EnerSys (ENS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the fourth quarter 2010 EnerSys earnings conference call. My name is Marisal, and I will be your operator for today. At this time, participants are in a listen-only mode. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to hand the presentation over to Mr. John Craig, Chairman, President and CEO. Please proceed.

Thank you, Marisal. Good morning, and thank you for joining us for our conference call. During this call we will be discussing the results of our fourth quarter and full year of fiscal 2010, and will comment on the general state of our business.

Joining me on the call this morning is Mike Schmidtlein, our Chief Financial Officer, and before we get started I will ask Mike to cover information regarding forward-looking statements. Mike?

Thank you, John, and good morning to everyone. 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 uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are based on management's current views regarding future events and operating performance, and are applicable only as of the dates of such statements. For a list of factors which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 7, management's discussion and analysis of financial condition and results of operations, set forth in our annual report on form 10-K for the year ended March 31, 2010, which was filed with the US 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 information, please see our Company's Form 8-K which includes our press release dated June 1, 2010, which is located on our website at www.enersys.com.

Now let me turn it back to you, John.

Thanks, Mike. As we reported last night, our sales for the fourth quarter were $451 million, with adjusted diluted earnings per share of $0.45, which is consistent with our preliminary Earnings Release on May 12. Our sales were up 7% on a sequential basis from this year's third quarter, and the earnings exceeded the $0.41 midpoint guidance we gave during our last conference call. For the full year, we reported $1.6 billion in net sales, with adjusted diluted earnings per share of $1.44.

Considering the severe recession we went through and the resulting significant decline in revenue, I'm very pleased with our overall performance this year. Our solid performance in the face of the recession was a direct result of the actions we started during the summer of 2008, when we first saw the beginning of the economic downturn. As we entered the recession, we said we would exit this recession a stronger Company than when we entered this recession, and in fact, we have done just that.

Many companies lost money during the recession, while we remained profitable. Our debt leverage is lower than it was two years ago. Our equity is higher. We now have approximately $200 million in cash and short-term investments that we could use to help grow our Company.

During the recession, we closed a plant and consolidated many of our back office operations. We also relied on our strong capital structure and cash flow to increase the marketing, sales and engineering support to our customers, continued the expansion of our thin plate Pure Lead capacity and maintained our strong new product development efforts. We shifted more production to low cost manufacturing plants, and accelerated automation in certain of our higher cost plants. In the past year we made several acquisitions, which will enhance our future revenue and income.

During this period, our number one priority was to continue to provide the best value in products and services to our customers. Our customers demand the best overall product performance, quality, delivery and service, and we believe we remain at the highest level of value in our industry.

As a result of the work of our employees, we not only remained profitable but we increased our gross profit margin from 21% in fiscal 2009, to 22.9% in fiscal 2010. I'm pleased with the progress we made this year, and we remain committed to our objective to achieve a minimum gross profit of 25%. All of the actions we have taken have positioned the Company to grow earnings at a faster rate than revenue as higher volumes return.

We will keep our focus on pricing management as part of our continuing strategy. While we continue to provide benefits to our customers with cost reductions, we also need to recapture more of the recent increases in commodity cost. As you know from our last conference call, we experienced incremental leg cost in excess of $20 million on a sequential basis in the fourth quarter. We recovered only a small portion of the incremental cost in the quarter. Had we realized a higher recovery rate, the $0.45 in adjusted earnings per share we reported would have been considerably higher.

Although our European markets were hit harder by the recent recession, we realized again the benefits of being diversified geographically. There will always be periods in which one region performs better or worse than another, but our global footprint ensures that the effects of regional volatility are significantly reduced in our consolidated results.

Our American and Asian operations each had higher operating earnings in fiscal 2010 than in fiscal 2009, in spite of the decline in net sales. Sales in the Americas were down 16%, while operating earnings were up 10%, to a margin of 12.4% of sales. Asia sales declined 11%, but operating earnings increased 60% to a margin of 15% of net sales. This compares to our European operations in which revenues declined 25%, and our operating earnings were down 73% to a margin of 2.4% of sales.

