EnerSys (ENS) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2014 EnerSys earnings conference call. My name is Steve and I'll be your Operator for today. At this time, all participants are in a listen-only mode. We will conduct a Q&A session towards the end of the conference.

(Operator Instructions)

And as a reminder, this call is being recorded for replay purposes.

Now I would like to introduce the call to John Craig, Chairman, President and CEO. Please proceed, sir.

Thank you, Steve. Good morning and thank you for joining us this morning. Last night we posted on our website slides that we're going to reference during the call this morning. So if you didn't get a chance to see this information, you may want to go to our website which is www.enersys.com and look under the investor related tab to view the slides. Before we get into the details of our first-quarter results, I'm going to ask our CFO, Mike Schmidtlein, to cover forward-looking information. 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 date 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 2, Management's Discussion and Analysis of financial condition and results of operations set forth in our quarterly report on Form 10-Q for the quarter ended June 30, 2013, which was filed with 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 August 7, 2013, which is located on our website at www.enersys.com. Now let me turn it back to you, John.

Thanks, Mike. Last night we released our first-quarter financial results of $0.83 per share, which exceeded our guidance of $0.78 to $0.82 per share. Reflected on our results was an increase on lead cost of $11 million, or approximately $0.16 per share. As you may have seen last night, we also released our second quarter guidance of $0.81 to $0.85. Typically our second quarter is our lowest revenue quarter due to the vacation season in Europe and the Americas. However, in the second quarter we will start to see the benefit sequentially declining commodity costs which will help offset some of the seasonal drag. Our second half of fiscal results should be much improved over our first half of fiscal '14 due to the combination of higher selling prices, volume, the stable commodity costs.

As you can see on slide 3, we reported record quarterly sales of $597 million, our gross profit was 23.5%, operating profit margins were 10.6% and earnings per share were $0.83. It's important to note that the first quarter marks our sixth consecutive quarter of operating earnings that exceeded our minimum target of 10%. On a year-over-year basis, our earnings per share were down $0.12 due mainly to the increase in commodity costs. When these costs rise, our pricing actions typically trail by one or two quarters.

Now I want to update you on some recent actions we have taken to continue to create shareholder value. In June, we paid our first ever quarterly dividend. And on August 1, our Board of Directors approved a quarterly dividend of $0.125 per share payable in September. Also during our first quarter, we bought back $22 million of EnerSys stock and we will continue to buy back stock in our second quarter. Our Board previously authorized the repurchase of approximately $82 million of our stock. On August 6, we announced an amendment and term extension of our $350 million credit facility. This amount extends the maturity of our credit agreement to September of 2018 ensuring the Company access to liquidity so we can execute our long-term goals. We have a number of acquisition opportunities, some of which we anticipate completing before the end of this calendar year. As you can see on slide 4, we have been very successful in our M&A activities and we will continue to invest in companies that are good value and provide an appropriate rate of return to our shareholders.

I'd now like to comment on current business activities. Both our incoming order rates and order backlog support our projected second-quarter guidance. Over the past three to four months, our Europe, Middle East and Africa business has experienced year-over-year growth in all segments. The Americas growth is positive, with the exception of our aerospace and defense, which is down slightly. Our Asia business continues to be -- see soft orders. This order activity along with the global economic data also supports our belief that our second half of fiscal 2014 will be stronger than our first half.

In closing, EnerSys employees are highly motivated, focused and driven for growth and to see our Company reach the $4 billion range in the coming years, at a minimum of 10% operating earnings. With that, I'd like to turn it over to Mike.

Thanks, John. For those of you following along on our webcast, I am starting with slide 5. Our first-quarter net sales increased 1% over the prior year to $597 million primarily from volume. On a regional basis, our sales in Asia decreased 25% in the first quarter to $51 million while Europe's first quarter net sales decreased 3% to $231 million and the Americas were up 9% to $316 million. In the Americas, organic volume was the reason for the increase. In Asia, volume declined 21% due to the completion last year of a large order from a customer along with lower pricing of 4%. Europe had a 4% volume decline partially offset by 1% higher pricing. On a product line basis, net sales were Motive Power were flat at $304 million while Reserve Power increased 1% to $293 million, reflecting 2% higher volume offset by 1% currency declines.

Please now refer to slide 6. On a sequential quarterly basis, first-quarter net sales were up 4% to the fourth quarter due to 5% higher organic volume. Asia was up 14% and the Americas region was up 11%, while Europe declined 5%. The decline in Europe was primarily in the Reserve Power line of business. On a product line basis, our global Reserve Power business was up sequentially 5% while sales in our Motive Power product line were up 4%. 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 August 7, 2013 for details concerning these highlighted items.

