Enerpac Tool Group Corp (EPAC) 2007 Q4 法說會逐字稿

Ladies and Gentlemen, thank you for standing by. Welcome to the Actuant Corporation fourth quarter fiscal 2007 earnings conference call. Today's participants are Bob Arzbaecher, President and Chief Executive Officer, Andy Lamperuer, Executive Vice President and Chief Financial Officer, and Karen Bauer, Director of Investor Relations.

As a reminder, this call contains forward-looking statements that are subject to the Safe Harbor language in Actuant's Press Release issued today, and in Actuant's filings with the SEC. We are conducting a live meeting to coincide with the audio conference. If you would like to view the presentation online, please refer to your meeting invitation for details. During today's call, there will be a question and answer session. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded Wednesday, September 26, 2007. It is now my pleasure to turn the conference over to Mr. Arzbaecher. Please go ahead, sir.

Thank you, operator. Greetings and good morning. We are pleased to share with you our fourth quarter results, which were record results in a number of ways. First, Actuant had record fourth quarter sales of $390 million, up 20% from last year, including 6% core growth.

We had record EBITDA of almost $65 million before restructuring costs. EBITDA margins expand 100 basis points to 16.6 in the fourth quarter, the highest in the last three years. EPS grew 25% over last year to $0.99 a share, excluding tax gains and restructuring costs, and lastly, fourth quarter free cash flow was $50 million was quite strong, and brought our fiscal 2007 free cash flow to a record $148 million, or about 137% conversion to net income.

I am very happy with with the way the quarter and the fiscal year came together, and the progress we made building for the future. I am equally enthused about our prospects for fiscal 2008, but I will elaborate on that later in the call when we talk about our increased guidance.

For now, I will turn the call over to Andy to cover the financial results in more detail. Andy?

Thanks, Bob. Good morning to everyone.

Our first slide is a simple comparison of our fourth quarter sales and profits between this year and last. It looks great, 20% top line growth to $390 million, 28% EBITDA growth to $65 million, and 25% EPS growth to $0.99 a share. You can see the benefit of the margin expansion on the slide that Bob mentioned coming through.

When we first provided guidance for fiscal '07 we said the margin improvement would be back-end loaded and this did in fact occur. Our third quarter year-over-year EBITDA margins were up 50 basis points, and they were up 100 basis points in the fourth quarter. Three of our four segments had overall fourth quarter margin expansion, with only the Electrical segment being down year-over-year, however, if you exclude the unfavorable sales and acquisition mix in the Electrical segment, its fourth quarter margins too were up year-over-year.

Now the $0.99 of EPS that you see on this page excludes two items, that I wanted to call out that were not included in our guidance for this year. First, we recognized a $1.6 million, or $0.05 a share, tax gain related to foreign tax credit carry-backs that we had not previously benefited. This equates to real cash earnings and is an offset to our cash tax payments for fiscal '07, but we have excluded it here only for comparability purposes.

Second, our guidance excluded the $1.1 million of European Electrical restructuring cost this quarter, which is about $0.03 a share. So, if you exclude both of these items the $1.00 GAAP diluted EPS number for the quarter is reduced to $0.99. This compares favorably to the $0.79 adjusted EPS we reported last year, which also excluded a tax gain and restructuring costs.

I also wanted to quickly cover our full year results. This slide compares results excluding special items, which I will cover in a minute. Our sales grew 21% to about $1.46 billion, including 6% annual core sales growth. For those of you keeping track, this is slightly better than the 4 to 5% core growth that we provided in our original 2007 guidance back in June of last year. EBITDA increased 22% to about $226 million, meaning we had 10 basis points of year-over-year margin expansion, and in doing so we met our standing annual objective of year-over-year margin expansion.

Our diluted EPS increased 20% from $2.90 a share, to $3.47 at the top end of our EPS growth goal of 15 to 20% a year. As highlighted in this morning's press release, this was the sixth consecutive year of EPS growth in excess of 15%. As I mentioned earlier, our fiscal '06 and '07 EPS numbers both included tax gains in European restructuring costs.