Cost cutting measures could be implemented in the Americas and Asia more quickly than in Europe but we believe the measures taken in place in our European operations will result in significantly higher earnings in fiscal 2011. After hitting bottom in terms of revenue and earnings in the first quarter of fiscal 2010, we have improved sequentially each of the last three quarters. Our markets are clearly growing well in total, and we are seeing the benefits of all of the actions we began to take when the recession started.

We believe we implemented the right blend of cost cutting while staying focused on our customer's needs, new product developments and required capacity expansions. This has given us a very solid base on which to continue the growth of our Company, and many of these actions are now paying off in new business with customers in each areas of our regions.

As we noted on May 12, we expect our adjusted diluted earnings per share to be in the range of $0.47 to $0.51 in the first quarter of fiscal 2011, an increase from the $0.45 we just reported. Our adjusted diluted earnings per share of $0.45 in the fourth quarter of fiscal 2010 was a record for any fourth quarter in our history. In addition, the midpoint of our guidance for the first quarter of fiscal 2011, which is $0.49, would be a record for any first quarter in the Company's history.

We remain optimistic that the global economy will continue to improve, although we, like many people, are concerned about the economic situation in Europe. We believe a very good indicator of the direction of the global economy activities is in the trend of the worldwide orders for new industrial fork trucks.

During the summer of 2008, we saw orders starting to decline relative to prior years comparable periods and on a sequential monthly basis. This was a clear indicator of the economic decline that came. Forklift manufacturers are now experiencing a substantial increase in orders. The last three months orders, for example, are up globally 34% over the prior year, while the increase for April alone was 46%. This indicator, as well as other data related to our various markets in the world, gives us continued optimism about the recovery we now are experiencing.

We will continue to focus on growing our revenue, and growing earnings at a faster rate than revenue. We have invested recently in several acquisitions, and now are at the start of building a new plant in China. There are numerous potential new investment opportunities around the world, and we are exploring many of them. We are fortunate that we have approximately $200 million in cash and short-term investments, along with a strong capital structure that will allow us to pursue these opportunities to build the business.

In summary, we remain highly focused on providing the best value to our customers, reducing our cost, achieving appropriate pricing, expanding geographically, pursuing sound acquisitions, and last but certainly not least, continue to provide a safe and creative work environment for our 8,000 plus employees that are responsible for our Company's success.

Now I'd like to turn the discussion over to Mike Schmidtlein for further information on our results and earnings guidance. Mike?

Thank you again, John. Our fourth quarter net sales increased 15% over the prior year to $451 million. On a regional basis, Europe's fourth quarter net sales increased 16% to $208 million compared to the prior year. Our sales in the Americas increased 14% to $206 million, while our Asian business fourth quarter sales experienced an increase of 7% to $36 million. Consolidated fourth quarter increase includes approximately 4% due to higher volume, 1% from higher selling prices, 5% from acquisitions, and 5% due to stronger foreign currencies, all compared to the prior year. On a product line basis, net sales for Reserve Power increased 12% to $227 million, while Motive Power increased 17% to $224 million.

On a sequential quarterly basis, fourth quarter net sales increased 7% over the third quarter, primarily due to improved volume, while weakening foreign currencies were offset by increases from recent acquisitions and pricing actions. This is the third straight sequential quarterly increase, and we believe is a good sign for the future. Both the Americas and Asia posted solid gains in organic volume of 12% and 11% respectively, over the prior quarter, while Europe remained flat.

Net sales for fiscal 2010 decreased 20% over the prior year to $1.6 billion. On a regional basis, our European operations net sales declined 25% to $742 million in fiscal 2010. The Americas declined 16% to $700 million, and Asia, 11% to $137 million. The 20% decrease for 2010 includes a reduction of 17% in base volume, and 4% due to pricing offsets slightly by 1% from acquisitions. On a product line basis, net sales in Reserve Power decreased 12% to $821 million, while Motive Power decreased 27% to $759 million.

Now a few comments about our adjusted consolidated earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our Company's operating performance, specifically excluding highlighted items. Accordingly, my following comments concerning operating earnings and my later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our Company's Form 8-K which includes our press release dated June 1, 2010, for details concerning these highlighted items.

