Enovis Corp (ENOV) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Colfax fourth-quarter earnings call.

(Operator Instructions)

I would now like to turn the conference over to Terry Ross, Vice President of Investor Relations.

You may begin.

Thank you, Sonia.

Good morning, everyone, and thank you for joining us.

My name is Terry Ross, and I am Colfax's Vice President of Investor Relations.

With me on the call today are Matt Trerotola, President and CEO; and Scott Brannan, our Chief Financial Officer.

Our earnings release was issued this morning, and 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 Investors 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 risks 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 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 in our earnings press release and supplemental slide presentation under the Investors section of the Colfax website.

Now I would like to turn it over to Matt.

Good morning, and thank you for joining us today.

Our fourth-quarter operating results were consistent with the expectations we described on our last call, including revenue and adjusted operating profit in line with previous guidance.

Adjusted EPS was well above guidance, due to tax and interest tailwinds.

Net sales for the quarter were $1.061 billion.

The organic revenue decline of 3.8% reflects what we believe to be solid competitive performance in a continuing weak, end market environment.

I will discuss this in more detail as we look at each business segment.

On the last call, I announced additional cost reduction efforts to eliminate $100 million from our 2014 cost base by the end of 2016.

I am pleased to announce good progress on these actions through the quarter, which will allow us to recognize $50 million of incremental cost savings this year.

Toward this objective, we made good on our fab tech consolidation in North America.

We completed the integration of customer service and transitioned over half of the production volume, while improving overall customer service levels.

We also implemented a simplified business unit structure at Howden, improving market and customer focus while reducing administration costs.

Collectively, these cost actions are aimed at increasing our operating margin in 2016, despite what we expect to be continued market headwinds.

Turning to the gas and fluid handling segment.

Orders for the fourth quarter were $443 million, flat with third-quarter levels.

Although down 19% organically from previous year, this order volume was only slightly below expectations, and reflects the timing of some large project orders in Q4 of 2014.

For power generation, our largest end market, revenues for the quarter decreased by 18% organically while orders decreased 10% organically.

The fourth quarter is the final quarter of the revenue comparison to the SCR retrofit cycle which ended in 2014.

North American aftermarket orders were lower in the quarter, due to deferred maintenance activity and uncertainty of the regulatory environment.

The quarter was also impacted by the continued financial challenges of our major customer in South Africa, but the situation at Eskom appears to be stabilizing.

For the full year, newbuild activity and other non-regulatory driven aftermarket orders increased, allowing us to offset over $20 million of the SCR related orders drop.

We finished December with a large project win in Vietnam, capping a successful year in which we increased share in the growing Southeast and East Asia power market.

We are also seeing the early orders and project activity we expected from the new Chinese air-quality standards.

With the increase of orders in Southeast Asia, the beginning of the regulatory wave in China, and the continued stability of the underlying market, we continue to see power as a positive market in 2016 and beyond.

Oil, gas, and petrochemical sales were up 24% organically in the fourth quarter, due to the timing of large orders in the backlog.

But orders decreased 34% organically.

As we mentioned on the previous call, we faced a difficult comp to the prior year when we booked several large orders including the $37 million order for Kuwait.

The timing of large orders makes quarterly comparisons difficult for our gas and fluid handling segment, especially in the oil and gas market.

Orders finished the year down 4% organically in an end market that was down sharply.

Ian shared with you at our investor conference the terrific progress we've made on our strategy to expand our addressable market for compressor applications, many of which are in oil and gas.

We expect CapEx spending in oil and gas to take another step down in 2016, but we will again work to offset the market decline with additional application and geographic expansion initiatives.

Turning to marine which is primarily served by fluid handling.

Revenues were up 18%, and orders up 4% organically.

New ship construction activity was down sharply: down approximately 30% in 2015, driven by a sharp drop in the offshore support vessel segment which accounts for about one-third of new ship construction.

However, we have seen new shipbuilding activity stabilize over the last several months, and this is starting to read through our order activity.

We also continue to make progress in the quarter expanding scope with Korean shipyard customers, a positive response to our improving level of customer service.

Overall, we expect a more stable marine order environment this year.

General industrial end market sales declined 1% organically, and the orders posted a 24% organic decline.

