EnerSys (ENS) 2006 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the third quarter 2006 EnerSys earnings conference call. My name is Mika and I will be your coordinator for today. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of today's conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn presentation over to your host for today's conference, Mr. Jack Craig, Chairman, President and CEO.

Good morning. My name is John Craig and thank you for joining us for our third-quarter conference call. We're going to be reporting this morning on our results for the third quarter, which is for the period of October 3 through January 1. And as we reported last week, our earnings-per-share is coming in at $0.20 and these results were at the other upper end of our previous guidance of $0.17 to $0.21 for the quarter.

I would now like to ask Mike Philion, our Chief Financial Officer, to cover the information regarding forward-looking statements. Mike?

Thank you, Jack, I mean thank you, John, and good morning to all. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainty and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. For a list of the factors which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations -- as set forth in our quarterly report on Form 10-Q for the quarter ended January 1, 2006, which was filed with the U.S. Securities and Exchange Commission.

In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP financial information, please see our company's 10-K for the fiscal year 2005 and our 10-Q for the quarter ended January 1, 2006, which is located on our web site at www.EnerSys.com. Now let me turn it back to you, John.

Thanks, Mike. To summarize the quarter, I'm pleased with the results when you consider the challenging environment in which we operate. Globally, we're experiencing strong demand while at the same time we're challenged with high commodity costs.

As reported, our net sales for the third quarter were up 18% to 322 million and for the first nine months of the fiscal year, we were up 17% to $930 million, both compared to prior year. Excluding acquisitions completed this year, net sales in both the quarter and the nine months grew at approximately 10%.

We continue to experiencing meaningful sales growth across our product lines in all of our global markets. We continue to grow our market share as we remain committed to delivering high-quality products and world-class service to meet our customers' needs. As stated in our company's visions, we shall be the best in the industry by being easy to do business with and I believe that we have increased our market share by implementing our vision.

In addition, we remain highly focused on ensuring that the managed significant cost improvements that we continue to experience. Our cost reduction initiatives have been in place for many years and we continue to make credible progress in this area. However, cost reductions alone are not sufficient to address higher commodity cost. As you know, costs have recently increased -- lead costs have recently increased with historically high levels. In the past, we have been able to offset some of the cost increase through our cost reduction programs in higher sales volumes, but going forward we need to ask our customers for additional price increases.

We have announced two price increases since November. Many of our competitors have taken similar actions and we believe that our industry is taking a more disciplined approach to pricing than in the past. We hope that lead cost will soon come down, but we are not relying on falling lead prices to improve our near-term profitability. If we cannot achieve needed price increases and acceptable levels of profitability, we are fully prepared to turn away business. We want to profitable market growth and our sales forces highly focused on making this happen.

Based largely upon our cost and pricing improvement estimates, we anticipate our fourth quarter results will be coming in between $0.21 and $0.25 per share.

Regarding our largest acquisitions this year, FIAMM Motive Power and GAZ, both have delivered earnings results in a quarter which exceeded our plan. Additionally, we continue to remain very active in the area of acquisitions and we've recently seen an increase in the number of candidates due in part I believe to the challenges these companies have experienced with high commodity costs.

In summary, as I noted previously, I am pleased with the results when you take into account today's challenging business environment. We are addressing cost and aggressively pursuing price increases. We anticipate that commodity costs will eventually decrease but we're taking the appropriate actions now to meet the challenges of today.

Now I will ask Mike to provide the detailed review of our financial performance. Mike?

Thanks again, John. The results of our third quarter and nine months of fiscal 2006 were indeed strong and continue to reflect robust top line growth and challenging commodity cost pressures. Our third quarter of fiscal 2006 net sales increased 18% over the prior year to 322 million. This increase includes 21 million attributable to the acquisitions of FIAMM and GAZ, which accounts for 8 percentage points of our 18% growth rate. Additionally, foreign currency translation, primarily from the euro, had an unfavorable impact on our third quarter of 2006 which resulted in a 7 percentage point decrease in our net sales growth rate.

Also, our third quarter of fiscal 2006 net sales increased approximately 2 percentage points from our pricing recovery actions and in summary, our base business experience an impressive revenue growth rate of approximately 15%.