Please now turn to slide 7. On a year-over-year quarterly basis, adjusted consolidated operating earnings decreased approximately $8 million with the operating margin down 130 basis points. On a sequential basis, our first-quarter earnings increased over $4 million with the sequential operating margin up 30 basis points. From a historical perspective, operating earnings remains strong at 10.6% of sales. The declines from the prior year reflect higher commodity costs while the increase from the prior quarter is due to higher volume.

Our Americas business segment achieved operating earnings percentage of 13.2% versus 15.4% in the first quarter of last year, primarily from the impact of higher commodity costs. On a sequential basis, the first quarter declined 30 basis points from the 13.5% margin posted in the fourth quarter, also on higher commodity costs. Europe's operating earnings percentage of 7% was below last year's first quarter of 7.3% and the previous quarter's 7.4% on higher commodity costs. The operating earnings percentage in our Asia business segment decreased in the first quarter of this year to 10.3% from 13.1% in the first quarter of last year, but was up from 5.5% in the prior quarter. Asia's operating earnings were $5.2 million for the first quarter reflecting 25% lower revenue from the prior year as discussed earlier.

Please move to slide 8. As previously noted on slide 7, our first-quarter adjusted consolidated operating earnings of $63 million was a decrease of 11% in comparison to the prior year with the operating margin declining 130 basis points to 10.6%. Excluded from our adjusted operating earnings for the first quarter was approximately $0.4 million of highlighted items. Our adjusted consolidated net earnings of $41 million also decreased 11% from the prior year to 6.9% of sales for a 90 basis point decline with a book tax rate decreasing to 28%. EPS decreased 13% to $0.83 on lower net earnings and higher shares outstanding.

The higher average diluted shares result, primarily from our convertible debt which becomes dilutive when our shares rise above $40.60. This dilution added over 600,000 shares to our EPS calculation which decreased EPS by $0.01 in our first quarter. Our adjusted effective income tax rate of 28% for the first quarter remained flat with the prior quarter. We believe our tax rate for the second quarter of fiscal 2014 will be between 26% and 29%, and for the full year we expect a 28% rate.

Please now turn to slide 9. Now some brief comments about our financial position and cash flow results. Our balance sheet remains very strong. We now have $240 million on hand in cash and short-term investments as of June 30, 2013 with over $450 million undrawn from our credit lines around the world. We generated over $34 million in cash from operations in our first quarter of fiscal 2014. Even after $28 million of share buybacks and dividends in the first quarter, our leverage ratio remains near zero. As John mentioned and as noted in our subsequent events footnoted to the 10-Q and our press release, we recently concluded an amendment and extension of our US credit agreement at comparable pricing with greater flexibility. This new agreement expires September 30, 2018. We believe current market conditions are favorable and that having over five years remaining on this facility allows us to execute on our longer term goals.

Capital expenditures were $13 million in the first quarter of fiscal 2014 compared to $16 million in fiscal 2013. We expect to generate adjusted diluted net earnings per share of between $0.81 and $0.85 in our second quarter of fiscal 2014, which excludes expected charges of $0.05 per share from our restructuring programs and acquisition activities. This guidance reflects slightly over $0.01 of dilution caused by our convertible debts conversion premium, which I previously mentioned becomes dilutive when our shares exceed $40.60. This may add between 800,000 to 1 million shares to our diluted shares outstanding depending on EnerSys' average share price in the second quarter.

We anticipate our gross profit rate in the second quarter to rise to the 24% to 25% range as a result of lower lead costs. On a longer term basis we expect to sustain our goal of 25% by the second half of our fiscal 2014. In conclusion, we continue to believe we are well positioned to take advantage of the future opportunities. Now let me turn the call back to John.

Okay before I open for questions, there is a correction I do want to make, I misspoke in my prepared comments. I said that our Asia business were soft orders, what I should have said is our Asia business continues to see solid orders coming in. The Asia business is doing very well for us right now. So with that, let me open up the line for questions.

Ladies and gentlemen, your question-and-answer session will now begin.

(Operator Instructions)

Michael Gallo, CL King.

Congratulations on another great quarter. Question on Europe, I thought I heard you say John in your prepared remarks that the orders in Europe, Middle East and Africa were positive the last three or four months. Is it a steady improvement that you're seeing in Europe, is it broad based across Motive and Reserve or are there certain areas that you're seeing pickup and others that are still lagging behind? Thank you.