Steel and cement remain the largest drivers, but the third and fourth quarters have seen more broad-based general industrial investment weakness.

Demand for products also remained sluggish in tunnel, transportation and mechanical vapor compression markets.

However, I would like to point out that our general industrial bookings history is subject to large quarter-to-quarter swings due to project size and timing, similar to other gas and fluid handling markets.

Looking forward, our outlook for general industrial remains unchanged, but this is an area we are watching closely.

I would also like to update you on the impact of our CBS initiatives.

Many of you who joined us in December heard about the cross-functional efforts at Howden and Colfax Fluid Handling to improve the large project management process.

For the large projects typical of our business, on-time delivery, project margins and working-capital performance is usually more dependent on the commercial, engineering, supply chain and program management actions early in the project, than it is on manufacturing in the later stages.

The teams conducted over 30 Kaizen events and implemented daily management across our largest sites, showing the power of CBS to drive breakthroughs in complex systems.

On-time delivery for large projects improved by more than 10%.

Project margins increased, even with some additional price pressure in the year.

And both businesses saw improved working capital performance, with Colfax Fluid Handling generating a full turn of improvement.

Turning to our fabrication technology business.

Organic sales declined 4.8% for the quarter.

North America, as expected, was weaker for the quarter, but we saw stable trends from month to month on filler metals and standard equipment.

Capital equipment purchases trended down, indicating continued weakness in the broad North American industrial market.

Europe and South America trends were modestly better than the third quarter, and it appears that these important regions for us may be stabilizing.

We saw continued improvement in customer service levels, as lessons learned from the manufacturing and supply chain transformation of our European sites were applied to the North American supply chain.

CBS tools for optimized scheduling, set-up reduction and demand pull have driven significantly improved product availability, same-day shipments, and reduced past due orders.

On-time complete shipments are now well above 90%.

And we have made meaningful progress, but still have important ongoing work to do to make sure customers have a positive experience on every customer service interaction.

The recently integrated North American commercial team is also strengthening.

Our distribution customers are recognizing and appreciating our improved performance, but we are not done.

It will take several more quarters to fully implement these actions.

The launch of Rebel and WeldCloud new products was well received.

Many of you got a first-hand view of these products at our investor conference, and at the FABTECH show.

Early customer and distributor feedback has been very positive.

Rebel is now shipping to customers, and we are accelerating the ramp up of production in response to the strong initial demand.

We look forward to the Rebel launch in Europe later this year.

Now, I'll turn it over to Scott to discuss the financial results.

Thanks, Matt.

This morning we reported our fourth-quarter results.

Adjusted EPS was $0.51 per share, which exceeded our expectations for the quarter due to the favorable, below the line savings in interest, non-controlling interest and income taxes which I will discuss in a moment.

The fourth quarter did not have any large unforeseen operating expenses or benefits.

Net sales were $1.061 billion, a decrease of 12% from the same period last year.

This consists of a 3.8% organic decline, a negative 10% impact from foreign exchange, partially offset by 2% growth from the Roots acquisition.

The end markets remain weak, but trends support the revenue guidance we provided in December.

Adjusted operating income was $101 million.

Adjusted operating margins was 9.5%, down from 11.3% in the prior year.

Excluded from adjusted results are $36 million of restructuring costs, incurred in connection with the previously announced cost reduction projects.

Gas and fluid handling net sales for the fourth quarter were $573 million, a 3% organic revenue decline, a 9% negative foreign currency exchange impact, and a 4% increase from the Roots acquisition.

Adjusted operating margin for the segment was 11.8%, reflecting the seasonally higher volumes in the fourth quarter.

These results were 190 basis points below the prior year on lower volume and $3 million of year-one fair-value purchase accounting from the Roots and Simsmart acquisitions, which were partially offset by cost reductions.

Most of the purchase accounting and fair-value expenses for Roots are now complete, and of the remaining amount for Simsmart is not significant.

Restructuring expenses of $36 million were much higher in the fourth quarter, as we implemented the previously announced cost reduction efforts.

In addition to the organization structure changes mentioned by Matt, we made progress on several fronts, including the closure of facilities in the UK and France, the continued centralization of shared services in Budapest.