On a business segment basis, our third quarter of fiscal 2006 net sales in the Reserve Power segment increased 10% to 141 million while our Motive Power segment increased 25% to 181 million over the prior year. When excluding our acquisitions' impact on the third quarter, revenue from the Reserve Power segment increased 8% while the Motive Power segment increased 11%.

For the nine months of fiscal 2006, net sales increased 17% over the prior year to 930 million. This increase includes 45 million attributable to our acquisitions, which accounts for 6 percentage points of our 17% growth rate. Additionally, foreign currency translation, again primarily the euro, had an unfavorable impact on the nine months of fiscal 2006 which resulted in a 2 percentage point decrease in our net sales growth rate. Also, our nine months of fiscal 2006 net sales increased roughly 2 percentage points from pricing recovery actions. Again in summary, our base business experienced a solid revenue growth rate of approximately 11%.

On a business segment basis, the nine months of fiscal 2006 net sales in the Reserve Power segment increased 9% to 417 million while our Motive Power segment increased 23% to 513 million over the prior year. Again, when excluding our acquisitions, revenue from the Reserve Power segment increased 9% while the Motive Power segment grew 13%.

Now a few comments about our pro forma consolidated operating earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our Company's operating performance, specifically excluding our restructuring and other charges and giving certain pro forma affects to our fiscal 2005 IPO. Accordingly, my following comments concerning operating earnings and my later comments concerning net earnings exclude those relevant items. Please refer to our fiscal 2006 third quarter report on Form 10-Q for more details concerning these pro forma adjustments.

Our third quarter of fiscal 2006 pro forma consolidated operating earnings of 20 million increased 19% in comparison to the prior year with the operating margin unchanged at 6.1%. Higher commodity costs of approximately 6 million in the quarter compared to the prior year period quarter more than offset by the favorable impact of higher revenue, selling price increases and cost savings programs. For the nine months of fiscal 2006, pro forma consolidated operating earnings decreased 9% from the prior year to 53 million with a decrease of 160 basis points in operating margin to 5.7%. This decline in operating earnings and margin was primarily attributable to higher commodity cost of approximately 27 million for the nine months of fiscal 2006.

We continue to be highly focused on a wide range of cost savings programs throughout the Company to help offset high commodity costs and to improve earnings. Examples include the restructuring charges taken in the second and third quarters of fiscal 2006 that will reduce our employment levels in Europe by over 200 people, that we also expect will result in fiscal 2007 cost of goods sold savings in excess of 10 million. In addition, we continue to improve our efficiency and better leverage our fiscal 2006 operating expenses with a reduction of over 40 basis points to 15.8% of net sales for the nine months of fiscal 2006 in spite of approximately $5 million, or 50 basis points, of additional public company cost.

As we have discussed, our fiscal 2006 results have been significantly affect this by higher costs of commodities. Lead alone, which is roughly 21% of our cost of goods sold, represents approximately two-thirds of our $27 million total commodity cost increase for the nine months of fiscal 2006. We continue to implement sales price increases to our customers to recover these dramatic cost increases with two pricing actions taken since November with over a 10% increase announced.

An additional view comments concerning lead cost. For the third quarter of fiscal 2006, the average LME cost for lead incurred by EnerSys as it affected our income statement was approximately $0.39 per pound compared to approximately $0.37 per pound in the prior year. And for the nine months of fiscal 2006, the average LME cost for lead incurred by EnerSys was approximately $0.40 per pound compared to approximately $0.35 per pound in the prior year. Further, we expect our fourth quarter of fiscal 2006 LME lead cost to increase to approximately $0.43 per pound. This will increase our fourth quarter of fiscal 2006 lead cost by over $4 million.

We continue to closely monitor lead and other commodity costs. For the first six weeks of calendar 2006, the LME price of lead has increased to unprecedented historical levels and has averaged approximately $0.58 per pound. This clearly illustrates the points that John has made earlier about the heightened importance of increased pricing.

Now a few concerning pro forma net earnings per share. After giving effect to the fiscal 2005 IPO and excluding restructuring and other charges, diluted net earnings per share were $0.20 in the third quarter of fiscal 2006 compared to $0.14 in the prior year, or an increase of 43%. We are particularly pleased with this strong improvement in fiscal 2006 third quarter earnings, given the many challenging factors help our business has faced. Again, after giving pro forma effect, diluted net earnings per share were $0.53 for the nine months of fiscal 2006 compared to $0.60 in the prior year, or a 12% decrease. This decrease was primarily attributable to higher commodity costs, partially offset by continued savings from our cost reduction initiatives, strong growth in sales and our pricing recovery actions.