This reconciliation of EPS in this slide removes the impact of them from both years, so you have a clean comparison of the base results. In fiscal '06 we backed out a $0.25 a share tax gain, and a $0.14 a share hit for European Electrical restructuring, from the $3.01 GAAP EPS figure, to arrive at the $2.90 EPS number excluding special items. Similarly in fiscal '07, we excluded the $0.05 tax gain, as well as the $0.14 European Electrical restructuring charge, from the $3.38 GAAP EPS number, to arrive at the $3.47 EPS figure which excludes special items.

Now here is one more slide on full year results before we move back to the fourth quarter. What you see here is consistency. You have four quarters of top line growth of between 20 and 24%, and four quarters of double digit EPS growth. While we have variations in demand from some of the end markets that we were in throughout the year, our diversification had a dampening effect on big swings in a given market in 2007 once again, and provided shareholders with consistent growth in fiscal '07.

Now I am going to review how that diversity and business model worked for us specifically in the fourth quarter. First, we will start off with sales. Our consolidated fourth quarter sales growth was 20%, consisting of 6% core sales, 3% from currency, and 11% from acquisitions.

All four of our operating segments had overall sales growth and core sales growth in the quarter, with Industrial and Engineered products leading the way, with double digits core sales increases of 13% and 15% respectively. The 6% core sales growth in Q4 was a sequential improvement from the third quarter, and was above our guidance of 2 to 3% growth. Compared to our forecast, we saw upside in three of our four segments with the Actuation Systems segment providing the biggest delta, driven by automotive convertible top and truck product lines.

Now that is a good segue into our product lines sales discussion which you see here, summarized on the slide. Seven of our 10 product lines had positive fourth quarter core sales growth, with five of them reporting growth of 10% or better. Leading the way as they have all year were Joint Integrity, High Course Hydraulics, Professional Electrical, and RV.

The three product lines that had fourth quarter year-over-year sales declines included North American Electrical, Truck, and Convertible Top. Now, we have talked about the factors impacting these three markets on past calls, and not a lot has changed this quarter. I will provide more color on both core sales in a few of our product lines and segment margin performance, as I walk through our next four slides, one for each of our segments. Starting first with Industrial.

The Industrial segment set the standard for high performance all year long, with both double digit core growth and margin expansion. The fourth quarter was no exception. During the quarter, High Force Hydraulics and Joint Integrity product line sales were robust. This is a direct result of the global nature of these businesses, and also the strength of the major markets they are serving, namely oil and gas, power gen, and MRO. Total Industrial segment core sales growth moderated slightly, and were up 13% in the quarter, versus 15% in the third quarter.

Our segment operating profit margins also increased year-over-year in the fourth quarter, up 60 basis points, and demonstrate our continuous improvement process including leads, can work even where we already have high margins. We are optimistic that we will be able to use some of these same lead tools that have worked at Enerpac and Hydratight, and apply them to the newly acquired TK Simplex, TTF, and Injectaseal businesses, and generate margin expansion there as well.

Turning now to our Electrical Segment, results in that segment were generally in-line with our expectations. Our professional electrical product line continued to pose solid growth, with 10% fourth quarter core sales growth, due primarily to increased OEM demand and price increases. Our Retail Electrical businesses consisting of North American Electrical and European Electrical, followed their pattern for the year, with low single digit growth in Europe, and a few points down in north America. Fourth Quarter core sales growth for this segment was 3%, which was in-line with each of the prior three quarters.

Now with respect to operating profit margins, things are better than they appear on this, slide which shows a 40 basis point decline from 8.6% to 8.2%. In actuality, after factoring out the unfavorable product line and acquisition sales mix, our operating profit margins improved 80 basis points year-over-year. We expect this segment to be a source of margin improvement as fiscal 2008 develops especially in the second half of the year, when our European restructuring is wrapped up.

We also had good news in our Actuation Systems segment, which posted better than forecasted core sales growth of 1%, and year-over-year operating profit margin expansion of 40 basis points. On the sales side, RV continued to grow on account of market share gains, and posted its third consecutive quarter of double-digit core sales growth. Elsewhere, core Truck sales were down 5%, compared to an 8% decline last quarter. Europe was very strong again, but not enough to offset the continued headwind in North American truck, which was caused by the emissions related pre-buy. This will continue into and intensify in the first quarter of fiscal 2008, and then moderate as the year rolls out.