Yes, when I take a look at the data on Reserve Power in Europe, the orders coming in right now, are running higher than they ran last year while we still think there's a lot of opportunity once 4G kicks in for our Reserve Power business in Europe. So it's running much better than it did a year ago. Total Europe, if you look at four week average, we're up over 3% compared to prior year.

So there's an article in The Wall Street Journal this morning about things starting to get better in Europe and specifically in Germany. We happen to see the same thing as in that article. We are seeing a gradual and slow increase in business over there.

Our Motive Power business is going very well right now. And as I said, our Reserve Power business is up and anticipate it's going to be up by quite a bit more. But I think it's going to be -- I agree with the article this morning, it's going to be a slow comeback.

Thank you.

John Franzreb, Sidoti & Company.

Just to stick on the European theme here. Sequentially revenues were down in the region but the operating margin was up. Looks like you're starting to get some traction in your cost savings initiatives. Can you update us on the status of that, when you expect to hit that 10% target? That'd be great.

Well I think what you see coming through is there are some cost savings, but I think bigger than that or larger than that, it's really the pricing. And you'll recall from prior calls, I made the statement that in Europe we are going to go after pricing. We're willing to walk away from low-margin business. We want our competitors to have the low-margin business.

If we have to resize our business in Europe to get north of 10%, we will do that. The -- had some plans and it's not something that you can do overnight because there are long-term contracts that we have. But we are steadfast on going after pricing in Europe.

The investments that we've made in our product designs, the investments in our people, what we do from a quality standpoint, what we do from a service standpoint, we believe that we're best value. And we want to be sure that we're getting the proper price to match that best value. So the answer to your question, I think you're going to see more coming at us in cost reductions in quarters going forward then you actually did this quarter. I think again what picked up in this quarter was pricing and I think you're going to see additional pricing take place in future quarters.

Great, and John you mentioned you expect M&A to some sort of an acquisition between now and year end. How about a little bit more color there? Are we talking about product extensions or is the priority still a regional acquisition extend than maybe your geographic reach?

Well you know John, I never get specific on these things at this stage for a lot of reasons for that. We are under a nondisclosure agreements with a number of different companies that we're looking at acquiring right now. (Multiple speakers) Pardon me.

That was broad enough.

(Laughter) Well we're going to keep it that way too. But I can assure you if you look back on our history, since 1994 we've bought something like 34 different companies. We have a track record -- a pretty good track record of integrating those companies and our Management team right now is extremely busy with a number of things that we have going on. And we're going to continue to invest our shareholders money into things that give good returns and continue the history that we've had.

Okay, thank you, John.

William Bremer, The Maxim Group.

Good morning, gentlemen, nice quarter.

Hi, Bill.

So let's go into Europe here. If I heard you correctly you said Reserve Power is up about 3% year-over-year, can you give us an update on the Motive side there?

And that secondly, let's go into Asia, you said the orders coming in -- incoming order rates are solid. Also same question, both sides Reserve and Motive and do you believe that pricing in Asia is better than it was year-over-year?

Yes, a couple of things on that. If I said 3% on Reserve, I misspoke. It's 3.2% in total looking at the four-week average. And then Motive is up considerably higher than the Reserve Power business, and I don't want to break those down any further than that on the European side.

On the Asia side, Asia is an interesting thing to take a look at, because last year we had a program going on a major build out that took place in Japan. It was very high volume for us and it was very good margins. If you look at this year, we do not have that same contract in place. In other words the build out has been completed. Now we are seeing some orders coming in from that customer, but not the same magnitude as last year.

So what we did was we said let's take that particular customer, that program out of both years and look at it. And what we found is that our business X that one contract, that large program that we had going on, our business in Reserve Power in the rest of the Asia market has picked up very nicely. And more importantly than that, the margins have picked up very nicely and we are getting pricing.

What we have found, in fact on one tender offer that we went out with that out of the battery companies that put in on this, there were roughly 30 and on pricing we were number 29 on the list. The next year we held the same pricing and we went from number 29 to number 3. The point of the story is all of our competitors went up in pricing. And the reason they went up for pricing was because of the added cost associated with what's happening with lead in the China market. So I'm pretty encouraged right now what I see in the base business in the Asia market.