Our effective income tax rate for the third quarter of fiscal 2006 was 29.1% compared to 35.2% in the prior year. This lower rate in the third quarter included a nonrecurring tax benefit of approximately $500,000. Our effective income tax rate for the nine months of fiscal 2006 was 31.9% compared to 35.2% in the prior year. This fiscal 2006 rate reduction is primarily the result of a higher proportion of our consolidated earnings being in tax jurisdictions with tax rates lower than our previous period global averages. We estimate that our book tax rate will approximate 32% for the full 2006 fiscal year.

Now let me make a few comments about our financial position and cash flow results. Primary working capital, which we defined as accounts receivable, plus inventory, minus accounts payable, was 315 million at the end of our third quarter of fiscal 2006, and as a percentage of annualized trailing three-month net sales, was 24.4%. Primary working capital levels have increased since the beginning of fiscal 2006 by 32 million with our primary working capital ratio decreasing by 0.3%. The increase in invested working capital primarily results from our strong increase in revenue and the FIAMM acquisition.

Fiscal 2006 capital expenditures were 11 million for the third quarter and 30 million for the nine-month period, compared to the 9 million and 23 million, respectively, in the comparable periods of the prior year. Our capital spending continues to focus heavily on the reduction of cost, introduction of new products and selected increases in manufacturing capacity. We expect capital spending for our fiscal 2006 year to approximate 40 million. Net debt, which we define as total bank debt minus U.S. short-term investments at January 1, 2006, was 406 million and has increased approximately 46 million since the beginning of fiscal 2006, primarily due to the FIAMM acquisition and the impact of increased sales volume on primary working capital. We expect net debt levels will be substantially similar for the balance of fiscal 2006.

We believe our relationship with our bank group is good and we remain in full compliance with all our financial covenants.

As John mentioned earlier, we expect to generate diluted net earnings per share of between $0.21 and $0.25 in our fourth quarter of fiscal 2006. The major factors that will influence our fourth quarter earnings are, first, the anticipated significant progress in recovering additional selling price increases to offset higher commodity costs. Second, we expect our first quarter sales volume will be the highest of any fiscal quarter for the 2006 year. As many of you recall, this is consistent with our historic sales patterns. And third, continued progress on cost saving initiatives, including further improvements from our FIAMM and GAZ acquisitions.

In closing, I share John's confidence and resolve in successfully growing our Company's future earnings and shareholder value. Now let me turn the call back to you, John.

Thank you Mike. I would like to open the lines now for our questions.

(Operator Instructions). Bill Benton, William Blair.

Good morning, guys, and congratulations on fighting through this. In terms of the lead, you're saying $0.43 for next quarter. I know when you entered the quarter, I think you guys had said something like 70%, and you had, it said $0.40, which suggests I guess the incremental is obviously reflective of this, at the obviously the current higher prices.

That's correct.

Just trying to get a sense of kind of what is you guys' strategy at this point, and hedging strategy at thoughts at this point? Obviously, I know you're getting price, but I'm just trying to think on the other side what the thinking it is?

Bill, we look out this quarter and next quarter and we have a very good idea of where we're going with things. Right now, it's my belief, when you take a look at lead, I think it's higher than the fundamentals would indicate it should be. I feel that lead has reached the point right now where our industry is starting to pass that along and we're seeing that globally, including in China, I might add, we're even seeing price increases take place over there because lead is so high. I think that lead from a price standpoint, when you're looking at the $0.60 to $0.63 that we have seen, we were not onto the market looking at hedging at that point because we believe we're going to see a drop. And if we're wrong on that, we feel that the industry is taking enough discipline right now that they're going to pass the pricing on. And again, I will emphasize, we're seeing our competitors do the same thing as we are, and that's pass the pricing on.

So is short, we think lead is going to come down and we will go out and take some positions to protect one quarter or two quarters out. But looking beyond that period of time, we're looking for lead to be back in the $0.40 range.

When you take a look at LME and look at the inventories, since the beginning of the year the inventories have climbed over 50%. It's up to about 68,000 metric tons right now, as I recall. So the inventories are building.

