAB's results and status of our profit improvement initiatives. Clay.

Thanks, Steve. Good morning, everyone.

Our fabrication technology segment represents the ESAB welding and cutting business. Sales for the period January 13 to March 30, 2012 were $461 million, up 2% from the 2011 first quarter. Consumable volumes were up 2% for the quarter. Volume growth was strong in North America, Russia and the Middle East, while volumes were down in Europe and flat in most other regions. Pricing and mix contributed 4% of the sales increase, which is generally in line with the rise and price of raw materials between 2012 and 2011. A 2011 acquisition contributed to less than 1%, and foreign exchange rates reduced total reported sales by 5%.

Adjusted operating margins for ESAB were 7.4%, generally in line with internal expectations and broadly in line with the first quarter of 2011. This margin percentage is not directly comparable to Charter previously recorded due to the inclusion of joint venture earnings and differences in accounting for research and development, pensions and amortization expense. Margins were positively impacted by the higher volumes in North America and the Middle East, and the cost savings of approximately $4 million from the restructures programs ESAB starred in the first quarter of 2011. These improvements were partially offset by reduced volumes in Europe, higher production costs in India and Asia, and the start-up of a new consumables facility in the United States.

Turning now to profit improvement initiatives, the major initiatives begun by ESAB in 2011 include the rationalization of European capacity, the replacement of a high-cost North American plant with a more efficient one, a reduction of European fixed overhead, and the reduction of product range complexity to drive working capital improvement. On our last call, we also introduced $100 million cost-savings target across the Charter acquisition, encompassing corporate redundancies, Howden and ESAB. We're making significant progress on developing the action plans necessary to finalize the timing of both the expected savings benefit and the expected restructuring charges.

The major component of our profit improvement plan has been the rationalization of the two corporate headquarters. This has been completed, and $10 million of savings is included in the 2012 guidance. The implementation of CBS and related productivity improvement, which we'll continue, the supply chain and global sourcing initiatives, including the rationalization of freight globally, SG&A reductions globally, further production rationalization, the implementation of a more variable overhead structure for our automation and cutting businesses and the implementation of disciplined pricing process and strategy -- based on our work to date, it's our current expectation that savings from these programs will flow to profit and restructuring charges will be recorded as follows -- restructuring charges for 2012 are now expected to be $30 million, up from $25 million. There are no changes to the expected 2012 savings which are included in the guidance.

For 2013 incremental savings beyond the amounts in the 2012 guidance resulting from these programs are expected to be $55 million to $65 million. The remainder of the savings will be realized in 2014, with full realization expected in 2015. We'll provide further updates on these later years on future calls.

Let me give you a sense of what's happening, what's been happening over the last couple of months.

First of all, we recruited some seasoned executives to our leadership team as evidenced by the addition of Vince Northfield as our Vice President of Global Operations, Ken Konopa as our Vice President of Global Marketing and Gary Hoover as Vice President of CBS. It's really important it to note, I mean,the experience that these guys have really fit what we're trying to do with our businesses. Vince has an awful lot of experience in Lean, and really driving improvements and on-time complete which we're working on, as well as reducing working capital and the cost structure across the globe and we're putting that to use in our business. Ken, who is a degreed chemist, comes to us with experience from Danaher running a significant business over there and again, his functional expertise is marketing and he's helping us a lot with new product development, especially voice of the customer and those kinds of applications. And Gary has a significant amount of experience with CBS, policy deployments, applicational Lean across a number of different businesses. They in turn have recruited some exceptional talent to blend with some very talented associates in the existing organizations.

Second, we restructured the organization into a global functional one with a regional focus on customers. This structure better leverages our resources for new product development projects and global sourcing, as well as the back office for decision support. The corporate functions are much be leaner with a clear focus on adding value.