Despite being down 7% from the last quarter, our Convertible Top sales were better than the 15 to 20% decline we had projected going into the fourth quarter. The year-over-year decline results from a tough comp a year ago, when we had 70% increase in sales due to new platform launches. Our operating profit margins expanded 40 basis points as I mentioned, as some of the operational improvement activities we put in place over the last nine months have taken root. We also expect this segment to provide margin expansion opportunities next year.

And finally, our fourth segment, Engineered Products also had a very solid quarter. Fourth quarter core sales were up 15%, by far the strongest core growth we have seen this year in this segment, with robust demand in the Aerospace, Hardware, and Utility end markets. Margins were also up nicely in the quarter. Maxima which is now the largest business in this segment, and was acquired in December, had a great quarter both on the top and bottom line, and has us excited for continued future growth.

That is it for Sales and Profits during the quarter. When you step back an look at it, I think the results speak for themselves, and they really require little in way of clarification. Now, as good as the earnings growth was in the fourth quarter and the fiscal year, the highlight from my perspective was that of cash flow conversion on those earnings. We generated another $50 million of free cash flow in the fourth quarter, bringing our full year cash flow to $148 million. This represents a 137% conversion of net income for the year. Actuant is now 7 for 7 in the 7 years since the spinoff in generating free cash flow to net income conversion of at least 100%.

The strong fiscal '07 cash flow includes a $8 billion reduction in primary working capital excluding the impact of acquisitions, despite 6% core sales growth, and is something we are very proud of. Our year end net debt to EBITDA was down to 2.0 times, and when coupled with the $250 million of availability under our revolver which was untapped at year-end, and the $80 million of cash on our balance sheet, it represents a solid capital base from which to grow our business.

With that I will turn it back to Bob.

Thank you, Andy. As you can probably tell we are pretty excited about our fourth quarter results, which capped off another great year for Actuant. We believe our track record has been achieved due to our focused attention on executing the business model which we are showing you here. If you have been following Actuant for any length of time, you have come to know this chart, but let's look at it against the back drop of 2007, the year we just completed.

It all starts with above average core growth, at 6%, we once again believe that we have demonstrated the higher growth characteristics of the diverse platform that comprises Actuant. We did this in the face of a North American residential slowdown, and a pre-buy phenomenon in the North American Truck market.

The reality is that even with these negatives affecting us, we are more than able to offset these with growth from other places, a true testament to the Actuant business model. You take this core growth and then you add acquisitions. We deployed slightly more than $160 million on five transactions in 2007, and added another one in September to start fiscal 2008.

Acquisitions are an important part of our growth strategy and for all of our business segments, we completed acquisitions in three of the four during the year 2007, so it is very broad-based. I will provide more color on the two deals we announced since our last earnings call a little later in today's call.

With the organic growth and the acquisition revenue growth, you now move towards driving incremental value from our core processes. These are LEAD and AIM. LEAD stands for Lean Enterprise Across Disciplines. AIM stands for the Acquisition Integration Model. We take these two core processes, we develop a very rigorous training and development program for our key managers and leaders to drive these processes.

Our LEAD process has been an important part of this value creation, and our low cost country sourcing has been a major process within LEAD. Some of you recently toured our China sourcing operation in Shanghai. Our ability to source both components and finished goods has grown steadily over the last few years, and with over 120 Actuant employees dedicated to the sourcing operation, it is a meaningful part of our LEAD process.

LEAD has also moved steadily from a tool to a business process within Actuant. What this means, is that LEAD is now how we run our business, not just a tool within our business. This has been a cultural shift over the last few years, and we have made progress on many fronts in this area in 2007. Of particular note is the progress LEAD has had in our acquisitions. Where cost synergies are uncovered using our LEAD process, and newly acquired businesses are introduced to LEAD in a formalized way.

All of this focus results in free cash flow for our business model. 2007 was a great year as Andy discussed. $148 million in free cash flow, or $4.65 per diluted share. This represents a net income conversion of 137%, well in excess of our target going into the year. In my opinion this is where the rubber hits the road. In 2007, Actuant's free cash flow funded 90% of the capital we deployed in this year's five acquisitions.