Okay. And you talk about the prices being more disciplined. Is that pretty much across -- I know you mentioned China specifically -- so you're seeing that in both segments of the business and geographically as well, you're seeing pretty broad-based discipline?

We see it more -- in the past, we've seen it more in Motive Power than we have in Reserve Power. We're even seeing it come through now in Reserve Power, more now than we have in the past.

Okay. And then obviously the fourth quarter is a big sales quarter, and Mike mentioned that price is going to be important. As you guys give your guidance and you think about price, you guys have announced couple of increases. How can we think about what you've factored into this quarter's guidance as it relates to both price increases? Was it really more or capturing the first one or even this second one here?

Actually in the fourth quarter, we're relying less on prices than we are on cost savings that we have coming through in volume. If you go back and look at what has taken place here, we made the first announcement in November, and obviously there was a time delay before you really feel that price increase take place. That one was 6%. Then the second one we announced globally was between 5 and 10%. If you add that up and you look at the average, that would be about 13.5% price increase that we would hope to get if you the take the average of the numbers I have thrown out here. Obviously, that is not all going to fall immediately.

In our fourth quarter, we're counting on our sales guys to go out and get the price increases that we are shooting for. But when you figure in the backlog that we currently have, and by the time we would ship the orders [are] taking right now, we don't expect that we will see the total impact of that price increase until fiscal year '07.

So in the fourth quarter, we're not throwing a lot in there, just a very little bit on pricing. It's mainly cost savings. And if you will recall, the onetime special charges that we have taken this year, which is a little over $8 million, we are starting to see the benefits of those take place, those being shutting down two plants in Europe, consolidating location sales offices. You may recall from the last call, we talked about taking approximately 200 in -- or reducing our work force by 212 people. We've taken those charges, we start to see the benefits of those in the fourth quarter.

And just quickly, you're halfway through the quarter now, so I presume your visibility on this so far is quite good in terms of your expectations and the momentum is kind of similar to the past and the price increases are matching what you're expecting?

Yes. Everything that you've just said is reflected in our guidance.

Okay, great guys, congratulations again.

John Franzreb, Sidoti & Company.

Good morning. I was just wondering if -- you give us an update on the Motive production move in China?

Yes. Just to back up for everybody's benefit, we started selling Motive Power batteries in China several years ago. When we did that, we wanted to go in and test the market to be sure that our product would be accepted. We exported product from Europe into the China market. Basically, we were looking at breakeven just to get the business started. Then we invested in the manufacturing capacity, and I'm pleased to say that we are manufacturing our product line in our [Jin Hsu] plant in China today at a significant lower cost basis than what we were bringing it in from the European group. So we are on the plan. When I looked at the numbers for our budget for next year, we are right at or slightly exceeding what the [GAAP] appropriation in place for. So I'm pleased with the way that's moving forward.

On a related question, a lot of companies reported a slowdown in telecom buying and expanding in Asia in the second half of 2005. It seems like telecom is doing well for you, at least in North America. What are the trends like in Asia currently?

We haven't seen a slowdown. In fact, our business is actually up in third quarter compared to prior periods. But part of that, you may recall from a prior call that we actually walked away from a telcom in China and diverted that production to support the Americas in Europe. We then reported on the last call that we cost-reduced or redesigned the product that we manufactured in China for that particular customer, went back to that customer, and we now are their largest provider of batteries. So we are not seeing a slow-up in our business.

Great. Now I need you to put your hat on, look a little further out. I've seen numbers out there that suggest that the forklift market should face a cyclical downturn in calendar 2007, with 2006 being kind of flattish versus 2005, and 2007 is a downtick in this cycle. Could you give me some thoughts about how that will or won't hurt you, or what's your confidence in that kind of a forecast?

The confidence in the forecasts, what have I found over the 12 years I've been in the industry in the forklift business has not been very good, quite frankly. I think what you take a look at and what there is a direct correlation in, and when we've gone back and looked over 30-year period on this thing, there is a direct correlation between capital spending in the fork truck end of it. And if you look at those trends, I think that it would support that we're going to continue to see growth, and I don't think there's a major downturn we're headed to.

