EnerSys (ENS) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2018 EnerSys Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce President and Chief Executive Officer of EnerSys, David Shaffer. Please go ahead, sir.

Thank you, Andrew. Good morning, and thank you for joining us. On the call with me this morning is Mike Schmidtlein, our Chief Financial Officer.

Last evening, we posted on our website slides we will be referencing during the call this morning. If you didn't get a chance to see this information, you may want to go to the Webcast tab in the Investors section of our website at www.enersys.com.

I'm going to ask Mike Schmidtlein to cover information regarding forward-looking statements.

Thank you, Dave, 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 that 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 fiscal quarter ended July 2, 2017, 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 information, please see our company's Form 8-K, which includes our press release dated August 9, 2017, which is located on our website at www.enersys.com.

Now let me turn it back to you, Dave.

Thanks, Mike. On Wednesday, we announced our first quarter results of $1.12 per share, which was in the middle of our guidance range of $1.10 to $1.14. You will notice on Slide 3 that in spite of a commodity price recovery of only 70%, our earnings per share was lower by just $0.02 versus last year's first quarter. As we have mentioned in the past, it takes several quarters to fully implement price increases due to rising commodity costs. It is also important to note that the simultaneous increase in sales and cost of goods sold from rising commodity costs will mathematically dilute the gross profit percentage. An additional impact on operating earnings was an increase in operating expenses from higher spending on our lean initiatives, Digital Core installation and new products development. Although this rise in spending will not lead to any meaningful benefits this fiscal year, it is imperative to invest to position ourselves for the expansion of our addressable markets, future growth and cost reductions from which increased profitability will follow.

Please turn to Slide 4. There were several offsetting factors that impacted operating earnings in our first fiscal quarter. In the Americas, we were able to match our first quarter operating earnings percentage record of 15.4 per spend -- 15.4% in spite of the increased expenses in engineering, SAP's ERP and human resource information systems, salesforce.com and Lean consulting. These additional expenses were offset by our cost reduction efforts and lower selling expenses.

Europe, Middle East and Africa experienced similar cost reductions and operating expense increases as the Americas, with the exception of SAP, which is already installed in EMEA. However, reserve power volume was down almost double digits at the telecom and aerospace and defense businesses caused the majority of the volume decrease. In addition, the reserve power pricing recovery in the region lagged the Americas. These are the main reasons for operating earnings percentage dropping to 6.8% for the quarter.

In Asia, the operating earnings percentage dropped 1% to 4.7%, which was mainly a function of decreased reserve power volume for lower telecommunication spending in China and India. Motive power experienced strong volume growth.

Please turn to Slide 5. I want to briefly review our global businesses. In motive power, the Americas had a very strong fourth quarter of FY '17, in part because customers responded by buying in advance of the April price increases. Currently, we are back to a steady order growth pattern. EMEA continues to experience low organic growth, while Asia enjoys much higher order rates.

As we discussed at our Investor Day, China's motive power market should grow at double digits and become the world's largest market by 2025.

In reserve power's EMEA region, sales from some recent large orders should fall into our third quarter. Quote activity in the EMEA region is currently strong, and this may turn into more increased orders and sales in our second half of fiscal year 2018. So far this fiscal year, EMEA's reserve power business has remained a disappointment.

In Americas telecom business, we are taking market share, which keeps our organic growth flat in a market that is slightly down. The uninterrupted power systems market in the United States and Europe continues to be good. We recently announced the award of approximately $60 million in global space contracts for lithium-ion cells and batteries. This award illustrates the continued strength of our market position within the aerospace and defense sector worldwide. Sales from this award will be spread over 2 to 3 years.

During our second fiscal quarter, we expect our pricing recovery rising from commodity costs will be 85% or better. Based on the above trends and information, our earnings per share guidance for our second quarter is between $1.03 and $1.07. Our second quarter has traditionally been our weakest quarter.

Please turn to Slide 6. As I mentioned earlier, we experienced a year-over-year increase in general, administrative and engineering operating expenses due to long-term investments in our Digital Core, lean initiatives and product road map. These additional costs will not always match up perfectly with our savings, but we are on track with the cost reduction plan outlined at our Investor Day.

In addition, we elected to accelerate product development, which is putting additional pressure on our operating expenses in Q2. Our key focus is to expand our global addressable market and sales CAGR, increase new product innovation and be less reliant on the motive and telecom markets by expanding into energy storage systems and transportation.