Our debt to EBITDA ratio dropped during the year even though we were quite acquisitive. If you would like returned on invested capital, or ROI, Actuant is the place to invest. It drives our variable compensation, it is the metric we use to make capital investments, and it's what we use to value our acquisitions.

Now moving on in the business model, if you succeeded in all of the various aspects I have just gone through, you end up at EPS. 20% growth in 2007, excluding special taxes and the Europe restructuring item. Our goal is to be in the upper quartile of public industrial companies in EPS growth, and we defined this currently at 15 to 20% annually. 2007 represents the 6th consecutive year of meeting or exceeding this goal.

Equally satisfying has been our ability to consistently do this quarter-over-quarter as well as annually. The fourth quarter represents our 24th consecutive quarter of earnings growth. If you combine this earnings track record with the core growth I have already discussed and the cash flow conversion, I think you will agree Actuant is performing in the upper quartile of industrial companies.

Now let's talk about our most recent acquisitions that we have completed since the last call, BH Electronics and TK Simplex. First, BH Electronics. BH was completed in late June, and is the leader in boat instrument panels for domestic boat builders. This acquisition was interesting, in that we believed BH has sales synergies with several Actuant business units, including Marinco and Maxima. The major sales synergies relate to selling Maxima gauges, and Marinco cords and connectors, as part of the electrical package that BH provides to its customers. In addition to sales, we are pursuing margin expansion by leveraging our product sourcing competencies, and our components such as terminals, cables, and other electrical management products.

Moving to the second acquisition, Templeton Kenly, known as TK Simplex, is our most recent acquisition completed in September. TK manufactures and distributes hydraulic and mechanical industrial tools. TK has railroad, mechanical jack, actuation,and hydraulic product lines, that are sold through distribution under the Simplex and Uni-Lift brand names. It has leading positions in niche markets, such as railroad maintenance. We believe this acquisition will add product lines that can be leveraged across Enerpac's global distribution, principally outside of the U.S., where Enerpac has a very strong distribution network.

Similar to the BH Electronics acquisition, we see opportunities for margin expansion for TK. These synergies relate to our China sourcing operation, using our LEAD process to improve efficiency and reduce working capital, and integrating these acquisitions into Actuant's various global systems, like freight and benefits. So acquisitions continue to play an important strategy, an important role in Actuant's strategy, and 2007 was a very successful year for us. Given what is happening in the tightening credit markets, and the effect that is having on private equity Groups, who have been a major competitor for Actuant in terms of deal flow, we believe it is reasonable to expect another 150 to $200 million of tuck-in acquisitions per year in 2008.

But enough about history. Let's talk about the future. As you saw in our press release, we have increased our guidance for 2008 for both sales and EPS. This is primarily the result of acquisitions. Our new guidance is for sales in the range of 1.55 to $1.6 billion, and EPS in the range of $3.80 to $3.95 per share for 2008, again excluding the Europe restructuring charges.

The Europe restructuring is on-track to be completed by the end of the second quarter. The remaining pre-tax restructuring provision is about $10 million, or $0.31 a share, and will be recorded in the first half of fiscal 2008. As in the past, our guidance also does not include future acquisitions, which given our ROIC focus, tends to be additive to our guidance. If you look only at the first quarter, our guidance is for sales of 390 to $400 million, and EPS of $0.93 to $0.97 per share. This is 15 to 20% growth over the $0.81 per share that we completed in last year's first quarter, again excluding Europe restructuring costs.

Thinking about the economy and given Actuant's short cycle time from order to shipment in most of our businesses, our visibility in to the future is pretty short, but our current outlook is that we will continue to see slowing growth in North America, but not a recession in our fiscal year. The Europe economy has been strong, and that given that it represents 40% of our sales, bodes well for Actuant in terms of sales mix for 2008. Asia has seen dynamic growth, and although pretty small for the total Actuant business, we are maximizing these opportunities in 2008.

If you put all of this together, we are expecting core sales growth in the neighborhood of 4% for fiscal 2008. We again expect profit margins to expand somewhere around 50 basis points, with the back end of the year being a little stronger than the front half. LEAD will drive us, along with savings from our Europe restructuring efforts. Our effective tax rate should be around the 31.5% range, and our free cash flow is targeted at about $130 million, a little better than 100% conversion of net income.