Our fourth quarter adjusted consolidated operating earnings were $37 million, or an increase of 21% in comparison to the prior year with the operating margin increasing 50 basis points to 8.3%. This credible fourth quarter margin was achieved primarily as a result of stronger sales of approximately $57 million in the quarter. In addition, cost reduction initiatives offset higher commodity costs net of pricing. Excluded from our adjusted operating earnings for the fourth quarter was $6.2 million of restructuring costs from our European segment.

On a sequential quarterly basis, adjusted consolidated operating earnings were flat with the operating margin decreasing 60 basis points, primarily due to the higher commodity costs net of pricing. Our fiscal 2010 adjusted consolidated operating earnings were $127 million or a decrease of 19% in comparison to the prior year, with the operating margin increasing slightly to 8.1%. The decrease in the fiscal year's earnings primarily reflects the 20% decline in revenue.

Now several comments concerning our diluted earnings per share. Adjusted diluted net earnings per share were $0.45 in the fourth quarter versus $0.34 in the prior year, or an increase of 32%. The main driver to the increase in EPS, similar to our operating earnings, was the higher volume and cost reduction initiatives offset by higher commodity costs net of pricing.

For fiscal 2010, adjusted diluted net earnings per share were $1.44 versus $1.92 in the prior year, or a decrease of 25%. The key influences on our earnings for fiscal 2010 were the reduction in net sales, partially offset by cost savings and lower commodity costs net of pricing.

Now some brief comments about our financial position and cash flow results. In short, our performance remains very strong with substantial liquidity, secure and favorable debt facilities and a strong capital position as illustrated by the following four points. First, cash flow from operations for fiscal 2010 was $137 million. Second, $201 million is on hand in cash and short-term investments as of March 31, 2010, compared to $163 million at March 31, 2009. Third, over $200 million remains undrawn from our credit lines around the world. And fourth, the leverage ratio as calculated in our US credit agreement was 1.7 times, and our net debt to total capitalization ratio was 19% as of March 31, 2010.

Capital expenditures were $45 million for fiscal 2010. Our capital spending for fiscal 2010 is focused on productivity improvements, cost saving projects, expanding our thin plate Pure Lead capacity and the introduction of new products. Our effective tax rate on adjusted pretax earnings was under 30% in fiscal 2010, and in line with our expectations.

As John mentioned, we remain very active in evaluating and pursuing potential acquisitions around the globe. We remain patient, and have not changed our disciplined approach and strategy in seeking acquisitions. We have a strong capital position and significant liquidity, and this gives us confidence in our ability to finance the transactions we are pursuing. As noted earlier, in the second half of fiscal 2010 we completed the acquisitions of the Douglas and Oerlikon Battery businesses and the investment in Altergy Systems.

As we look ahead, we expect to generate adjusted diluted net earnings per share of between $0.47 and $0.51 in our first quarter of fiscal 2011, which excludes an expected $0.02 per share charge for our restructuring programs. Our recent acquisitions and investments are expected to be accretive a minimum of $0.10 per share next fiscal year.

Our anticipated first quarter earnings will be driven by three factors. First, incremental pricing modestly exceeding expected commodity cost increases. Second, first quarter revenue comparable to prior quarter. And third, the ongoing benefits from cost reduction activities.

In summary, we believe our ability to mitigate the higher lead costs in the fourth quarter with volume and cost savings reflects the strength of our business.

Now let me turn the call back to you, John.

Thank you, Mike. And with that, I'd like to open the lines up for questions.

Thank you. (Operator Instructions). And our first question comes from the line of Michael Gallo from CL King. Please proceed.

Hi, good morning. Congratulations on the good results.

Thank you, Michael.

My question is just over the last six weeks or so, what you're seeing in Europe, if you could sort of give us a little more color on reserve versus motive, different geographies, et cetera. Obviously Europe is way down still from where it was, but is it just kind of bouncing along? Are you still -- do you still expect to see improvement in the top line? Is it going to be kind of mixed bag where some regions, some countries are going to do better than others? Or just what you're seeing over there in context would be helpful. Thank you.