The Reserve Power business, the telecommunication companies are spending again and it's working out very well for us. Now if you question on the Motive Power side, we've all read about a slow up in China, and we're seeing a modest slope in our Motive Power business in China, but not being that bad. It's still going to be north of a $70 million business this year for us and we're pretty pleased with it, given that you go back 8 years, 10 years ago, we weren't in that business at all in China. So all in all it's looking pretty good.

Good color, John. And then let's go into the Americas. Very nice and if I -- I believe I'm correct on this 9% -- a little over 9% organic growth there very solid. Wondering, were you able to secure any material wins due to one of your peers having some issues?

Well, it goes back again whether our peers are having issues or not, we're looking at a competitive market. And it goes back to what I said earlier about Europe that I believe that we provide a value to customers that is higher than what our competitors do. And there are certain customers out there that are going to buy just on price and that's all they're going to buy on.

There are other customers out there that are going to buy on the total cost of ownership. And those are the customers we want. That's our business model is really looking at the total cost of ownership from the time you buy the battery to the time the battery is wore out and how we service that battery, how we take care of that customer.

So we've had some business come our way because of the competitive things. But I think a lot of that's due because of what I just talked about, about providing best value.

I also will say that in Europe I don't think that the customer base over there looks at the value equation the same way they do in the Americas, and that's why I think in part we do better in the Americas that we do in Europe. We plan on changing that in Europe however.

And John, my final one. Briefly, what is the average length of time on these industrial contracts? Is it a year, is it two years?

They vary across the board, but some of these they're multiple years. Typically for the -- I would say average more in a one-year period.

Great, thank you.

Tim Mulrooney, William Blair.

I just wanted to make sure I heard you correctly on that last question, John, did you say that recent orders in the European motive business are up year-over-year?

I said that they're not up at the same level as they're up on the Reserve Power level. When you take a look at our orders right now, you've got a remember we are going into the seasonal slowdown. They are running down to where they were. But if you look at an eight-week average, the orders year on year are up about 4% over prior year.

Now the other thing to take a look at is the industrial truck association data. When you look at electric fork trucks and what's been ordered, and this is looking at Europe, Middle East and Africa in total.

And looking at the month of June which is the most recent data we have, the Europe, Middle East and Africa data, electric fork trucks is up 4% this year over last year. Which again is indicative of a turnaround that we're seeing start to take place in Europe. Because if companies are ordering new electric fork trucks, obviously there's a reason for that that we believe that to be the economy picking up. And usually what you see that data in June, it's about 10 weeks to 20 weeks later that we actually will see the batteries orders come in that we will ship towards those.

Okay, thank you. And then just overall in the Motive business, could you talk about how it trended throughout your first quarter from month to month? Was June better or worse than April and May?

Mike do we have that data here? I can tell you on the orders and we tend to look at it more on quarters, I can tell you and if you're asking specifically in the Americas that -- let me try it this way while Mike is looking up that information.

When you look at the Americas in total, and again looking at the ITA data, in June compared to June last year, it's up 8%. When you look at the trailing three-month average, this is June, May and April, you look at that period of time and compare it to a year ago, that same three-month period, it's up 10%. So the trajectory on electric fork trucks is up about 10% in this last quarter compared to what it was a year ago. Now do you have numbers on our actual month to month?

Well if we're talking about ITA order activity, we can see how that looks on a monthly basis and it broadly in the Americas is increasing.

Well that supports what I just said on the increase.

In terms of Motive on a global basis, I don't have that data in front of me.

Okay, thanks, guys.

Elaine Kwei, Jefferies.

I think on the last call I think you guys had said that the four-week average order rate held up. That revenue could be as much as $2.5 billion this year. And I was wondering if you have any update on that and it sounds like orders are still doing well?

Orders are doing well. The -- we are seeing the seasonal slow up that we talked about in the past. So if you look, the order pattern today compared to what it was two months ago, is obviously down.

But if you look over the history of our Company and you take into account the seasonal slowdown that takes place because of vacation time in Europe and the Americas, we're running quite well right now. And we do anticipate that orders will pick up considerably in the third quarter as they have every year.

I said earlier that I think our second half is going to be much stronger than our first half and I want to give you little bit more color on why I say that. When you take a look, and I'm going to go back a little bit on lead cost here, and I'm going to talk about the LME lead cost, which -- and I'm going to line it up on how it hits our P&L. In other words, I'm not going to give you the exact numbers what our lead cost was.

I'm not going to take into account any hedging programs or anything like that. But I want to talk about the LME and how it hits our P&L. And I think this is really -- this will really give you a picture of where I think we're going as a Company.