Now, let's take the opposite side and say that there is a downturn. We have other businesses that are picking up quite nicely, other areas. I won't go into all of the details because many of these we have not announced. But as an example, one that we have announced, you know that the United States Navy has given us millions of dollars upfront to develop nuclear submarine batteries. And when you do the numbers on it, that is potentially a $100 million market, which they are very pleased with our testing. We have starting batteries that are used for Army tanks that we're taking into commercial applications, so we see growth there. If Motive Power were to go down, we're diversified enough globally and business-wise that I would hope that there would be other areas that would pick up to offset it.

Great. Excellent quarter, thank you.

Dan Whang, Lehman Brothers.

Good morning. First question was regarding your focus on shifting the product mix towards higher-margin products. Could you talk in a little bit more detail about that, in terms of the products that you are sort of emphasizing?

There's a number of areas. Take one in the Motive Power area where our sales force in one of our product lines, they can go out and sell what I'm going to call a [me-too] type flat plate battery that we have, and they can sell it at market. Once they're in the door, they can explain the advantages of another product that we have that outperforms we believe anything else in the industry. And that's a sell-up that can take place, and we've been successful in doing that.

Another example of it is a thin-plate pure lead product versus a calcium product where it will outperform it and outlast it in life. It has a major advantage of it. Just as a quick example, and I've told this story before about a military application on a starting battery where it will start an Army tank in a silent mode, in a silent mode it's draining the battery down. They have to restart it every 30 minutes or so. They tested our battery and it restarted the tank after nine hours. And the reason for that, that is a difference in the thin-plate pure lead technology versus a normal type of battery. So we have some technologies that we can sell up, and we have been successful in doing that.

Okay. And I think last quarter, you talked about the plans for capacity expansion in certain areas. Has that been modified with the strong volumes that you're seeing? Or, maybe a little more detail or an update on that would be great.

Yes. We have enough capital this year with what we've put in the budget or are spending this year -- Mike mentioned about 40 million, and that is up from prior year, and part of that is for capacity expansion. We want to be sure that we keep our plants running at the high end and we're right now where running at about north of 80% in capacity utilization. And there are certain areas that we do not have the capacity, which we are adding.

Now that being said, the constant debate that we have internally is -- why invest more capital in capacity if you're not getting the pricing? So we are going to take the price increases, as I said. We will be willing to walk away from business if we don't get them, the price increases. And that I believe that we will see, if we lose some sales with it, obviously we're not going to need the added capacity. But if the industry does follow and they raise their prices accordingly and the market continues to grow, we will continue to make capital investments to support it. But we're only going to make capital invests to support good returns.

Fair enough. A follow-up question on pricing. I think historically in the announced price increases that you have put through, I think you've normally realized about half of that. And I know it's still early in the process with the two recent price increases, but are you getting any indication that that would continue to hold, or maybe even better --?

No. I think it's going to be significantly better. And the difference in that is that in the past, we're enabled to absorb the cost and we've offset it with cost improvements. And going forward, we will continue to be able to offset part of it. As we mentioned in a prior call, we have about $10 million in cost savings in the next fiscal year that are coming at us, the 212 people I referred to earlier that we're taking on that we referred to on the last call. We're going to continue to offset part of it. But the thing that has changed is our competitors have gone to public announcements about increasing prices, which we support. When we go in today and we talk to customers and we say we're going to be raising our prices, what we are finding is the customer is going to the competitors and finding the same story. So there is more support. That is why I said earlier, I believe there's more discipline now in our industry than there was just a couple of months ago.

That is very helpful. Thank you.

[John Sykes], Nomura.

Good morning. Question for you on the organic growth. Is that coming from new customers more so than just growth with the existing customers, or is it a balance of the two? I'm just trying to get a sense -- are you adding -- is that a combination, or just existing customer growth?

It's both. What we are finding is that the markets are actually up globally in all segments and all business segments and all geographic locations. The second thing is, we are taking market share; the one thing I talked about earlier, about being easy to do business with and supporting our customers. When we are dealing with something that some would say, and I disagree with this, but some would say it's a commodity market, what do you have to offer, it's service. If you look at our SG&A, we tend to run higher than many of our competitors. We have internal salespeople as opposed to a lot of reps. We put more money in that. We grow our business through relationships and taking care of our customers. There is value there. And we're asking for a price increase for that value.