For the year, the restructuring expenses of $61 million were below expectations by about $5 million, due primarily to the intra period recognition principles required under US GAAP.

Projects are on track to deliver the $50 million savings, which is reflected in our 2016 guidance.

For the fabrication technology segment, revenue was $489 million, down 5% organically and 12% from foreign exchange.

Adjusted operating margin was 9.1%.

Margin was down 160 basis points from the prior year, primarily on lower volumes, the mix impact from oil and gas products, and lower overall capital equipment spending as well as new product launch costs.

These headwinds were partially offset by cost reduction and gross margin improvement efforts.

As Matt mentioned, the transition of customer service and the majority of product volume from Florence to Denton and Hermosillo were completed in the quarter.

We also implemented a new price management process in South America to reduce the distortions caused by inflation and supply-chain currency fluctuations.

Price was up less than 1% in the quarter.

Corporate and other costs of approximately $11.5 million met expectations.

Interest expense was $10.6 million for the quarter, which includes approximately $2 million of non-cash amortization of debt discount and deferred issuance costs, as well as facility fees and the cost of bank guarantees and letters of credit.

This was approximately $1 million lower than expectations, due to better than expected cash flow in the quarter and the deferral of the Federal Reserve rate increase until December.

Our effective tax rate for adjusted net income and adjusted net income per share of 25.1% for the quarter was lower than expectations as a result of the enactment in the fourth quarter of the US tax extenders package, and for us, this primarily relates to the taxation of certain foreign income in the US.

We do not exclude this from our adjusted net income, as it is proper to reflect this in the full-year results.

The catch-up portion related to the first nine months resulted in a decrease in our fourth-quarter effective tax rate of approximately 2.4 percentage points.

Non-controlling interest in net earnings was also lower than expected, primarily, as Matt mentioned, due to the depressed market conditions in South Africa.

The fourth quarter is historically our strongest for cash flow.

We generated $152 million in operating cash flow in the 2015 fourth quarter, of which $109 million is from a reduction in working capital.

And this was a major contributor to the strong free cash flow for the quarter, and for 2015 in total.

We finished 2015 with $100 million less debt than we started the year despite the use of $200 million for acquisitions, and $27 million for share repurchases, which Matt will comment on further in a moment.

Even in declining macro conditions, our businesses generate reliable cash flows.

We remain committed to a prudent capital structure, and a high credit standing over time.

Finally, backlog in our gas and fluid handling segment was $1.14 billion at year end reflecting an 11% decrease due to foreign exchange, a 3% increase from Roots and Simsmart, and a 10% organic decline.

I provided detailed guidance for 2016 at our recent investor conference, and we continue to believe that market dynamics and the pace of internal execution support that range.

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

Thanks Scott.

We delivered against our fourth-quarter commitments, despite ongoing market headwinds.

I'm encouraged by the pace of our operational improvement at ESAB, and the execution of our cost reduction actions across the Company.

Our view of 2016 remains the same as we shared in December, and we are prepared to deliver strong performance in tough growth environment.

We continue to advance our acquisition cultivation efforts.

But with current market conditions, we're also deploying capital to attractive stock repurchases.

We've bought back roughly 2 million shares since the inception of the authorization, and will continue to determine the best capital allocation choices as we move through the year.

With that, I'd like to open up the session for Q&A.

Sonia?

(Operator Instructions) Andrew Obin, Bank of America Merrill Lynch.

Congratulations.

Thank you.

Thank you.

Just a question on fabrication.

You're taking a closer look at the business.

It seems you're still trying to figure out what is going on.

What are the benchmarks or what are the road posts that we should look at for the next quarter or two to get a sense that things are stabilizing, that the new product introductions are working, that the new strategy is working?

Can you just give us some color, what we should expect for the next couple of quarters?

Yes, our focus areas in that business -- we've talked about a primary focus area there is around making sure that our costs are realigned for the revenue environment and the growth environment of the industry.

So in the next few quarters, you should continue to see good progress on our costs and our margins related to that.

And then we continue to work hard on the growth front too.

We continue to drive strong growth around the world, as well as in the US in terms of the initiatives we are driving.

And we continue every quarter to take a hard look at our performance versus our peers in the industry, and we feel like in the back half of last year we saw some stabilization there in North America, in particular.