That concludes my prepared remarks. Operator, I would like to turn it back over to you for our investors questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Deane Dray with Goldman Sachs. Please proceed with your question.

Good morning, this is Mark Zeff calling on behalf of Deane.

Mark, how are you?

I am doing okay, Bob. First, I just want to touch on Industrial, and then a follow-up on M&A. Within the 4% outlook for 2008 core growth, what is the embedded assumption for Industrial? The expectations continue to be for moderating growth at some point, yet every quarter keeps chugging along at double digit.

Well, we did have moderating growth in the Industrial part that represented Enerpac, principally in the U.S, and it did result in moderating growth for worldwide Enerpac, so I don't think that is something that hasn't happened. I think it has been happening. What you have got going against that is European expansion, and a very strong oil and gas and power gen market, that has been much stronger than that, and we haven't seen as much moderation in that side. I really don't think we want to get specific on exactly how the guidance is broken.

Why don't I try to do it this way. When I look at the four business segments, I think Industrial is going to be above that 4% average. I think Electrical is going to be at, maybe a little bit down from that 4% average. I think Actuation Systems will be at about that average, and Engineered Products will be above that average.

Great, that is very helpful. And just to clarify, so you are not expecting any new end market trends within the Industrial segment, the continued strength in Europe, and continued moderation in North America; is that correct?

Correct.

Great, and then just to quickly touch on M&A, I know you mentioned the impact on private equity of the recent credit crunch. Does that change your thinking as far as the size of deals in the pipeline, as have you seen any actual changes in the environment or pipeline? Are these more expectations for how things might play out kind of over the next 6 to 12 months ?

I guess my answer is I think that it is too soon to say that you have seen a huge amount of change in anything in the pipeline. It is just that I don't think this credit crisis has been out there long enough to influence the long term capital flows in the private equity, what I would tell you is there have been a number of deals that we've looked at, that have either gotten pulled or have gotten delayed, because I believe sellers are starting to say gee, if there are only strategics out there, do we want to look at this differently.

So that would be my counsel to you. We are looking at bigger things. We are looking at new platforms. We have talked about that in the past, and those efforts continue, and are probably accelerating a little bit.

Great. Thank you.

And our next question comes from the line of Amit Daryanani with RBC Capital Markets.

Thanks, good morning, guys.

Hi, how are you?

Good. Just a really quick question on the Industrial segment margins, sequentially we came off a bit by about 40 basis points. What drove the margin shortfall sequentially in the Industrial segment, and do we get a sense of maybe we are hitting a ceiling on the margins over here? How should we think about that as well?

I don't think it really is as much of hitting a cap on it from a mix standpoint. Hydratight was a little stronger than Enerpac was, so you had a little bit of an unfavorable mix, you also had the mix from acquisitions which were definitely negative on this thing, I wouldn't read that much into it.

We expect the margins in this segment to continue to grow as we move forward.

All right, and then just the Electrical segment, it sounds like ex some of these events they were up about 80 basis points sequentially. Trying to get a sense of organically, once you are done with the restructuring, what margin potential do you see that segment to have?

I guess the one comment I would toss out there that 80 basis points that we mentioned, that was year-over-year. That was not sequentially, in terms of the improvement as you pull that out.

I think in this business, the key to get the margins up is to get the European Electrical business completed, as far as the restructuring there, because within this segment, you have got some, a wide variety of margins and clearly, this is a laggard among the group, so once you start seeing the savings coming through there in the back half of next year from the restructuring, it will move up. Clearly, long term, there is potential here for a couple hundred basis points improvement in this thing, but the key is European Electrical.

Fair enough, and then just looking at your product portfolio, I am just wondering, are there any businesses that you look at that you potentially look to divest over the next few quarters, or are you pretty content with the portfolio we have today?

I think the answer to that, we get that question a lot, and there are, the way we answer it is anything, is anything is for sale at Actuant, provided the pricing is right. There are a few small businesses that are not core to the general strategies of Industrial Tools, Electrical Tools and supplies and Actuation Systems. We look at these just like we look at everything on a ROIC basis, what could you get for the business, what could you redeploy those proceeds, what would the tax costs be, and that is how we look at those analysis.