Isn't some of it, though, technology driven? Don't you have better technology than a lot of your competitors?

In some areas, we do. In some areas, we have technology that is the same as our competitors. In other areas, like I mentioned, thin-plate and pure lead, it's technology we have our competitors don't. So there are some advantages with that. You're exactly right, it's a good point.

Another question I had -- how much is defense-related business, or I guess specifically defense-related business? Is it a large portion of the total?

It's less than 10% of our total.

Lastly, just Asia, what percentage of the total business is sort of Asia-driven right now?

About 70 million.

Alright great, thanks a lot.

[Peter McGrady], [Calpine Management].

Could you tell me how the price increase actually works? Are you just raising prices, or is it a surcharge type of a model? And then second, while you're waiting for those to go through, what have you done in terms of hedging so far?

It is a list price increase, it's not a surcharge that we've gone through. It is a list price increase on these. The second thing is that we need a lot, almost daily right now, on lead following the market. We follow it hour by hour and look at it. But as far as our lead hedging goes, again, the position we're taking now is that, I believe there's more downside in lead pricing than there is upside. And we will go out and look at -- when lead was at $0.63, we were putting out potential hedges in the mid to low 50s, and only to cover a couple of month period. And I would not go out $0.55 out six months right now. I wouldn't do that as an example, because I think we will see a drop-off, and what I'm following is the inventories take place.

What is really driving the cost up, what we believe is driving the cost up and what we're hearing from the experts -- and by the way, we're not experts; we just read a lot of what the experts are saying. Over the last - in fact, in the last calendar year, the inflow into the commodity markets was $80 billion. That was in calendar year '05. Calendar year '03, it was $25 billion, a major increase flow in. There is a basket of funds. If you figure -- or a basket of commodities, I mean. If you figure the amount of lead that's actually in that $80 billion inflow, it's only 0.32%. The point is that lead is being driven by the investment world, it's not following the fundamentals. And anyone I've talked with, the professionals I've talked with, and there have been a lot, they all have said the same thing. And we are seeing inventories build in lead.

Gotcha. So right now, I think as somebody said that you're 70% hedged in the March quarter?

No. What was stated was, in our last call, we said we were 70% hedged. And right now, and it was Bill Benton that asked the question, and Bill's point was, we said we were [70%] hedged, and I believe it was $0.40 or $0.39, and now we are reporting our fourth-quarter will be at $0.43. Bill's point was that the remaining 30% that we hadn't bought the last call is now in place because we have bought it, and have brought the average up to $0.43 for our fourth quarter. Our fourth quarter, the lead cost, it's completed.

Gotcha. And the June quarter, have you hedged ahead like you did for this particular quarter?

As you take a look in our Q, you will see there is 22 million pounds at $0.39. That is public information. We have taken some positions since then at higher numbers, but not a lot.

And the last is, you had the first increase in November and another one in January, so you have a couple of months of selling it to the customers. So far, have they been accepting it, or are they thinking about it, or where are we in terms of that process?

Obviously, whenever you go in for a price increase, no one likes it. And as someone pointed out to me not long ago, we're dealing with a whole generation both of buyers and salespeople that have never gone through anything like this before. So it's a little bit of a training from our end and it's a little bit of shock on the buy side, as it was a shock for us when we found lead jumping up like this. And as I said earlier, when we're finding that the market -- when our competitors are also asking for price increases, and we're seeing more discipline take place, the buyers don't like it. But it's like us with lead. We haven' got much of a choice because the numbers are up so high right now, it is what it is on the price of lead.

So with prices hanging around here, do you have enough of a price increase already announced to cover it, or do you have to raise prices again?

Where we are right now, if the price of lead stays at the range that it's currently at, we have enough price increases to cover it. We're not anticipating additional price increases. So if lead goes up, we will go back to the market for price increases.

Great, thanks very much.

(Operator Instructions). At this time, gentlemen, I'm showing no further questions.

Well again, thank you very much for joining us for our call. And in summary, given what has happened with commodities, I'm very pleased with the Company, the performance. I'm very happy with our employees, the way that everyone is moving in the same direction. We all understand the issues, we understand the problems that we're faced with and I'm very pleased with the EnerSys employees driving forward to continue to improve our earnings. So, again, thank you very much for your interest in our company.

Once again, ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.