And in the next few quarters, we'd expect you to continue to see stabilized growth performance in that business.

Just a question on a macro, follow up.

A couple of industrial companies are indicating maybe we're starting to see the bottom of North American destocking cycle.

You've commented what you've been seeing toward the year end.

But any color on what you're seeing in January, and do you think North American industrial activity is getting better in any way, shape, or form?

Thank you.

I think what we've seen in January is consistent with the guidance that we gave late last year.

And we haven't seen any significant movement one way or the other on destocking.

Thank you very much.

Jeff Hammond, KeyBanc Capital Markets.

So just on gas and fluid, overall, I think you're still looking for down 2% to 5%.

It sounds like industrial is maybe coming in a little bit weaker.

Can you maybe frame with a little more detail how you're thinking about the growth rates within gas and fluid by vertical?

And it sounds like power gen is going to grow a little bit.

How ugly can oil and gas be?

Maybe a little more color.

Sure, Jeff.

I think we are positive on power, given the backlog that we go into the year there as well as the activity in the pipeline.

We're also positive on marine.

Marine is obviously much smaller, but we have seen some momentum there and we see a good pipeline of activity in that segment as well.

On oil and gas, I think we are a little more modest.

We had a very strong order intake in the fourth quarter of 2014, as well as early this year.

You're seeing that in our revenue numbers now, we have less of a backlog going into 2016.

So our expectation is a little more modest there.

On industrial, as Matt said, it is extremely lumpy.

We had a close to flat quarter order-wise in the third quarter.

We had a large negative here in the fourth quarter.

I would encourage people to look at that market over a broader period of time than a single quarter.

All that being said, the trends are still double digit down over time.

That is factored into our guidance.

The reason we remain comfortable with our overall revenue target is the activity in the aftermarket sector.

We do expect modest growth in the aftermarket sector, which will combine with the rollout of the large project backlog.

It does give us confidence to reaffirm our revenue guidance.

Okay, great.

And then just back on the welding business.

I think you mentioned Europe and South America coming in a little bit better and some signs of stabilization.

What are you seeing there specifically that points to that stabilization?

Is that outperformance, or is that markets maybe helping out a little bit more?

Well we have seen the markets improve some.

And we believe that we are at least holding our own in those markets, and we may be gaining some share in the back half of the year in those markets.

But the data is not fully available yet.

Okay, thanks.

Eli Lustgarten, Longbow Research.

Can we talk a little bit about how you see 2016 roll out really on the quarterly cadence with the weakness and order backlog in fluid, and the softness that we are seeing in the welding business?

We expect that maybe we have some weaker first quarter, first half to look forward to maybe with some stabilization improvement in the second half as the restructuring takes hold.

Can you give us maybe some color on what we can expect quarterly to reach the targets given the order pattern is still so soft?

I think what I would refer you to, Eli, is the comment, and there is a specific slide in the deck as well from the investor conference where I did lay out revenue expectations by quarter.

We are reaffirming that as well as the overall guidance.

And your intro was spot on.

That's does show a weaker first half, followed by a bit stronger second half.

Which again is the impact of rolling out our backlog, as well as the fact that our capital goods business, particularly in gas and fluid handling is seasonally stronger in the fourth quarter.

So I would refer you to that slide.

I realize that was there.

I was just wondering whether the results that we saw in the order pattern has modified that at all or changed it.

No, it has not.

It has not.

The first quarter might be a little bit weaker than -- weak or something like that or are you still within the range or maybe towards the bottom end of the range is what you're saying?

I think we're still within the range.

There's certainly pluses and minuses.

We feel comfortable with the range.

One note, the tax rate with the benefit.

What is the ongoing -- did the tax rate change at all for the next -- for 2016?

Yes, the tax rate should be about 1% lower than the guidance range that we gave.

Because the -- for those tax techies out there, the active finance exceptions for subpart F has been extended for a five-year period, which means we can reflect that in the normal quarterly tax rate as opposed to having to catch it all up when Congress passes it in December.

So, yes, our tax rate guidance will be down about 1% from what was in the December presentation.

And just one question on welding.

The rollout of new products, I understand it has been received in the marketplace.