Next, we implemented the discipline of weekly KPI calls with our global leadership team and this was the precursor for implementation of the policy employment process which is now in place. We're using this to change the culture at ESAB, as we want to develop an environment that openly and actively engages our associates in the business. Our top level recruitment priorities will focus on the following -- new product development, especially the process and improving the need for speed to market, the implementation of process flow demand poll throughout our supply chain and operations, and the implementation of a sales and operations planning process that systematically improves our services to customers while enhancing working capital performance, and finally the simplification of the European operating model.

In closing, while we have significant restructuring work to work through, our focus is really on building the best model and best teams to compete for the long term. I'm more excited than ever to lead this team of committed associates in realizing our collective potential, as well.

And now what I would like to do is turn it back over to Scott for more details on that financials. Scott.

Thanks, Clay.

As Steve mentioned, sales for the first quarter were $886 million, up 11%, 10% organically, compared to the proforma numbers for the similar number of days in the 2011 first quarter. Adjusted operating income was $63.4 million, which represents an operating margin of 7.1%. Fabrication technology margins were 7.4%, in line with expectations.

Gas and fluid handling margins were at 9.6%. Gas and fluid handling margins are at a seasonal low point, as Howdenhas seasonally lower sales in the first quarter. Given Howden's high engineering costs, this significantly decreases the operating margins for the first quarter in gas and fluid handling. But despite this seasonality, Howden had a stronger than expected first quarter. Howden's performanceabove external expectations accounts for essentially the entire improvement in adjusted earnings per share from the first quarter of 2011 levels.

Corporate and other reduced margins by 1.3%. Expenses of $42.9 million associated with the Charter transaction in this quarter are not included in the calculation of adjusted net income, as this acquisition is transformative and not part of our recurring business development efforts. Also excluded from adjusted operating income are restructuring costs of $8.6 million incurred in connection with the cost production projects that Clay discussed, $33.7 million of significant year one fair value adjustments related to acquisition inventory write-up and contract backlog, and $2.3 million of cost associated with asbestos insurance coverage litigation.

Interest expense was $19 million, reflecting draw-downs on the $1.8 billion term loan made on January 13 and January 25, as well as a $35 million repayment made in March. Interest expense also includes $4 million of non-cash amortization of debt discount and deferred issuance costs, as well as facility fees and the costs of bank guarantees and letters of credit.

Our effective tax rate for adjusted net income for the quarter was 31%. Once all the reorganization activities associated with the acquisition structure of Charter, ESAB, and Howden are completed, we expect the effective tax rate on adjusted ratings to become approximately 29%.

Operating cash flow for the first quarter was negative $109 million. Inventory balances increased $56 million, and working capital's percentage of sales increased to 22% at the quarter end.

The first quarter has historically shown levels of working capital build-up. However we expect these metrics to improve in future quarters as we vigorously apply the Colfax business system.

Finally, our backlog in gas and fluid handling was $1.4 billion at quarter end, and as with our standard seasonal pattern, orders exceeded shipments in the first quarter and are backlog now stands at a record high at the quarter end.

Turning now to the 2012 guidance -- we are making no fundamental changes to expectations for operations in 2012. We are raising our expected adjusted net income in line with Howden's first quarter overperformance in operating profits and books. This will off-set the additional shares associated with our equity offering such that our adjusted EPS expectation of $1.45 to $1.65 remains unchanged.

As a result of the recently completed equity offering, the establishment of fair values in opening balance sheet, the impact of cost reduction initiatives Clay discussed, and finalization of the transaction cost, we are updating certain assumptions in our 2012 outlook, which are listed in an appendix to the slide deck. Of particular note are the following --as Clay mentioned, restructuring costs are expected to be $30 million for 2012. The final fair value for inventory and contract backlog was $78 million, substantially all of which will be charged to the GAAP earnings in 2012. We do exclude this item from our adjusted earnings. Total amortization for 2012, including the 78 million, is expected to be $105 million. The full year GAAP basis effective tax rate is now expected to be significantly higher at 80%. This increase is caused by an increased valuation allowance against the legacy Colfax deferred tax assets which was caused by the new debt structure associated with the acquisition.