Engineering expenses have risen year-over-year in quarter 1 as we build our engineering systems group to enhance our electronics, battery management systems and new products development capabilities. I am really excited about the progress our CTO Joern's team is making. As a reminder, under our battery -- our modular battery concept, we have flexibility in chemistries and applications to address multiple markets, which we -- will provide advanced capabilities and economies of scale.

In the Americas, we have trained all of our sales personnel in the use of salesforce.com, and approximately 75% of all quotes are going through the new system. This represents a significant first step in our sales order automation process. Our EMEA sales team will launch salesforce.com at their September sales meeting.

SAP is online in our Hays, Kansas facility, and the implementation was successful. Our transformation to lean concepts has begun in Richmond, Kentucky and Arras, France. To date, we have only touched 16% of our cost of goods sold and value streams. We estimate that this transformation will last over many years, but it is already exciting to see our employees embrace the new lean ideas and processes.

Please turn to Slide 7. We will continue to provide investors with information metrics pertaining to key initiatives and cost assumptions, which we introduced at our Investor Day.

In closing, our core organic markets are stable and at good historic levels, with the exception of reserve power in EMEA. However, with the recent large wins and increased quote activity, we are hopeful this market will also improve in our second half. The lean transformation has begun, and our new product development efforts are on track. I remain excited about EnerSys's future and the short- and long-term market opportunities we are pursuing.

And now I'll ask Mike Schmidtlein to provide further information on our results and guidance.

Thanks, Dave. For those of you following along on the webcast, I am starting with Slide 8. Our first quarter net sales increased 4% over the prior year to $623 million due to a 1% increase in volume and a 4% increase from pricing, offset by 1% decrease in -- from currency. On a regional basis, our first quarter net sales in the Americas were up 8% $355 million, and Europe's were up 1% to $199 million, while Asia decreased 7% in the first quarter to $69 million.

The Americas enjoyed a 5% increase in volume and 3% from pricing. Europe had a 5% price increase, offset by 1% negative currency and 3% decrease in volume. In Asia, the volume decreased 8%, and currency declined by 2%, while pricing increased 3%.

On a product line basis, net sales for motive power were up 4% to $318 million, while reserve power was up 3% $305 million. Motive power had a 4% increase in price and 1% volume increase, offset by 1% currency headwinds. Reserve power had a 4% increase in price, offset by 1% decline in foreign currency.

Please now refer to Slide 9. On a sequential quarterly basis, our first quarter net sales were down 1% to the fourth quarter of fiscal 2017 from a 6% decline in volume, offset by 2% currency improvement and 3% pricing. Americas region was down 2% while Europe's was flat, and Asia was up 8%. On a product line basis, motive power was down 4%, while reserve power was up 3%.

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 9, 2017, for details concerning these highlighted items.

Please now turn to Slide 10. On a year-over-year quarterly basis, adjusted consolidated operating earnings decreased approximately $3 million to $71.3 million, with the operating margin down 100 basis points. The decrease in operating earnings from the prior year reflects $34 million in higher lead costs, offset by higher volume, pricing and lower manufacturing costs. On a sequential basis, our first quarter operating earnings dollars were down $5 million on higher lead costs and lower volume. Operating expenses, when excluding highlighted charges, were at 14.7% for this first quarter compared to 15.3% in the prior year. I expect fiscal 2018 full year op expenses to remain near the rate of prior years of approximately 15%.

Excluded from operating expenses recorded on a GAAP basis are net charges of $1.7 million, primarily related to the EMEA restructuring charges and ERP implementation cost. Excluding those charges, our Americas business segment achieved an operating earnings percentage of 15.4%, which was comparable to the first quarter of last year. Higher volume and pricing offset the impact of higher lead costs. On a sequential basis, Americas' first quarter increased 70 basis points from the 14.7% margin posted in the fourth quarter due to cost savings and pricing more than offsetting higher lead costs.

Europe's operating earnings percentage of 6.8% was down from last year's 10% and from last quarter's 9.7% on higher lead costs. Operating earnings percentage in our Asia business declined 100 basis points in the first quarter this year to 4.7% operating profit from 5.7% income in the first quarter of last year and was down from last quarter's 5.1%. Asia's decline on a year-over-year basis is on less China telecom revenue and higher lead, while sequentially it is mostly from higher lead.

Please now move to Slide 11. As previously reflected on Slide 10, our first quarter adjusted consolidated earnings of $71 million was a decrease of 4% in comparison to the prior year, with the operating margin decreasing 100 basis points to 11.5%. Please see our press release issued yesterday for details of these items.