Sure. Let me take Europe and break it down between eastern Europe and western Europe. In western Europe, the telecommunications and UPS business, I would describe as flat to slightly up. And the telecommunications business and UPS business in eastern Europe are up. So net net, the Reserve Power business in Europe is up slightly.

Our A and D group, aerospace and defense group is definitely up. We're seeing some significant orders coming in that region.

In the Motive Power area, when you take a look at the industrial truck association data, and what I'm going to refer to is the last three months average data. This is April, looking back three months and comparing it to the same period prior year. Eastern Europe on new truck data is up 31%. The western Europe is up 14%. Total Europe is up 16% on new trucks coming in, new truck orders. If I look at the month of April alone, same data, western Europe's up 26%, eastern Europe is up 148%, total Europe is up 34%.

The bottom line that we're looking at this thing is we're seeing some substantial increases taking place in the Motive Power business, and as we've said in the past, whenever there's a downturn in Motive Power, when it comes back, it comes back strong double digits. We believe we're starting to see the beginning of that in Europe, and seeing it really across the globe. The Reserve Power segment is not going to see the same type of growth in the next six months as Motive Power but it will see growth.

Very helpful context. Thank you.

Our next question comes from the line of Steve Sanders from Stephens. Please proceed.

Good morning, guys.

Hi, Steve.

Maybe a follow-up on some comments you had last quarter about some of the telco related delays in China.

Yes. What I was referring to in the last quarter that there was some slow-ups that took place because of the tender process. Those have been cleared up. The orders have been released. And we are getting a constant flow coming through.

The situation that we have in China, we just don't have the capacity to support the demand. Thus, the reason for building a new factory as I mentioned last time. That factory will employ approximately 1,100 people. When totally operational, it will be capable of generating approximately $150 million in revenue. But the bottom line to it is, orders are not a problem in China or in Asia for us, it's just we do not have the manufacturing capacity to support the growth.

Okay. And we're still thinking about construction costs for the facility being somewhere in the neighborhood of $30 million or below?

Yes.

And the time line to bring it up?

We're hoping within 12 months from now we'll see first production.

Okay. And then should we expect --

That's accelerated schedule.

-- notable margin pressure in China as you bring that facility up.

Ask again, please, I didn't understand it.

Should we expect any significant margin pressure as you bring the new facility up in China?

Like any other plant, we're going to see start-up costs, that's going to impact things. I think our cost to start up realistically is going to be a little bit higher than it will be when we get the operation fully going, probably 18 months down the road from there. But I don't think it's going to be that significant.

Okay. And then Mike, I think you gave this but can you talk a little bit more about what's going on pricing, given the recent fall in lead costs. And I think you indicated that you'd see significant benefits to pricing commodity trends in the June quarter versus the March quarter, but I wasn't sure that I got all that.

Well, what I said, Steve, was that we would expect modest increases in pricing compared to the increases in lead. So yes, we will see a benefit, but with the volatility that we are seeing in the LME, it's making it very difficult for any pricing actions to stick, and so it's probably not as high as we would hope it to be, but we are seeing some gains there.

Okay. Thanks very much. Good quarter.

Thank you.

And our next question comes from the line of John Franzreb from Sidoti. Please proceed.

Good morning, guys.

Good morning, John.

I wanted to touch back on, I guess maybe the pricing or gross margin dynamic we're seeing right now. If I heard you correctly, Mike, you said the revenue's going to be roughly similar to what we had last quarter. Sounds like you're going to get the margin, the gross margin back up, but if it's not on pricing, is it on the cost savings benefits. Could you walk through the dynamics and what our expectations should be on gross margin in the coming quarter?

To your point, first on the revenue, John, I would say we're expecting the volumes to probably be slightly higher. What the top line revenue might be and these average actual rates is difficult to say with what we're seeing in the European currencies, but we would expect give or take plus or minus 2% from our top line in the fourth quarter would be kind of where we're pegging this first quarter.