We have heard a lot of issues about availability, and you probably won't have much until the middle of February for stuff.

Are things rolling out, availability as you expected, or has it been pushed out, or can you give us some color on the new product, particularly the Rebel?

Well there has been a tremendous reception to Rebel, both in terms of the response of the marketplace, the response of the distributors.

So we've had quite strong demand for the product.

We had started taking orders after the FABTECH show for January and February initial deliveries.

We've already started shipping the product.

And yet given what a great product it is, there's a lot of demand to get it as fast as possible but our ramp has actually accelerated versus the initial ramp that we had planned from a production standpoint.

Great.

Thank you very much.

Matt McConnell, RBC Capital Markets.

Given the continued buybacks, I wonder if you could just comment on your leverage appetite right now, just given the state of end markets and financial markets as well.

What is the comfort level on a net debt to EBITDA basis?

I think we're, as I said in my prepared remarks, we are committed to a prudent and improving capital structure.

So I certainly think on a net debt to EBITDA basis we're talking at something less than 3.

So to Matt's point, we will be making use of our free cash flow, and we will carefully choose between M&A opportunities and share buyback, but we're not looking to increase our leverage beyond that type of level.

Okay, great.

And just maybe an update on the M&A pipeline.

How do potential sellers respond to increased volatility in the end markets?

Does that help some potential M&A targets break free, or do people pull back, or just any update on what you're seeing on the M&A pipeline?

Broadly, there's still disconnect between the prices that sellers are ready and willing to sell for, and the price that buyers are.

As you get any time that you get this kind of a more dynamic market situation.

That said, there are some good specific opportunities out there, and we are engaged on some.

I think if there are good specific opportunities, we will certainly be pursuing them.

Okay, great.

Thank you.

Nathan Jones, Stifel.

Matt, if I could just focus in on a comment you made in your prepared remarks.

You said solid competitive performance in tough markets.

I think that implies that you're implying that you gained some share in the quarter.

I wonder if you could just give us some more color on maybe where and how much you think you gained in the quarter?

I think we've been consistent, that we think in the Howden business we've have been gaining share in oil and gas and also in some parts of our fans business, for example, in China.

So we think we continue to have strong share, good performance in the Howden business.

I commented on some of the specific progress in the Korean shipyards in fluid handling, where this is more on a specific project basis but we are encouraged by some momentum there.

And I really think in the fab tech business, what we saw was improvement in our growth rate throughout the year in a market that was worsening throughout the year.

And we think that that indicates progress in the right direction, and each quarter has its own unique puts and takes.

But we feel like we're making progress in the right direction.

Okay.

And another comment you made on South America, with signs of stabilization in that market.

I think the macro indicators, would probably run counter to that.

Can you give us a little bit more color on how you get confident that that market is at least approaching a bottom?

Yes, I was down there a few months ago in a handful of countries.

And I would say in each of the countries, I saw and heard a very credible combination of political and economic combination of facts that pointed to in some countries improvements this year and in some countries improvements later this year, and on into next year.

And then certainly our -- what we have seen in terms of orders and growth performance down the back half of last year and into the beginning of this year is consistent with that stabilizing view of that market.

There are still certainly country by country specific challenges, be it political or currency or inflation.

But we have seen stabilizing demand, and we think that in this year into next year that that is going to be an improving area for us.

Okay.

And if I could just get one more in on project margins.

You said that despite pricing pressure, that execution meant they actually increased this year.

Could you talk about your expectation for project margins in 2016, and how pricing in backlog going into 2016 is different to what it was maybe going into 2015?

I'd say first, we don't anticipate a change in the pricing environment from 2015 into 2016.

Obviously, some of these markets are tough.

And on the projects that can be competed for by a number of suppliers, there can be some price pressure.

But at the same time, many of our projects really are based on the total cost of ownership and value to the customer.

We are partnering with customers on the engineering of those projects.

We have got our sales forces trained in value selling to help customers to understand the value of these projects.

And so we think in 2016 like 2015, there will be some pressure out there but we will also be able to continue to make solid progress on value selling our projects.

At the same time, we will continue to work on the cost side of the equation aggressively, as we did in 2015 to ensure that our project margins move in the right direction.