Our adjusted consolidated net earnings of $49.4 million decreased 1% from the prior year, or $1 million, and declined 40 basis points to 7.9% of sales. The $1 million decrease reflects the higher volume, pricing and cost savings on -- and a lower tax rate overcome by $34 million in higher lead cost and $1.5 million in higher FX losses.

Our adjusted effective income tax rate of 21% for the first quarter was higher than the prior quarter of 18%, but lower than the prior year's first quarter rate of 26%. Timing on discrete tax items caused most of these variations. We believe our tax rate for the full year should be in the 23% to 24% range. However, this assumption anticipates no significant changes in tax rates or legislation in the countries we operate in.

EPS decreased 2% to $1.12 on lower net earnings and higher -- slightly higher shares outstanding. We expect our second fiscal quarter 2018 to have approximately 44.2 million of weighted average shares outstanding, which assumes no benefit from our recently announced $100 million share buyback authorization.

Please now turn to Slide 12. Now some brief comments about our financial position and cash flow results. Our balance sheet remains very strong. We now have $543 million on hand in cash and short-term investments as of July 2, 2017, with over $422 million undrawn from our credit lines around the world. We generated $22 million in cash from operations in our first quarter fiscal 2018. Our credit agreement leverage ratio is just above 1.5x. Capital expenditures were $13 million in the first quarter of fiscal 2018 compared to $7 million in fiscal 2017. We expect to generate adjusted diluted net earnings per share of between $1.03 and $1.07 in our second quarter fiscal 2018, which excludes an expected net charge of $0.04 per share from continuing our restructuring programs and acquisition activities. We anticipate our gross profit rate in the second fiscal quarter will be comparable to our first quarter rate of approximately 26%.

In conclusion, we incurred $34 million in higher lead costs on a year-over-year basis in Q1. We recovered nearly 70% of that increase in pricing, with the balance recovered by cost savings and higher volume. Our $7 million in lower adjusted net earnings can be attributed to $2.6 million in FX losses, which exceeded the prior year loss by $1.5 million. In Q2 and beyond, our pricing efforts will recover lead costs more fully. However, our increasing investments in our Digital Core and new products will offset these improvements.

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

Andrew, we will now open the line for questions.

(Operator Instructions) And our first question comes from the line of John Franzreb with Sidoti.

I'd like to talk a little bit about the regional differences here, most notably in Europe, where despite a soft buying environment, you have garnered some price increases. Can you give us a little color why the volumes were weak in the region? And how were you able to get price increases in a weak environment? I would think that would be a little bit tougher.

I would say that you have to remember, and we've said this before, that our European reserve power business is largely -- a lot of the OEMs are in Europe, so a lot of the pressures in the developing markets around the world are specifically felt in that P&L. In addition, we have the Middle East and Africa is there as well. So we're subject to a lot of the fluctuations of the developing markets. It's boom or bust. It was a low quarter for us. And I think with regards to price increases, that we've seen slower performance from that group than the other groups. We definitely got off to a late start. But based on the order rates we're seeing today, the prices are sticking. The prices are definitely up. And really, it just comes down to our ability to get and execute on the recent new order that's coming in and really, the -- we're excited about, as I noted in my prepared remarks, about the quote activity in that region. So we are seeing some signs of life there. But it's always important to remember that the developing markets around the world are often reflected in that portion of our P&L. But I'm very encouraged about the price recovery we're seeing right now.

Okay. And then in Asia, in Asia reserve, are you still finding yourself at a disadvantage on a price basis with your offerings? It seems to me that, that business was a little bit weaker than I expected. Can you talk a little bit about the competitive landscape and how quickly the area is rolling out upgrades to its infrastructure?

Okay. So at our Investor Day, we focused on 2 key areas for the Asia region. On -- the motive power side in China, as we noted, was -- is still very strong and going along very well. Specifically, on the reserve power, let's -- the 2 big markets are China and India. In the China market, we did experience in Q1 a dramatic slowdown in spending from our #1 customer, China Tower. That order rate has picked back up. I can't explain exactly what happened with the China Tower orders. But certainly, we haven't seen or feel any major share loss that's -- we think that all of our -- all of the China Tower suppliers were experiencing a similar slowdown. The good news is that, that order rate has increased markedly, and that, hopefully, is isolated to Q1. The India situation in reserve power, specifically telecom, is much more dramatic. There seems to be a bit of a price war going on. And I just told our guys to sit on the sideline. When I was over there years ago, we went through something similar. It was amazing how skinny the pricing got, and it comes and goes. Right now, we've been able to repurpose the factory in India to help offset some of the volume increases we're seeing in motive power in the region. So we've been trying to keep busy that way and make an export business while the market clears itself up. But in reserve power in the rest of the region, Southeast Asia, Australia, Japan, that's pretty much business as usual.

