L B Foster Co (FSTR) 2014 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the third-quarter 2013 L.B. Foster earnings conference call. My name is Chris and I will be your conference moderator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. And at this time I would now like to turn the conference over to your host for today, Mr. David Russo, Chief Financial Officer. Sir, you may proceed.

Thank you, Chris. Good morning, ladies and gentlemen. Thank you for joining us for L.B. Foster Company's earnings conference call to review the Company's third-quarter 2014 operating results.

My name is David Russo and I am the Chief Financial Officer of L.B. Foster. Hosting the call today is Mr. Robert Bauer, L.B. Foster's President and CEO.

This morning Bob will review the Company's third-quarter performance and provide an update on key business issues and discuss market conditions. Afterward I will review the Company's third-quarter financial performance and we will then open up the session for questions.

Means to access this conference call via webcast were disclosed in our earnings press release and were posted on the L.B. Foster Company website under the investor relations page. This webcast will be archived and available for 30 days.

During today's call our commentary and responses to your questions may contain forward-looking statements including items such as the Company's outlook for our businesses and markets in 2014 and beyond, cash flows, gross profit margins, operating costs, capital expenditures and other key performance measures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from statements made today.

These forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information or future events except as required by law. All participants are encouraged to refer to L.B. Foster's annual report on Form 10-K for the year ended December 31, 2013, and reports on Form 10-Q thereafter as well as to other documents filed with the Securities and Exchange Commission for additional information about L.B. Foster and to learn more about the risk factors that may affect our results.

In addition to the results provided in accordance with US generally accepted accounting principles, our commentary may include certain non-GAAP statements which present operating results on a basis before the impact of the second-quarter 2014 adjustments related to a warranty charge. A reconciliation of US GAAP to non-GAAP measurements has been included with the Company's 8-K filing. Statements referring to the exclusion of these items are considered non-GAAP measurements and while they are not intended to replace the presentation of our financial results in accordance with GAAP, the Company believes as the discussion of results before these items provide additional meaningful information to investors to facilitate the comparison of past and present operating results.

With that we will commence our discussion. And I will turn it over to Bob Bauer.

Thank you, Dave and good morning, everyone. Let me add my thanks for also joining us today. I'll start with a very high level view of the quarter and the year-to-date performance and then drill down into a few specific areas to help you understand how our year is unfolding.

Our results for the quarter included a number of very favorable business performance results as well as a market outlook that remains still positive and overall year-to-date performance versus prior year in our earnings per share that are better when adjusted for the warranty charge that we took in the second quarter. The area that's not as close to our sales forecasts is our distribution business. We will make a number of comments about that today.

Both are rail distribution and the piling distribution have sales volume that is below what we expected as the year began, with piling sales representing the more significant shortfall of the two. However, these shortfalls to forecast are not the result of weakness in the market.

The market activity continues to have a favorable outlook for both of these product categories. We just haven't converted bookings into shipments.

So the rest of the headlines kind of look like this. Today we reported earnings per share of $0.88 for the quarter on sales of almost $168 million. The sales results reflect a 3.4% increase in sales, which was driven by our coated products business in the tubular segment.

And while rail products orders were up 41% in the quarter, rail sales reflect a decline from the prior-year period as we struggled with the rail distribution shipments. And our transit business as well was coming off as some prior-year peak sales from the Honolulu project, making that comparison also difficult.

Our EPS decrease of 7.4% in the quarter was affected by timing of expenses around some key initiatives, which include preparation in ERP implementation as well as cost related to acquisition activity which are significant. I will cover those. Dave will speak to those again as well.

But, however, on a year-to-date basis after adjusting for the warranty charge taken in Q2, our earnings are still up year-over-year. Gross profit has improved from 19.3% to 21.2%. Our pretax margin is up 10 basis points to 7.5% and we have managed to keep our net income margins at 5% while absorbing a number of these expenses related to our future growth initiatives.

So at this point I like where we are at but I have to say I will like a more when we complete more of these key growth initiatives that we are of course excited about. So let me circle back to kind of the orders and sales discussion.

New orders for the quarter they were up 7% over the prior-year quarter, which brings the year-to-date order growth in at just over 16% for the nine-month period. And while our tubular orders grew at 65% on the year-to-date basis, the real driver was the rail business with 21% order growth over the prior nine-month period. So we really have some divisions that are doing very well that are supporting that number.

Our Allegheny Rail products business, concrete ties as well as a rail technologies divisions are all having solid double-digit order growth. So the rail business continues to benefit from capital projects aimed at improving freight rail infrastructure.

There's continued growth in intermodal services as the rails continue to drive investment in that business model. And we're getting business from the crude-by-rail volume that's putting new tracks into locations that weren't previously served.

Turning to the tubular products business, tubular product orders have benefited most from the increase in our coated product orders for gas pipelines. We expected this to take place and expected the product line to show improving order patterns in 2014.

And then as I look at the construction business, that outlook remains positive. Our new orders for piling and buildings are up on a year-to-date basis. Both are close to 5% better than prior year and that's without any acquisition impact.

Our bridge orders are the ones that are below levels of last year as we won't have now a super large multimillion dollar project booked this year. That means that the bridge business will not be growing next year and achieving record performance like it is this year. And that's a uncommon at all to see swings like this for our bridge business.

So overall our backlog looks good. It's $20 million higher, or 13% over where it was last year this time. That's fine, as I see it, although I would've liked a little more to ship in the third quarter.

I wanted to start with this discussion about orders because I figured that the 3.4% sales growth in the quarter and the low growth on the year-to-date basis might be construed as the Company seeing some weakness. It is not.

We are headed into the final quarter of the year with some nice growth rates across many product lines. Again, with the exception of our rail distribution and the piling distribution businesses, these two product segments -- and they are sizable for us -- are running behind forecast and it's really related to our ability to execute.