And the backlog per se, the margin in the backlog is consistent with historical levels.

There's no decrease in profitability in the backlog.

That's helpful.

Thanks, guys.

Brian Konigsberg, Vertical Research Partners.

Matt, maybe you could talk a little bit more just on the oil and gas opportunity set going into 2016.

I know you talked about it a bit at the analyst day.

But I don't know if there's some additional detail you could provide by what is looking potentially attractive to enter that could offset some of the core business that is clearly under pressure from an order standpoint.

Yes, so as I said, we continue to see, particularly the upstream parts, to be difficult in 2016 and down from a capital spending standpoint.

But on more the downstream parts, and particularly the aftermarket into the downstream parts, we've aligned more of our organization to pursue that, and we're going to be driving as much business as we can in those areas.

There's been a number of deferrals and delays of turnarounds down the back half of last year.

And we think at some point those turnarounds need to happen, and we're going to be there ready to serve those.

And as far as the entire oil and gas environment and new projects, we're focusing our energy on the specific areas where people will make investments, for example, things that might be -- more efficient ways to be extracting oil for this lower price environment.

Are we talking about new products in the market, or using existing products just for new applications to expand your market opportunity?

I guess that is more what I was getting to.

We pretty much have application-based adaptations to our products, are really the opportunities there.

Okay, got it.

And just going back to Rebel in fab tech, what kind of impact does that have on mix into 2016?

How does that compare from a margin standpoint relative to the rest of the portfolio?

Does that help you into 2016, and is it meaningful, can it move the needle?

Yes, well I'd say a couple things there.

The first is that, equipment margins are stronger than consumer margins broadly in the welding business.

And so increasing our equipment share and the share of our businesses in equipment would be positive from a mix standpoint.

That is the first thing I would say there.

The second is that, Rebel will be extremely positive to our brand and our progress in the market and our ability to have stronger and stronger progress with the channel in North America.

But it will take some time for the financial impact of it to be something that will read through in our results.

Even if we sell beyond the upper end of our expectations of how that product could penetrate.

Understood.

If I could just get one last quick in.

Just on China and with the increase in SCR orders, is the margin profile of this next wave of potential orders, how does that compare to the last cycle?

Has that changed at all?

Has it become more competitive since the previous initiative?

We don't expect a change in the margin profile.

And the early projects we have been involved in there are not indicating that there will be a change in the margin profile.

Understood.

Great.

Thank you.

Andrew Kaplowitz, Citigroup.

I just wanted to follow up on your previous comments on the aftermarket.

I think at the analyst day, you said you think you could drive high-single-digit aftermarket growth in your businesses in 2016.

How do you feel about that now?

I know you said you'd drive some growth here in the 2016 on the call, have you seen any more deferrals from customers?

Do you expect them in your aftermarket business?

So far in -- one month does not a trend make.

But so far, we had a very positive month in the month of January, relative to hitting our targets in aftermarket.

We do expect aftermarket to be up for the year because of the focus and resources we have applied to it.

Our guidance doesn't require it to be up single digits.

That's certainly our goal, but we don't see any reason that -- there's no market conditions indicating that we won't be able to execute our plans here.

Okay, that's helpful.

And then just going back to fab tech for a second.

4Q margin, 9.1%, it was better than 3Q.

But now, as you guys know, 3Q included a headwind from charges.

It was just modestly better than 3Q.

So can you talk about execution in the quarter?

You said execution will continue to improve.

Was there anything in the quarter unusual, and how should we look at it as we go forward into 2016?

I'd say we made good solid progress, accelerated progress in the quarter, I would say.

We are advancing our cost reduction efforts in line with expectations, so we had continued strong recovery on our operational performance in terms of our on-time delivery and shipments to customers.

So we feel like we made strong progress, and that we will continue to make that strong progress into Q1 and Q2.

And I highlighted a few items in my comments as to areas where the spending was a little bit higher, including the product launch costs and the continued mix towards a lower equipment mix.

So the launch costs do go down though as you go throughout 2016 now right?

Correct.

Okay, thanks, guys.

Joe Ritchie, Goldman Sachs.

This is actually Evelyn Chow on for Joe.

Just following up on Andrew's question, but maybe with an eye towards the longer term.