That's perfect, Dave. And one last question. Can you update us a little bit on your lithium initiative? From what I recall, I think there was a decision supposed to be made this summer, buy or build or how far you want to proceed with it. Any updated color would be helpful.

Sure. The -- as I noted, the -- I couldn't be more excited about the progress of the program. And the platform, this new modular concept, is a bit agnostic to which chemistry that goes into it. And we want to put ourselves into a position where we control the user experience and -- as best as we can and make it fairly seamless and target specific technology solutions for the specific applications and needs of that customer. And always, our focus is in providing the lowest total cost of ownership. As I know you know, we think lithium is going to be a part of that. There's going to be certain markets and applications where we think that lithium is going to provide the lowest total cost of ownership. One of those big markets that we're very excited about is the energy storage market. We think that lithium is winning that technology. And so as you note, we have -- we're in the midst of qualifying suppliers in the short run, and I don't want to name any names. It's too confidential. But we -- Joern's team is -- Joern our CTO's team is working aggressively to qualify external suppliers. And I'm not yet in a position to formally announce anything with regards to the make decision. I just will remind everyone that we do currently manufacture lithium-ion cells in our Sylmar, California facility for the space business, which is going great guns right now. We were very proud of the team on that $60 million award that is all lithium, and we want to grow from that base. So that's where we're at. But I just -- we haven't made any announcements yet, but we're working on it.

(Operator Instructions) Our next question comes from the line of Brian Drab with William Blair.

So let's start with just the so-called housekeeping question on the electric fork truck orders. If you could -- if you wouldn't mind just stepping through that quickly, trailing 3 months and if you could give us the regions and the -- and global orders. And is this -- if you're able to give it, is this ending -- the 3-month period ending in July or in June that you have?

All right, Brian. I have the 3-month period ending in June. July is not out yet. So if we take this by region and then total, the year-over-year for the 3 months ended in June in the Americas, total Americas, was up 9%. In total Europe, it was up 9%. When you throw in the Middle East and Africa, it went to plus 10%. So EMEA, as a region, is 10%. Asia, year-over-year 3 months ended is up 26% for a worldwide total of 14%.

Okay. So it seems like that just continues to truck along in the, pardon the pun, and even accelerated here since the last period. Is there anything in those figures that surprised you? Or is this kind of as expected?

Brian, I think it's progressing. We remain bullish on the markets that electric forklifts serve, the food industries. I think one sector that slowed down a little bit, which I was watching but seems to be okay, is the automotive sector. The car companies use a lot of electric forklift trucks, but that seems to be being offset well with a lot of the e-retailing and a lot of the explosive growth in that area. So -- and just as a reminder that these statistics that we're quoting are for trucks, but that's -- there's just not a good one-to-one correlation with battery sales. I mean, the replacement/new mix is part of that story. The life of the batteries is another part of that story. We -- the batteries are lasting longer than they did in the old days. That's one of the problems of making a high-quality product.

And a high-quality charger.

And then the last piece, Mike, I was just getting to, too, is the new chargers we're coming out with actually, and the new batteries, they can be charged much faster, and they -- we can do things called opportunity charging. And as such, the average number of batteries per truck is changing, and that's fine. I mean, we've been -- this has been an ongoing cycle for a long time. But I just don't want you to ever think when you hear those WITS statistics that we must be losing share. That's not the case. We have industry statistics from the Europe and the U.S. Our share is fine, very stable. So I just wanted to give you that -- it's a very technical explanation. But explanation-wise, there's a disconnect between those growth rates. But to your point, I think it's still a very good indicator of overall economic activity in the electric forklift market.

Yes, that extra color is helpful. And I don't know if you touched on it, too, but I think, clearly, one of the biggest factors driving a disconnect between those WITS numbers and your sales is that those WITS numbers are going to be correlated more strongly with, obviously, OE sales, right, and not -- and I don't know what percentage of it it is currently, but it's been about half, hasn't it,it's been aftermarket versus new truck sales.