On the gross profit percentage, I think we will see an improvement from the fourth quarter because we will get those pricing actions be better than the costs that we will be incurring in lead and commodities, and we will have the benefit as you pointed out on the cost savings initiatives continuing on. So I would expect a modest improvement.

Let me pick up a little bit further on that. I'm going to take and make reference back to Q3 and kind of --

I was going to go there. That's great.

Okay. Q3 to Q4, and obviously Q3 we came in at $0.44, Q4, $0.45. But when you get behind the numbers and really look at it there's a phenomenon that took place that's really interesting, and what that is this. We had commodity cost pressure that impacted us by $0.36 a share on a sequential basis. We had pricing that came through as a good guy at $0.13 a share. Net net, if we would have got or recovered 100% of the commodity cost increase from third quarter to fourth quarter, with the pricing in there, it would have been a $0.23 difference. Instead of $0.45, assuming everything else would have been equal, we would have come in at $0.68.

Now, not everything else would have been equal, of course. There's other things that might have changed. But the point of it is that a $0.36 headwind on commodity costs and only offsetting it by $0.13 in pricing, it says that we've got some great opportunities going forward. It says something about the base business and what we did in managing our cost, because our cost control in fourth quarter was exceptional.

Well, I guess the only other headwind would be the discipline of the competition. Can you address that a little bit?

Well, I think if you take a look at what we've done philosophically, and I've talked about this many times in the past, that what we did when we entered this recession, we made a commitment that we were going to be the best value providers in the industry. And what that means is that we're going to provide more than batteries. We're going to provide service and we're going to take great care of our customers, so at the end of the day it's going to cost more for our batteries than it will be our competitors, and we would be willing to walk away from some market share.

And we did a press release or a filing last night that shows that our market share actually did go down this last year. We were 29% globally, down to 25%. We're willing to walk away from low margin business because we are the premium supplier of batteries globally. Okay? And we want that market share back. It's easy to get back. Just lower your prices. But that's not what we're going to do. We're going to continue to be the best in the industry.

Now the other thing about the market share data, just to clarify that a little bit here, the 29% to 25%, one of the other reasons that that's down is because the Asia market is growing so much faster than the rest of the world. In other words, Europe is down, the Americas are down, Asia and the market perspective is up, and as I mentioned earlier we don't have the capacity to support it. Thus, the reason for the new plant.

Okay. Thanks a lot, John.

Our next question comes from the line of William Bremer from Maxim Group. Please proceed.

Good morning, John. Good morning, Mike, how are you?

Good morning, Bill.

Excellent quarter. What's amazing is that, at the conclusion of this quarter, the euro was at $1.35, the pound was at $1.53, we're now down to $1.22, $1.46, $1.47 respectively there. Taking that into consideration, it just truly shows the execution and restructuring you've done over the last, I would say year and-a-half to combat that, as well as the pricing increases. But great job there.

Thank you.

Can you give me some color on SG&A? I was a little surprised that it was down to this low $59 million level, given $450 million in revenue. Excellent job. Is that sort of -- could we now start to believe that this is going to be the run rate going forward?

You know, I think that's probably premature to expect that, Bill. The operating expenses in the fourth quarter were lower than our historical trend. Part of that was leveraging our higher volume. But other parts, you know, on a quarterly basis we will assess our various needs for bad debt reserves, legal contingencies, et cetera, and in the fourth quarter those were not large charges for -- you know, to our earnings. They're not huge numbers, but you're looking at a fairly small amount of money involved there. So I would not try to take the fourth quarter and extrapolate that type of a percentage of sales forward into fiscal 2011 necessarily.

I would agree wholeheartedly with Mike. And it's one of the things that we talked about earlier, in providing best value, an area that we are not looking at cutting back is our sales and service aspects of things. The SG&A area that you have seen historically I would say is a little higher than we would like to see it in absolute dollars, but I think it's positioned well right now, because as we see the pickup take place in volume we will get the leverage on that. We don't have to add a lot with a lot of volume coming at us, but again, that was an area that we consciously didn't want to cut back a lot because we wanted to go after the best value concept and provide more for our customers.

Right. And you mentioned the expansion. I should say continued expansion on the thin plate Pure Lead. Could you provide us with a little more there?