I guess what I would say is there might be a couple small things but it is not enough to move the needle in terms of valuation. There aren't any segments for sale or anything of any magnitude that would move the needle.

That is about it. Thanks a lot, guys.

Thanks Amit.

How are we doing, Operator?

Our next question comes from the line of [Chris Welter] with Baird Company.

Good morning, guys.

Hey, Chris, how are you?

I am doing all right. Given the negative commentary I guess in the last few days from Graco and others about the North American DIY/remodel market, I wonder if you could give us an update of what current business trends look like in that business, whether you have seen any deterioration recently, and sort of what your expectations are for that market over FY '08?

Well, I haven't seen the comments you are talking about to be honest with you. I think our DIY sales have been pretty similar for the last really almost all four quarters of this year, and that is that the Electrical aisle has been down somewhere between 0 and minus 5% in North America.

I think the Electrical aisle is unique against what you see in some other aisles of DIY, because we don't have major, we are not doing things like wood or lumber or big white goods, or even big ticket items, like conduit or other things. Our sales tend to be more recurring revenue, somebody replacing a ceiling fan, somebody doing something in their house, and we have not, we have really not seen anywhere near the fall off that other aisles have, and that other people who service this aisle, so no deterioration in the fourth quarter.

It was pretty normalized for us. The only thing that affected us was what Andy talked about earlier. Europe grew even though we are doing restructuring and the mix of that affected the margins a little bit, but other than that we have not seen any of the trends that I think you are referring to.

Okay, that is helpful. Thank you. And then moving on to China's recent decrease to VAT rebates for exporters, I was wondering if you had an estimate on how much that would impact you, if at all, in FY '08?

Go ahead, Andy.

Yes, we have scrubbed pretty hard, in terms of the change that they made to the rebate structure over the summer, looking at our categories and what not to be sure we got them right, and after pushing back on vendors trying to get reductions and what not, we take the impact of what is been done thus far is a couple million dollars in terms of the net increase in costs to us. We obviously will try to raise prices to our customers for those items, but the number here is not that significant.

I think it gives the backdrop of our LEAD initiatives, and what kind of potential we get in the margin expansions we are expecting. We're working through that issue.

Okay, that is helpful, and then your small reduction to I guess your organic growth outlook for '08. I was wondering if you could just sort of go through the moving pieces, and what has changed quarter to quarter in your outlook?

Well let me start, and then maybe Andy you can do it business by business, and we kind of assumed that this question would come up. It is really not a reduction in our outlook. It is due to the fact that we had a very strong fourth quarter. The actual number is not down from our previous guidance, the absolute sales. It is due to the fact that we had a very strong quarter, and I guess we aren't going to change our guidance.

We spent a lot of time thinking about that working with businesses and we are not going to change it just because you piped in a great August in a single month. So that is my response. If you look at the absolute number, it's driven, the change is driven more by the strong '07, not a reduction in '08.

With that, Andy can give you some guidance business by business.

Right. When we look to our next year, there are a couple of markets that we do expect to be down and others that will do very well, and I think oil and gas is an example of one that we expect to continue to do well.

That is our Joint Integrity platform, so we expect that to continue on similar to what we saw, but when we turn to High Force Hydraulics, we do expect that to moderate in North America as it has for the last year, and I think when you are looking back on '08 at the end of the year, the way that we're looking at '07 today, I don't expect that our core growth in Industrial will be the 13% that you saw this year. I think it will be something more moderate than that on that.

Beyond that, RV sales growth in '07 was very strong, largely due to market share growth or market share wins that we have had. We don't have forecasted in that we will have another increment associated with that in '07, so a little bit more modest core growth coming out of that business. I think our European Truck business will do very well going the other way. I think the North American Truck will continue to have a lot of headwind in the first part of the year, as we anniversary the emissions related impact, or the pre-buy impact from the Emissions.

On that I think lastly, auto sales will be flattish to up low-single digits for the year, so when you look at those against the backdrop of what we just did in '07, I think you can see why we think a little bit more moderate core growth from the 6% last year to 4 zip code this year is probably appropriate.

Thank you very much.