Previously, you've said that a recovery the markets may not be in the cards before 2017, and clearly other industrial companies, maybe not direct peers to you, have been talking about positive order inflection by the April quarter.

I think in your remarks you noted that the second half of 2015 saw more broad-based weakness in general industrial beyond steel and cement.

So just wondering what you're watching here that would change your outlook?

Based on the cycles of our business, we would need to see positive orders more in the second half of the year in order to be returning to growth next year in our gas and fluid handling business.

So in the first half of the year, we will be watching the orders but we will be particularly watching the funnels as well as those advance indicators of what is possible in the second half of the year.

And we will also be definitely watching the aftermarket trends, both in terms of the market opportunities and our progress as we've got significant amount of initiatives aimed at the aftermarkets.

A lot of the organization realignment we've done has increased our focus in those businesses on the aftermarket.

And so we'll definitely be watching those markets, as well as our progress on those initiatives.

Makes sense.

I guess maybe switching gears, it seems like you're making good progress on the cost out.

As you've been working through your plans, have you found maybe the ability to identify more actions within the same envelope of spend, or maybe found the ability to accelerate those actions?

We're constantly trying to accelerate the actions as much as possible, and I think it is always good management to be always looking for the next opportunities that might come after the current ones.

Okay, thank you very much.

Walter Liptak, Seaport Global Securities.

I wanted to ask about the guidance, which is, it sounds like, largely unchanged.

And just what your thinking is with crude prices down so much over the last six weeks, how you factor that in?

Because it seems like a lot of the majors and independents are cutting CapEx.

And what you are thinking about and how that impacts your outlook?

We shared at our investor day our outlook for oil and gas, which was for another pretty significant step down in CapEx spending, particularly in the upstream parts of oil and gas.

And that was factored into our guidance from December, and we don't see any of the changes in price of oil that have happened recently to have any different impact on that.

Fair enough.

If it does change, is there more costs that you can take out in those oil and gas facing businesses?

So if the market environment changes, for sure we will be looking at other levers to take costs out to deliver strong performance in context of what the market does.

We can definitely flex with the volume.

If volume goes down for whatever end market reason, we have the opportunity to reduce costs in reaction to that.

But I think the one thing I would say, is that at the current oil prices, we would not expect that a further decline in oil prices would have a significant negative impact beyond our current view of the environment.

Okay, got it.

Okay, thank you.

Joe Giordano, Cowan.

I just wanted to touch on fabrication volumes quickly.

They've been fairly manageable all year, the declines.

And I think people were worried that there was this shoe to drop with maybe part of your emerging-market businesses, where there's going to be this quarter with this real big volume drop that we just haven't seen yet.

Are we at a level where you feel whatever declines needed to happen in those South American markets, et cetera, have already flowed through, and this is -- we've seen that kind of decline already, and from here we don't have to expect that?

As we said, we have seen stabilizing business around the world.

The business is still shrinking in the back half of the year, but it is shrinking less than it had been.

And the growth rate performance in the back half of the year is largely in line with the guidance that we've given for the business for this year, and we have seen that stabilization in a number of markets around the world.

So it's safe to say if you were expecting that huge drop in the volume side, it would have happened already.

Okay, I think that is important.

And then just wanted to touch on the China commentary you mentioned about the particulate control.

I think I missed what you said initially about the timing of those orders.

Did you say some into 2016?

And I was wondering if you can size that?

I think we've talked previously about that being potentially a $75 million opportunity over time.

And also, which type of technology have you seen more of your customers leaning towards?

Dissecting the question into its parts, the technology has really been very mixed.

We have seen all forms of technology selected.

And we have quite a bit of quoting activity going on now.

So if you ask the question again after the first quarter call, I think I can give you a more fact-based answer as to what customers are actually selecting.

So I don't think we have a whole lot of insight as to whether they're going to go to a solution that is more beneficial to us, or to a lower tech solution.

There's been discussion around all of the factors.

We have booked orders in the fourth quarter, as Matt mentioned.

As far as market size, I think your $75 million number is a reasonable expectation once the market has ramped up.

I don't think we will be hitting that number for 2016.

Fair enough.

Thanks, guys.