As is our practice, we will not give specific quarterly guidance. However, given that there is no historical quarterly data available for ESAB or Howden, we believe some direction on seasonality would be helpful to investors. In broad terms, the first quarter is historically weakest for sales, the second and third quarter are very comparable, and the fourth quarter is the strongest.

With that, I'll turn it back to Steve.

Thanks, Scott.

We're also very pleased with the results of our equity offering we completed in the last month. We sold 9 million shares of common stock, raising $294 million. This significantly strengthens the financial position and provides us with substantial flexibility to execute our business strategies.

I would have to say with two weeks on the job, I have been and remain on a very steep learning curve. However having said that, I've become increasingly impressed with the skills and abilities of the teams that I continually meet here at Colfax, and with the market opportunities that our team has briefly described in the fast. The combination of brands, technologies, and solid market position provide us with a unique opportunity to profitably build something special here within our industrial markets.

In the interest of time, I would now like to open the session up for Q and A.

(Operator Instructions). Our first question comes from Jim Lucas from Janney Capital Markets. Your line is open.

Thanks. Good morning, guys.

Good morning Jim.

A couple of questions -- first, on the power gen side, I wanted to follow up on a couple of comment that you made, Steve, with regards to the softening in North America but more specifically the projects delays in India. Is that a short-term issue or is there something within India in general that's ongoing?

You know, in talking with our team, they feel that the issue in India is really just a short-term bump. There's no change. In fact, they're quite optimistic with the full-year forecast.

And was there anything specific with regards to that short-term bump?

No, just the delay in work processing -- no change in commitment, no change in anything that we've seen in the market from the customer base.

If you take a look at the demand that is out there, the need for electricity in that market, that's what you ought to look towards, Jim. Obviously there will be a need for more power in India.

Right.

So it is a short-term issue.

And with regards to the oil and gas side of the business, that can be lumpy in the order side. Are you seeing anything specific within the order pattern? I mean, obviously the growth rate remains strong there, but just curious what you're seeing in the order book?

No, no substantial change, Jim. We continue to be optimistic about our forecast for the full period on each one or each component part, in both Howden and fluid handling.

Note again, those projects continue to be larger and larger in scope and so it's a lot more volatile when they actually hit.

Okay. And finally, just with regards to the M & A pipeline where you continue to look on the bolt-on side --can you talk about how that pipeline is looking today?

Well, think you put it well, we're still focused on bolt-ons. I that with the digesting of what's going on with Charter, new platforms will be a ways out, but I would say the pipeline is very robust. We have been very aggressive, and there's significant opportunity across the entire business and also very interesting in terms of the geographies that they represent, so we're excited about a number of bolt-ons.

Great, thank you very much.

Thank you, Jim.

Our neck question comes from Jason Feldman from UBS. Your line is open.

Hi. So the organic sales performance in the quarter was above the range you steered us to in both major segments for the full year. And I know you didn't specifically update that sales guidance, but the aggregate sales guidance was unchanged overall. Are their comps getting progressively more difficult during the year? Is it macro uncertainty that's holding you back from being more optimistic about that?

Some of both but mostly just the seasonality of these businesses. We were very close to our internal expectation for sales for the quarter. So we didn't see anything in these results that would cause us to change the sales expectation for the year.

And Clay, atESAB, you talked about some of the efforts, working on product development, and how that is going to change. How do you feel the split between consumable and development -- very close to one of your competitors, somewhat different from one of the other major guys in the space. Is that something you think needs addressing? And if so, when could you get to that given the amount of restructuring work you have to do in that business?

That's definitely something we're focused on. When we take a look at it, what we want to do with new product development is first of all to develop a process so we can actually introduce products much more quickly to market and focus more on the actual customer needs in those markets. That's been a weakness as we take a look at the business.

But our plan is most definitely to go after more solutions which is a combination of consumables and equipment. And again, as we take a look at it in terms of what our goals are for gross profit and those types of things, we look at more of a shift, especially in utilizing equipment as a very positive thing to help us get there.

We actually have some great examples internally. South America has done a great job traditionally with that. It's just that over the last three or four years, the new product development has been shut off there. So we're turning that back on and we view that as a real opportunity for us.