(OPERATOR INSTRUCTIONS) Our last question comes from the line of Scott Graham with Bear Stearns. Please proceed.

Hi, good morning. A couple of questions for you. The Actuation margin of 40 basis points was something of a surprise for me, because you had a couple of weaker sales numbers in that number, in that division as expected. Particularly, the U.S. Truck which I know is a pretty high margin business for you guys. Does this suggest that you had some pretty good margin expansion in RV, and that the Auto numbers are maybe starting to look better at long last?

Yes. Just to add a little color to that, Scott, our auto margins have been up year-over-year in all four quarters this year, so we have seen sequential improvement as well as the year rolled out, and the fourth quarter was no exception, they were the highest of the year in Auto, as a lot of things we have been talking about, have been in place you are seeing through more--

And you were against a very miserable comp last year. We were up 70% in sales, but none of it flowed through, what we affectionately call 'empty calories' around here, but last year, we were in the middle of a number of major launches, and our efficiencies weren't up to snuff, so that was, Auto was a fairly easy comp to get over year-over-year.

From the RV standpoint, you are correct. Margins were improved in RV in the fourth quarter, but they were improved in RV in the third quarter as well, so I think it's a continuation.

Really the punch line is it is a continuation of what we've seen in the last couple quarters. The improvements that we have talked about are coming through in this, and you saw more of an impact, that probably was exacerbated this quarter, because of what Bob mentioned, where Auto last year was a very low number.

Quite frankly, Scott, it would be higher still if you weren't investing as much as we are in the [GIS] business, where we are spending significant engineering dollars today with the revenue coming in '09 and 2010.

Got you. The acquisition pipeline itself, are you as happy today as you were three months ago?

I think we are. We've already completed one deal in 2008, so we are off to a great start there. I think the private equity phenomenon that started a month or month an a half ago, has some sellers kind of thinking through their strategies, and I wouldn't panic if you didn't see anything in the next 90 days, but we have tons of stuff we are working on.

We are working on big things, small things, and I am fairly confident that when you look at the full year, there is 150 to $200 million of bolt-on items, five deals, six deals in that zip code, 25 to $50 million deals, maybe 1 in a 100, kind of like Maxima was this year, that is what is in our cards. That is what the we work on.

That is fine. The last question relates to the Engineered business, which became a lot larger with the acquisition of Maxima, which I still wonder about that business, because it is an acquisition that is a little bit different, well actually a lot different than the businesses in that segment. Is there a thinking here, where we can maybe build the Maxima business out through acquisitions, and maybe you can give us also some color on what was 15% organic growth in that segment?

Well it was 15% organic, but that doesn't include Maxima, because you didn't own it for a year.

Right.

So that was really Nielsen Sessions and Milwaukee Cylinder, and Turner which is, you know, flavors into the Power Generation space, and then Acme had a pretty good quarter on the Aerospace side, so let me go into a couple of things, Scott.

The first is that Maxima was a strategic acquisition, and really redefining the Engineered Products platform. It is the largest asset in that group. Maxima does control Engineered Systems that can handle gauging, can handle fluid levels, that can be consolidated where you can put multiple applications across a single instrument.

It is a little higher tech than the other things that are in that segment. One of the reasons we really went after it is we think there's a lot of synergies using those control panels with some of the other Engineered Products in Auto, RV, Truck, Off highway, these kind of markets. This is Maxima's core strategy, so after owning it, we really like Maxima. There is potential to do acquisitions that tag on to that. It is got a very nice niche now, but there are ways to broaden it out, and we are pursuing those, so I think your read of that is correct.

That is all I had. Thank you very much.

Okay.

Mr. Arzbaecher, think are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

All right, well all I really have is closing remarks.

I think before signing off today, I want to remind you that next week, we have our Annual Investors Conference in New York City next Tuesday, October 2nd at the Westin New York Times Square. At this meeting, you will have the Senior Management of Actuant , so Mark Goldstein, the newly appointed COO, and some of the other executives that make it happen day-to-day will be there. If you would like to attend or need information about this, please give us a call, and we will be happy to add you to the group.

That is it for today. Thank you and goodbye. Ladies and Gentlemen, that does conclude the Conference Call for today. We thank you for your participation, and ask that you please disconnect your