Yes, it's an interesting story. When we went into this recession and were spending $50 million on capacity expansion and a year and-a-half ago, it looked like the world was falling apart, we said we're not going to let up on that thing, we're going to keep going with it. We're probably 80% through the project right now, and I can tell you, we haven't got enough capacity today to support the demand. I mean, we're utilizing that capacity 100% and which can't wait to get the other 20% in place, and we're now evaluating the next investment. That product is just taking off like -- it's unbelievable how well it's performing.

Excellent. Thank you, gentlemen.

Our next question comes from the line of Walter Nasdeo from Ardour Capital. Please proceed.

Hi, good morning, this is Shawn Lockman for Walter. Just a quick question for you on the euro. As was previously mentioned, the pullback in our currency there, and just if you could talk a little bit about how you guys see that impacting your business, I guess specifically in 1Q, since we've seen the euro drop back into the sort of low 120s range, and just how that might impact your business.

Yes, the simplest standpoint, obviously it's going to have an impact on the translation coming back to the US. The top line, revenue line will be diminished or decreased because of the FX effect. Earnings, it will not have a significant impact because we're somewhat naturally hedged. Meaning we sell the products in euros, we manufacture the products in euros, so somewhat naturally hedged. On a gross profit standpoint, on a percentage basis, mathematically it takes a percentage up. So net net it has very little impact on us because of the natural hedge. The way I view it is in any given quarter, it could potentially have a $0.03, $0.04, $0.05 swing plus or minus.

Okay. Great. That's very helpful. Just wondering if you could comment a little bit more on -- looks like just from the estimates for restructuring going forward, are we starting to sort of wind down those efforts, and how should we look at those as we head into 2011? Little bit obviously in 1Q but are we looking for those to sort of dwindle away as the year progresses.

The bulk of them are over. We hit the big impact last year. We're going to have modest ones this next year. Mike, do you want to comment?

Shawn, to your point, the programs that were previously announced are really winding down. Some of the restructuring related to the recent acquisition of the Oerlikon Battery business in Switzerland will be the major emphasis going into Q1 and Q2, and barring any future restructuring programs or future announcements, and of course we're always looking at whether there are opportunities to further drive cost out of our business, so we never want to eliminate the possibility there may be a new plan. But with the existing plans to date, you're right, you'll see those wind down this year.

Any sort of estimate on the total that we might see for this year yet or are you guys holding off on that?

I think we hold off on that right now. But let's put it that it's a significantly less amount of money. Now, the caveat I'll put on that though, is we do have a new plant construction. We are looking at expanding. As I said before, in India, in South America, in Africa, and obviously we're expanding in China. And as we look at things in expansion, consolidations that we do acquisitions or build new factories in those areas, you will see some impact on it.

Our thing is, we've taken this business from $200 million to over $2 billion, and we want to continue to grow. We've got the cash to do it right now. We plan on investing cash to grow our business even to higher levels than we're at and be more profitable than we are today.

Mike?

Just one further item. We noted in our guidance that we expected a $0.02 charge in the first quarter for the restructuring programs, and I would not expect the second quarter to be significantly higher unless we were to announce a new program.

Okay. Very good. That's very helpful. Thank you, gentlemen.

(Operator Instructions). Our next question comes from the line of Matthew Crews from Noble Financial. Please proceed.

Thanks for taking my call. Good morning.

Good morning.

Question on the China, just to kind of recap there. With the new facility being built and existing revenue, how much of -- how does that revenue look over the next, say, two years or will you have full capacity in your existing plant and your new plant, are we talking $300 million business two years out? How do we look at that?

Well, certainly, Matthew, this will be a program that's pretty much starting with little contributions in this fiscal year. We would expect it would by the following year contribute about $40 million of revenue, and then ultimately at maturity we would expect as much as $150 million of revenue.

And then you would still have your existing plants running or will there be any consolidation there?

There could be some consolidation of the existing plant structure in China, yes.

And I know in the past you discussed looking at acquisitions versus building plant capacity in China. Is there still -- obviously I'm going to guess that you're still looking at potential acquisitions there as well to further grow the opportunity?