I'm going to go back to the third quarter of last year. In the third quarter of last year with the LME equivalent that hit our P&L during that period of time on lead was $0.87 a share. Our EPS during that period of time, I'm sorry $0.87 a pound. Our EPS for that period of time was $0.88 a share. In the fourth quarter, led went from $0.87 a pound up to $0.99 a pound. Our EPS went from $0.88 down to $0.80, you can see the impact of lead what happened to us, $0.88 Q3, $0.80 Q4.

Then we come into Q1, and as you know we reported $0.83 for Q1. Lead jumped for the fourth quarter at $0.99 up to $1.05. So when you look at both from $0.80 to $0.83 and lead went from $0.99 to $1.05, I'm pretty pleased at how we ended up this quarter, that's why we beat our guidance. I'm pretty excited about that.

Now look at Q2. Q2 what happens is lead goes from $1.05 on the LME equivalent down to $0.94 and our EPS stays at $0.83. And doing the math when we looked at it, the reason it's come down so much, the lead savings that we are seeing in Q2 -- that we're forecasting in Q2, is offset by the lower volumes that are coming through because of the seasonal shutdowns that take place.

Now let's look at lead in July and August, we're halfway through the quarter relative to the leads going to hit us in the third quarter and that's because of the pipe effect. Lead right now that's going to hit us in the third quarter is approximately equal, in fact it's slightly less than the $0.94.

So if you take a look at the whole thing that's going to happen here, by the second half of this year, I'm anticipating we're going to see lower lead costs, which the numbers support that. I'm anticipating we're going to see higher pricing come through because when lead was at $1.05 back in Q1, we haven't recouped all that yet, but we plan on recouping that in Q3 and Q4. And the third thing, once that summer slowdown or vacation goes away, we'll come back with higher volumes. Lower lead costs, higher pricing, higher volumes Q2, we'll have a stronger second half than the first half.

That sounds fantastic, John. Actually, there was a small -- there was a blip in the lead cost in, I think it was in early June. Was that enough to have any impact or not so much given the purchasing and the hedging that you already had in place?

The blip in early June, again when we look at our lead pricing, it's going to be on a month average. So there may have been a day or two where it jumped up there but June --?

Well the average for the month of June came in about $0.95, $0.955. So -- and to John's point, Elaine, we pay for our lead based on the average of the month. So if it's $0.05 a week or two, that for us doesn't impact us.

But on a longer term scale, the cost that we saw starting to rise last September that started to hit our P&L in January of 2013, this is -- it's flushed its way out now. Because back in April those costs started to recede from over $1 into the mid- $0.90 range where they are today.

That's why John feels pretty comfortable based on where lead is today that we should see margin expansion, because the pricing that was trailing that blip as a went up over the last six months and has now come down, that pricing comes through on a trailing motion. And if lead days stable, you will see our margins grow and they will be as I said in my script 24% to 25% or better range for the second quarter and then beyond in that. So I think it's -- right now we feel pretty good about lead and if it stays relatively stable than that bodes well for us.

Your earlier comment on the orders, you were right, back when we had our last call, in that timeframe we were averaging over $10 million a day in orders which would for the 250 working days that we calculate would calculate out to $2.5 billion. Current order rates received but that always happens in advance of the summer slowdown period. So $2.5 billion I wouldn't necessarily back down from that number but that is -- that would be an optimistic but it's on the higher range of what is feasible for this year.

That's great color, thank you so much. And just one last quick thing, I think I heard you say earlier that the 5% sequential sales decline in Europe was due to Reserve Power. I understand that orders are up, but I was wondering if I had heard that correctly that in the past quarter that there was actually a decline there and if that was from any weakness or delays in telco or anything else?

Well on that one because it is so choppy from a program specific. I would say that one becomes a little more difficult to say and the Motive side being more tied to a broader base is less choppy. So we try not to read too much into the Reserve Power because it is so program specific, but I think your thesis was broadly correct.

All right, thank you both so much for the color, it's really helpful.

(Operator Instructions)

Jeff Osborne, Stifel.

Most of my questions have been answered, but I had a question on the OpEx run rate, it was a little bit lower than what we thought this quarter. Is a high 70s trajectory what you're expecting over the next quarter or how should we think about any type of investment you're making staffing?

Well operating expenses were a little bit lower compared to the run rate. Some of that has to do with -- they were higher in previous periods in part because of the recent acquisitions we had made 12 months to 18 months ago which traditionally have higher costs initially. Some of the integration programs started to take effect on those, so those start to go down.