Chase Jacobson, William Blair.

I just had a bigger picture question about the growth strategy.

Kind of similar to what you said the analyst day, Matt, it seems like we are in somewhat of a holding pattern here as it relates to growth through acquisition, given where the seller expectations still are.

So one question is, oil is at $30, the industrial outlook is as bad as it has been in a while.

When do you think or what causes the seller expectations to start coming in more?

And then the second part of that is, in the meantime, how are you going to balance capital allocation between debt reduction and share repurchases?

Are we expecting to see an acceleration in the repurchases, or a new authorization at some point this year?

Any color you could give on those would be great.

So just first talking about the overall growth strategy, I think our markets have lined up over the last few years probably about as bad as you could imagine the different verticals lining up.

And we've still got healthy cash flows, and decent operating margins.

So as these markets recover, I think we've got tremendous opportunity to have both top line growth and expansion of our margin in the businesses that we've got.

And we're driving a lot of exciting growth efforts within the businesses to accelerate our performance versus those markets.

As far as the inorganic piece of it, I think you are right that this year, we would expect likely to be similar to last year.

Last year, we did a few really good bolt-on acquisitions.

We see the opportunity for that.

You never can plan these things, but we see the good possibility have one or two good bolt-ons this year

and then turn, as we move into 2017 and beyond, to thinking and looking at bigger opportunities in line with our growth strategy.

Between now and then, our capital deployment will be to put our capital where we think it could add most value.

We still have a ways to go on the $100 million authorization that we've got from the Board.

And at this point, do not anticipate any increase from that and will continue to weigh those buyback investments versus the best acquisition opportunities in our pipeline as we move forward.

I think just generally speaking, obviously as cash becomes available, we may use it to pay down debt.

But our general view is to keep the leverage in the zone that it is in.

I made some specific comments in my remarks and to one of the earlier questions as to the zone of leverage we would work within, and as cash becomes available we will pay down debt.

We may draw the debt back up again in order to meet the capital allocation areas that Matt just spoke about.

But we generally expect to continue operating in the same kind of capital structure zone, with the same type of things that we did this year.

And as Matt said, the selection as to what's done when will depend on what is best for shareholders.

And then just to make sure we answer your full question, you asked about seller expectations.

So my experience with these kinds of time periods is that with time and evolution of the environment, at some point, seller expectations moderate.

And the view of the future firms up enough that there starts to be more opportunity for meetings of the minds on the right prices and multiples for transactions.

Okay, thank you.

Schon Williams, BB&T Capital Markets.

Wonder if any update on the leadership search over on the fabrication side?

I know you've brought in Steve, and Ken is obviously doing a great job there.

But any thoughts on new leadership, when we might see something there?

First I would say, the model we've put in place there is working well.

I have been excited to have a chance to be working more closely with that business.

And I think we have been able to accelerate our progress with the model we've put in place there.

And that gives us the time and opportunity to really find a fantastic leader to lead that business.

I will say in the early days of the search, I have been really pleased with the quality of candidates that are very interested in us.

So I am excited at the quality of the candidates.

It really becomes a question of fit, really finding the right person that is going to bring all the capabilities but is going to be also a great fit with the role and what it needs, and also is going to be a great fit with our business system.

I've had a track record of being able to find leaders like that, and I am confident that we will be able to.

In the meantime, the business is going to keep moving forward.

And then just sticking with ESAB, have you noticed any changes in the distribution channel from the recent consolidation?

At one point, there was some concern that maybe some -- you may lose some private label product in North America because of that.

Anything you're seeing in terms of the distribution channel or it's kind of business as usual?

We haven't seen a significant change in the distribution channel there.

Obviously, the changes there create opportunity.

Any time there is a large change, we think it creates an opportunity for someone like us that is focused on gaining share in that market.

But we haven't seen any other more wholesale changes as to how things are operating there.

Okay, thanks, guys.

I'll get back in queue.

Thanks you.

Ladies and gentlemen, this does conclude our question-and-answer session.

I would now like to turn the call back over to Terry Ross for any further remarks.

Thank you, Sonia.

Thank you again for joining us today.

We look forward to updating you next quarter, and this concludes our call.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program.

You may all disconnect.

Everyone have a great day.