Absolutely. When you take a look at the growth taking place, as I mentioned before, it's China, India, South America, and Africa, and the Motive Power will grow in each of those regions but when you take a look at the expansion of telecommunications and the requirement for good power, with UPS systems, those are the markets that they're going to see the largest growth going forward. And as I mentioned earlier, when you take a look at our market share, we're down globally, and the reason, the big reason for that is because of the large growth that continues to take place in the regions I mentioned. And in those areas, we're going to be in those areas, and if we can't find acquisitions that are at the right price then we'll build factories. But we will expand in those areas.

And just lastly, I know that the Motive data has been very positive, with the order rates. My concern or question to you is, is this a coincident type indicator? Is there any forward indicators that you use to sort of get a trend of indicators of indication? It doesn't look like in Europe that there has been any impact on the financial concerns of sovereign debt, but just curious if you point to any more forward-looking indicators or -- because obviously the numbers that are out there today are pretty solid.

Well, this is the forward indicator, in my opinion. You take a look at certain industries, like trucking industry in the United States or in Europe, if trucking is up and shipments are up, you start to see the economy improve. There's a lot of indicators out there but I can tell you, looking at 35 years of data in Motive Power, when Motive Power goes down it goes down harder than the general economy. At one point Europe was down close to 50% to prior year on new trucks, industrial fork trucks. It got hit very, very hard over there.

But looking at that 35 years of data, whenever it goes down, it comes back for a two to three year period of strong double digit growth. I fully expect to see north of 20% growth in Motive Power going forward, barring no major catastrophe like one of the European countries going under or having a major crisis take place. If we stay as we are as an economy, I fully believe that we will see probably in the 20% growth range in Motive Power this year. And the data so far is indicating that. Could it change? Absolutely. But you can look at the same data I can. You can look at it over the trends. I can tell you historically, the trend when it goes down it comes back solid double digits for the next few years after the recession.

Great. I appreciate it. Thank you very much.

And our next question comes from the line of Corey Tobin from William Blair & Company. Please proceed.

Hi, good morning.

Good morning.

Let me come back to the thin plate capacity very quickly. Can you just -- sounds like you're 100% utilized in your thin plate manufacturing. Is that correct?

Right now we are, yes.

What does that represent in dollars? What is the amount of thin plate going through the P&L?

Looking somewhere around 18% of total revenue, ballpark. That's going to increase because we haven't fully implemented everything yet.

Okay. So 18% of last 12 months revenue.

Ballpark, yes.

Got it, okay, good. And then switching to margins for a second, do you think the margin numbers that you cited in Europe have hit a bottom at this point?

I hope so. It's hard to tell but I hope they have. And the reason I say that is because of the volume being off -- when you look at Europe versus United States, the United States when we have a cutback you lay people off. You don't do that in Europe. It's a -- you take a redundancy program and you're going to carry people for quite a period of time. In fact, at some plants I almost view the direct labor as being like fixed overhead. You just don't lay them off to cut the cost like you do in the Americas. If we bottomed out in Europe, which I'm hoping that's what's happened, with the increase in volume the leverage will pick up on that, will definitely improve the gross profit.

Got it. I guess the blanket statement, is it safe to expect at this point, assuming again that the volume does pick up, is it safe to expect at this point we should see sequential increases in the geographic margins from this point out?

Well, again, I can't predict that going ahead, but that is fully our intentions. There's a lot of variables going into that but obviously we're not at 25% gross profit. And we need to be at 25% gross profit. That's what we've said. It's a minimum target. If we wouldn't have had the lead situation this quarter, we would have exceeded. In fact, you do the math on that, the $0.23 I mentioned earlier, if you do the math on that and if we would have recaptured all the pricing, commodity costs going up, we would have been north of 27% gross profit this quarter. Again, everything else being equal. So we've got the cost savings coming through. We just got to get the match between the pricing and the commodity cost.

Got it. Great. Thank you.

At this time, we have no further questions. I would like to turn the call over to management for any closing remarks.

Marisal, thank you very much, and thank you, everyone, for joining us today and have a great day.

Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.