There's also the timing issues of among other things our incentive comp programs internally that generally get settled up in the first quarter which can have an impact on it as well. So I would say Q1 was a little lower than the run rate you would expect, but we typically measure it as a percentage of sales and not so much as an absolute dollar amount. So I would say it's at the lower end of a range that we think is pretty reasonable.

Great, thank you. On the pricing front, maybe an analogy here, but if there were a baseball game and your attempt to increase prices, what inning would you say we're in? You mentioned that you're trying to raise prices going forward, but based on your end destination I want to get a sense of progress that you've made in your own view?

Third or fourth inning and that's because of long-term contracts that we have to let expire.

Understand. And then two other quick ones here, any thoughts, following up on Elaine's question Reserve side, any discussions percolating here on European wireless upgrades? Would you say activity is better/worse than planned?

Yes, just when you think you see things going in a positive direction with it than something else pops up on -- in Europe on it. But their 4G is starting to be deployed, there's no question about that. It's at a very slow place though. So it's going to take longer than we originally thought before we really start to see 4G kick in.

Perfect, and the last question I have for you is with the market share, or sorry, with the bankruptcy of one of your competitors I always hear in the United States. Is there any irrational behavior on pricing or through distributor channels that may have caused some market share shifts in the quarter that may reverse themselves in the second half? Or what are you seeing in the channel in general?

No, I don't think it's -- when you have somebody that goes into bankruptcy or whatever and they also can get financing come back through. And they know that their situation that margins are low, I would think, and I don't know this, but I would think that they probably would go after pricing as opposed to going lower pricing. So -- but no we're not seeing anything out there that is disturbing on people undercutting pricing.

Excellent, great to hear. Thank you.

Howard Rosencrans, Value Advisory.

Hi guys, everything sounds great. I'm going to hold you to trying to -- reflecting back on your Analyst Day meeting, John, you talked about being more aggressive in terms of returning money to shareholders and/or on the acquisition front. And I know you don't want to provide a term color on the acquisition front.

But you made what I consider to be in light of your capital structure and I got the sense that you concurred, a relatively modest return of capital to shareholders. Where do you in that regard? Am I accurate in that or do you see it being meaningfully increased over time or --?

Well I think you're right, I think since that period of time and some of the actions that have taken place. In fact specific with the conversation we had and I agreed with you that we have to look at how we return value to shareholders. Since that time we've been, and our Board of Directors approved $82 million on stock buybacks which we're to date we've purchased $22 million, so we have a ways to go on that program.

Since we met at that particular point in time that we have started the dividend, $0.125 a share. There will be discussions in the future, looking at our balance sheet and projecting ahead where we think the balance sheet will be should we increase that dividend. And I would say that that's in the realm of possibilities that we can would consider doing that.

I've also mentioned that we have a number of things going on, in fact we're extremely busy right now on the M&A front. So we have to mix all things together. The M&A, the stock buyback, the dividends and ask ourself what's the best way to return that value to shareholders?

And if you go back and you look -- again we were $200 million at the Company that's roughly $2.4 billion, we've increased our value of this Company from something like $330 million to about $2.5 billion. And we want to continue on a similar trend to that and what it grow. And as I've said before, we want to be a $4 billion Company at 10% operating earnings and that's going to come through taking up some quality market share. It's also going to take income and a few acquisitions. So to hit that target, it's going to take some capital.

The answer to your question is we need and we will stay focused on getting best value back to our shareholders and good return. And it will be in the form of acquisitions, it will be in the form of dividends and it will be in the form of stock buybacks.

As a reminder that the $4 billion on 10%, was that a five-year target?

Yes.

Great, thank you very much.

And now I would like to turn the call over to John for closing remarks.

Thank you, Steve. As I think you can see, we're very bullish on where we're headed. We've gone through a tough period here with lead jumping way up as I mentioned earlier going from Q4 at $0.99 lead on the LME to $1.05.

I'm extremely happy with how our guys, how our people, our employees, our associates have worked through this tough period of time of lead going up. Unfortunately we've hit what I consider to be the high point when it was $1.05, numbers reflect that $0.94 this next quarter and beyond that even slightly lower than that, and I'm feeling pretty positive of what we're seeing. Happy the way we got through the first two quarters, but looking very forward to the second half of this year because I think that we have a potential, a potential of seeing a record second half for our Company. So with that, thanks for your interest in the Company and everybody have a good day.

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