Yes. But there's more to the story. Yes, that's part of it, but there's more to the story. I think the technology piece is the batteries, the systems. Let's just say the charger and the battery together are getting better. They're lasting longer and -- but that's okay. That's why you see our margin profile changing. So in a sense, we exchange margin for volume there. But we're very proud of the performance of our motive power group globally. And we are -- especially in the China market, we're still starting to see some very good growth.

Can you say a couple more words on the average number of batteries per fork truck?

That's -- there's -- that's too complicated, the -- by the different applications and truck sizes and all that. But just say the general trend is the more premium chargers you put -- and this is a slow trend. This isn't something that's changed yesterday or happening overnight. This is just a long-term trend that we've been on for a decade that -- and just helps to bridge that gap between why you don't have a one-for-one type of growth between batteries and trucks.

Okay. But it's basically that the batteries are getting better and on average, the number of batteries per truck comes down a little bit?

Correct.

Okay. And then what do you expect in terms of operating margin in EMEA? What sort of trend for the balance of fiscal 2018?

It's definitely forecasted to improve dramatically. We don't usually provide too much color there, but I can just say that we had a tough quarter. The team knows it, and we're deeply committed to getting that business back on track. And back on track, which is the new normal, is to maintain a 10% return on sales.

Okay. And can you make any comment possibly on what you've seen in terms of pricing catching in EMEA in July and August?

Yes, it's definitely improving. The price recovery situation is improving. This is our best year ever in terms of price recovery, and that's a testament not only to the efforts of our salespeople, but also the maturation of the business. But unfortunately, it just takes -- it's never fast enough, and I feel like I've aged 10 years in the last 2 quarters. But as such, it's our #1 focus. And as I said, or as Mike said in his remarks, we're moving up dramatically in Q2. Q2 is always soft for us, and -- but the price recovery is improving. And I'm very confident the guys, based on what the forward-looking stuff looks like, is -- we're going to get close to 100%. And we've actually -- finally, we've had a couple competitors that really went slow. We've had a couple competitors recently announce price increases, which is going to take some of the pressure off the sales guys.

Okay. I'll just ask one more quick one and then get back in line. But the large order, what region is that coming from specifically?

It was in the -- it's in the EMEA region. It's telecom-based, and we're excited about it. We've been working on it a long time. I was hoping that it would kick in Q2, but it's going to really start shipping in Q3. It's well over $10 million, and it has a lot of upside potential. So the guys are super stoked about it, and they needed it. That team's been getting its tail kicked. So -- and again, it's not just that order. But just in general, the quote activity has really ramped up in that part of the world. So we're looking for better (inaudible)....

Are you able to say if that's Europe or Middle East or Africa or -- where we're talking about?

I would say -- I'm looking at Todd right now. I would say Africa and the Middle East are the 2 areas which seem to be improving.

I mean, specifically for that big order, is that where you're seeing the big order come from?

Yes. It's out of that part of the world, yes.

Brian, one final piece to put color on the, not only the European operations, but the price recovery points that Dave made was, the last time we saw lead in this price range was in our fiscal 2014. And at that point, our gross profit rate was 23.5% versus this last quarter's 26.2%. So 270 basis point improvement, and I think that is a testimony to the fact that the pricing, we're becoming more proactive on it so that, that lag or drag time between the rise in lead and the rise in pricing is -- we're tightening up.

And our next question comes from the line of Noah Kaye with Oppenheimer.

Maybe we could start with something you touched on in your prepared remarks, Dave, around accelerating product development. You mentioned expanding addressable markets. You also mentioned increasing new product innovation. And I think you discussed some of that in the Q&A around the lithium [decision]. But at the Investor Day, you also previewed some pretty significant improvement around the advanced lead products. So can you just give us a sense of where that initiative stands and to what extent that might also be factoring in these accelerating product development costs?

Sure. There's -- well, Noah, good to hear from you. The -- there's 3 things we talked about at Investor Day. There was lithium, there was advanced lead and then there was the system -- or the modular system to put it all together. And so the acceleration we're putting on right now is principally on the systems engineering piece. We have to move faster. The reception we got from the Americas sales meeting was that it was a home run. I mean, everyone was super excited about that. We're going to be introducing the European sales team to this new product platform in September, so I'm looking forward to going over there and getting their feedback. But the reception was so good we've decided to -- I had throttled Joern a bit in terms of how much OpEx we wanted to layer in, in the years going forward because I know how sensitive you guys are to each $0.01. But we made a conscious decision, I'll take responsibility for it, to go faster because we just -- we couldn't be more excited about this new product platform. So of course, it's never fast enough. It won't help this fiscal year. We should be able to do it next year. And the first product that will be coming out will be a motive power product, and it's going to have both lithium and thin plate pure lead capabilities. So the other thing we're trying to accelerate is the advanced lead. And again, it's never fast enough, but the feedback from the team and from the customers has been exceptional. And as such, we're going to spend probably faster than we thought we would at Investor Day. And obviously, we'll take our lumps for that, but it's the right thing to do for the long run.