And then, lastly, if you can just give us more color on the general industrial orders? You mentioned the Europe was attributable for part of the softness. Any particular end markets or specific business lines that cause that softness that you're seeing and have conditions changed over the last quarter?

No, not really, no significant patterns there.

Thank you very much.

Our next question comes from Jeffrey Hammond from KeyBanc Capital. Your line is open.

Good morning, gentlemen.

Hi, Jeff.

So just on the restructuring I think you mentioned $100 million again and Clay you talked about $55 million to $65 million in 2013. But it looks like qualitatively a couple times you said you feel good about the integration, you're bumping up the restructuring. What was the $55 million to $65 million previously? Are we starting to feel differently about this $100 million number to the upside?

This is Scott, let me take that first and I'll let Clay respond to how he feels. We had not previously provided any guidance at all towards 2013. The restructuring programs that Charter had put out prior to the acquisition implied had there would be about $30 million worth of savings associated with those activities. We've combined all those activities into we're not -- all the things that were started, we're completing, but some of the future activities of theirs we've replaced with different activities. So we're going to be addressing this restructuring as one large bucket going forward.

And I'll let Clay talk about how he feels about that.

In terms of the restructuring, there's probably four or five buckets that I've put this into. First of all, when you take a look at this business, it's pretty obvious that there's a lot of SG&A that's been associated with it, and something changed back in 2008. So what we've done is gone back and taken a look at that to try to understand what those drivers are, and then analyze them in terms of if they actually provide profitable growth or driving profitable growth, those are good. If they don't, we want to do something about that. So a lot of the restructuring has to do with SG&A and one of the key areas there, obviously, is Europe.

In addition to that, plant consolidations and closures, right now we have six in process that we're working on as we go through it. Clearly, we have excess capacity, as well as it's not been in right location so we're addressing that and that's a significant part of it as well.

Freight consolidation, global sourcing, that again is something that wasn't organized to really happen. They had two different organizations, one for supply chain and one for procurement and we put those together so there's a definite focus on driving global sourcing across the organization, and lastly, in terms of the functional organization that we're putting in place so that we get leverage with operations and new product development, those types of things.

So some of those are shorter term than others. I think we talked about this on the last call, where we can drive some of those that year. But in terms of the restructuring that's provides that bump in that benefit for next year that will support that $55 million to $65 million and I'm always optimistic about opportunities for improvement over and above that, as well.

Okay, so the key to that $100 million is that you get $10 from that corporate cost this year, $25 million to $35 million in 2013, and the balance in 2014?

That would be correct, yes, because it's on top of that $30 million that was left from Charter. So that would be a fair way to describe it.

Great. And then just on the beat, it sounds like the upside was Howden margins -- is that fair?

That's spot on.

And what drove that and why doesn't that persist because it seems like you're raising by the first quarter beat?

Howden has a wide variety of products across a wide variety of geographies and as well as fore-market and after-market products. So it is a significantly backlog-driven business. We have good visibility as to sales and expected margins in the future and looking through it, we didn't see any reason to raise the guidance for the balance of the year.

And just to add to that, remember one of the things we're able to do was to introduce them to CBS fairly early. So we're just into that process, obviously, over the last quarter and are optimistic about what we can drive there. But just give us a little bit time to get to know the business and drive that through it.

And then just, you talked about kind of pockets of weakness within the order trends. Can you just overall -- you're not changing the guidance so overall order trends are in line with expectations, but where are you seeing sources of upside within the order book?

I think we feel very confident with power generation. As we said, there are a couple of specific reasons why some businesses deferred in the first quarter. We fully expect to get it back. We also feel very strong about oil and gas, both the organic business as well as the acquisitions, the [Puretek] acquisition on the fluid handling side and the Thomassen Compressor acquisition for Howden, we feel good about that market. We feel strongly about mining which is a small market. And then we think general industrial and marine will be flattish and perhaps slightly up.