Is there some way to sort of think about an order of magnitude on this higher spend? And also, I mean, as a corollary, theoretically, if you invest now for a better systems engineering, it'll help mitigate any kind of cost pressures down the line as you kind of switch between chemistries and remain agnostic. So is that the right way to think about it?

At the Investor Day, we talked about trying to limit our additional engineering expense in this fiscal year to $5 million incremental. It's going to be higher than that number. And so far in Q1, we were sort of at that run rate. If you looked at Slide 7, you'd say we were at $1.5 million incremental. But that rate's going to accelerate. And we're working hard, and Todd's team is working hard, to neutralize those costs as best as he can. If you remember what I said there was, Todd and the operating team needed to get lean initiatives operating faster and squeezing cost reductions to finance all of this Digital Core investment and all this new product road map investment. And frankly, they had a good first quarter. But they've just got to go faster, faster, faster because we want to accelerate the product spending.

Okay. And a related question to all this is really around capital allocation. Your balance sheet is in good shape, relatively low leverage. You talked in the past about having appetite to do some significant new M&A. You just did -- had the board authorize a new share repurchase program, and you're talking about kind of organic investments here that you seem quite excited about. How should we think -- and what should investors be thinking about in terms of where your capital allocation priorities are now as we fast-forward, I guess it's been almost 5, 6 months since the Investor Day?

Well, it's -- you're very consistent with Investor Day. Nothing's changed. I mean, really, very little has changed since Investor Day outside of the acceleration of OpEx. We just noted on engineering and then FX and the price recovery effort. And then EMEA, obviously, stumbled out of the block. Those are the big things that maybe have changed since the Investor Day. But the capital allocation, the focus on M&A is still there. And then I'll just let Mike give you a little bit more financial color on the numbers. But I don't want you to think that anything has changed in terms of priorities that we outlined at Investor Day. Mike, you want to add some color?

Well, as our position has always been, we always want to invest in ourselves first, and I think the initiatives that Dave described with new product development is a demonstration of that. Second on our list is M&A, and we are very active there. We did bring on Steve Heir, who is our new Vice President of Business Development. He's been scouring the globe looking for targets, whether they're geographic or new technologies or upstream or downstream opportunities. We're looking at all of those. After that, if we're still not able to deploy the capital, share buybacks are [up for] discussion -- and as we noted and you noted, the $100 million authorization is there. We're supported by the fact that we just concluded our new credit facility for $750 million with the ability to upsize it over $1 billion if need be. So we have lots of dry powder to execute on all of those fronts. So our leverage rate shows at 1.5x. 2.5 does not scare us. 3.0 doesn't scare us if it's for the right opportunities and the ability to pay it down. So I think the M&A activity is robust, although the bigger the fish, the longer it takes to get it in the boat. But we are very active in that role.

And then just one last one from me. I guess, in light of the 2Q guide, some of the moving parts you mentioned around higher investment and certainly, lead prices continuing to stay somewhat elevated, how are -- how should we think about the $5 a share prior guidance for the full year? What's your level of confidence in being able to reach those numbers at this point?

Well, I guess, the first thing I would say is we think our business, fundamentally from the end of February when we had that Investor Day, the fundamental business hasn't changed. So our markets, we still feel confident about. The assumptions we made with regard to lead and currency did not have as much headwind as we're seeing today. But at this point, I think that the target that I set forth is still achievable, although it's got -- it's going to take a little more effort to get there.

Great. (inaudible)...

And again -- and of course, the achievement of that target will -- we don't know what lead's going to do and we don't know what exchange rates are going to do. We're going to respond to those changes as fast and as effectively as we can. But in the meantime, the fundamentals of the business continue. There's been no real departure since February.

And I'm showing no further questions at this time. So with that, I'd like to turn the call back over to President and CEO Mr. David Shaffer.

Well, I just want to thank everyone for taking the time today to attend the call, and have a great day and enjoy what's left of your summer. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.