So on balance the end markets pretty much are on balance where we thought they were going to be on our last call and haven't seen any reason to change the guidance.

Thanks, guys.

Thanks, Jeff.

Our next question comes from Joe Mondillo from Sidoti. Your line is open.

Good morning, guys.

Good morning.

Just to touch on the restructuring just one more time, could you just talk about example what was spent on the $8.6 million in the first quarter? And what is actually being spent on the rest of the year and what kind of benefits we're seeing from that?

I think the best way I can answer that is to refer you to our Form 10-Q. We have a specific footnote in the Form 10-Q that goes through that in extensive detail. I think that would be the most efficient use of time here.

Okay. Does it talk about what's being spent for the rest of the year? I'm trying to get an idea of a timeline, sort of how you're looking at the business and how the restructuring is playing out?

Yes, that is included in that footnote.

And then, I guess the second question just is regarding Europe in general. Could you just talk about that region in general among the different businesses? You mentioned general industrial being somewhat weak there but you also said that you expect that to moderate throughout the year. What gives you that conviction and what are you seeing over there?

I'll speak for the gas and fluid handling markets. You know, we had a pretty strong first quarter on shipments and we had a little bit of weakness in orders. The general industrial typically is not a real long cycle market. So it's up 9 versus down 4. So relatively speaking, that's actually a flattish trend. You can't give too much weight to one specific quarterly statistic by itself. So we feel that overall, given particularly what we've seen so far in the first month of the second quarter, that we're comfortable that flattish to slightly up is something that we feel relatively confident about on the gas and fluid handling side. And I'll let Clay speak to the welding side.

Just to add to that for the air and fluid handling, at least, you need to take a look at that new build versus after-market, as well. So new build has been flatter, if you will, than the after-market has, so that's something to note there.

In terms of ESAB, actually Europe has been holding up better than our original expectation. Southern Europe is weaker, obviously than northern Europe -- I think you've seen that with other businesses that you cover. But so have been relatively conservative internally but we've been pretty pleased with the first quarter in terms of the volume we've seen coming out of Europe.

So overall, can we say directionally that you saw a dip in the first quarter but you've seen somewhat of a stabilization going forward?

It was relatively flat for the first quarter across all business segments. We haven't really seen any significant change in that frankly. So we expect it to continue to be flattish. Again, on the air and gas side, there isn't a lot -- we don't have a lot of business in southern Europe anyway. So that's helped mitigate some of the impact on us.

Lastly, I apologize if I missed the comment on this, but the oil and gas, you mentioned that it's strong, but the orders were down organically 18%. Could you just address that again or talk about that?

Really what's happened there we've seen bit of a timing issue to be honest with you. The Thomassen acquisition has done very, very well for us and that's been a major area of focus. The timing of orders shifted out on us. The team is optimistic about that recovery in the balance of the year so they believe it will bounce back. There is no fundamental change to the business or expectation.

And it's important to look at that Thomassen acquisition differently. That was acquired in march of last year. What the Howden team has done was work with accelerating that. A lot of that has to do with driving more after market sales through those channels that Thomassen had, as well as selling more of the Thomassen products through the Howden channels. So they have done a nice job in doing that and that has driven more of what we consider almost organic but technically it's not because of when it was acquired.

Great. Thank you.

Our next question comes from James Krapfel from Morningstar. Your line is open.

Hi. Good morning. How are you feeling about your previously discussed three to four year margin trend for each business? Do you feel confident you can achieve mid-teens operating margins in Howden, low-teens operating margins in ESAB, or 20% or greater operating margins in fluid handling?

Those margin expectations that you guys have -- that we've talked about before with the team, they're still in line. We still believe that's doable.

Okay. That's a three-year time frame?

Yes, three to four-year time frame.

That's all I had, thank you.

I'm showing no further questions at this time. I will turn the call to management more closing remarks.

Thanks Stephanie, and thank you everyone for joining us today and we look forward to talking with you again next quarter. Thank you and have a great day.

Ladies and gentlemen, that does conclude today's conference. You may disconnect and have a wonderful day.