We had some operational congestion in the rail distribution in the third quarter, which has since been relieved. We added two new tracks to handle inbound and outbound flow of new product from our primary distribution yard. We also had delivery problems, actually waiting on rail cars, which from time to time were held up as a result of the demand in the industry.

Now with regard to piling orders, those orders had been pretty good since the first quarter. We got behind in Q1 shipments and still haven't been able to make up for the shortfall. Earlier, as I mentioned, piling orders were up 5% year to date.

Piling sales, on the other hand, are lower than prior year by 23%. So this is a business where making up lost ground is difficult, as production output in a given quarter cannot be ramped up substantially and therefore this is why our sales are impacted the way they are. But overall I believe our markets they will remain positive.

We've got a number of business segments and product lines doing very well. Our transit business will have some tough year-over-year comparisons as the Honolulu project winds down. And as a look at our total Company growth it would look better if our distribution businesses and rail and piling at that pace would improve but that's probably going to still continue to lag behind where we would like it to be at least for the next quarter.

Now looking at then our profit performances, as we had growth and manufactured products versus our distributed products, it has contributed to favorable gross margins. Our gross margins finished the quarter at 21%, 170 basis points better than prior year.

The rail business had a 240 basis point increase over the prior year in Q3. Construction was better by 150 basis points.

Tubular gross profit margins, they were down slightly as we recognize costs on a project with low productivity. That project is now complete and behind us and our focus is now going to be on restoring these margins going forward. So overall our gross profit margins reflect a good pricing environment and I think good management of cost except for one tubular project.

So the final story really behind the quarter's performance lies in expenses we incurred. While we are roughly on plan with SG&A spending for the nine-month period, a significant amount of expenses were incurred in Q3 related to our ERP preproject work as well as acquisition activity. This is contributing to year-over-year pretax margins being down for Q3 but when adjusting for that warranty charge that we took in Q2, the year-to-date pretax margins are better than prior year by 10 basis points.

So this is keeping our adjusted EPS also slightly ahead of last year after nine months. And it's important to point out that several of the spending initiatives are aimed at driving growth through acquisitions and creating the right infrastructure to handle a larger, more complex business and we are confident that these investments will pay off.

So I will wrap up with a comment on cash flow. As far as the financials go our operating cash flow has I think really been exceptional this year at more than $49 million of operating cash flow through the nine months. We are way ahead of where we were this year last time.

Our inventories are below prior-year levels and we are poised to finish the year with lower working capital as a percent of sales. So as a result of all of that we also decided to increase the dividend this quarter announcing a penny a share increase to $0.04 per quarter, which will lift the year from $0.12 to $0.16. That's a nice 33% increase, which will return a little more to shareholders while still providing us with enough cash to execute on our growth initiatives.

And then along the lines of some of the other things going on you may have seen a week ago we did announce an acquisition in October. We completed the acquisition of Balfour Beatty's friction management product line. It's the first step in building scale in our European business as it establishes a presence in Germany, which we really wanted to see.

We will immediately have a product that is acceptable to key German customers in addition to having local sales and support resources in this market. The business will immediately be integrated into our current European operations and it will boost sales by approximately almost $3 million. So it was one of our smaller product line acquisitions.

So overall I am very pleased to report that our divisions are doing a great job. Our underlying results through nine months are good. And we will continue to focus on the plans that create values and opportunities in the future.

So with that I will turn it back to Dave. And he will run through the specifics a little more on these financials. And we will take some questions after that.

Thank you, Bob. We will start with the top line.

Net sales for the third quarter of 2014 were $167.8 million compared to $162.2 million last year, a 3.4% increase. The sales increase was due to 114% increase in our tubular segment sales and a 1.2% increase in construction segment sales, partially offset by a 3.3% decline in rail segment sales. The rail segment sales decline was due principally to reductions in rail distribution sales and transit product sales, partially offset by increases in rail technology and concrete tie sales.

The tubular segment sales improvement was due principally to a significant increase in our legacy coated products business as well as a sales contribution made by our fourth-quarter 2013 specialty coatings business. The construction segment sales decline was due to a volume-related decrease in sales of piling products, partially offset by an increase in fabricated bridge products and a contribution from our Carr Concrete Products acquisition, which closed early in the third quarter.

As a percentage of third-quarter 2014 sales, tubular accounted for 9%, construction was 30% and rail totaled 61% of sales. As mentioned in our earnings release, backlog stood at $223.2 million at the end of the third quarter, up $25.7 million or 13% from the third quarter of 2013. The year-over-year increase was due to a 104% increase in our tubular segment backlog, a 15.2% increase in rail segment backlog and a 6.2% strengthening in our construction segment backlog.

So every segment was up. The tubular increase was driven by our coatings business while the rail increase was due to new rail, rail technologies as well as concrete ties. The increase in our construction business was due to piling and concrete products partially offset by a lower fabricated bridge backlog, as Bob mentioned a little while ago.

Third-quarter bookings were $142.4 million, up 7% compared to last year's third quarter. Bookings improved over last year's third quarter in the tubular segment by 43.9% and by 41.2% in the rail segment while declining by 34% in the construction segment, which was driven by the piling as well as the fabricated bridge businesses. Gross profit margin was 21% in the third quarter of 2014, 165 bps higher than the prior-year quarter, due to improvements in the rail and construction segments, partially offset by a reduction in tubular gross profit margins.

A 235 basis point improvement in the rail segment was principally due to increased margins in Allegheny Rail products businesses, transit products as well as rail technologies and a little bit of leverage from the mix of products sold. The construction improvement was driven by expanded margins across all product lines except for piling products and also as well as product mix. The decline in our tubular segment margins was due principally to lower coated products margins, excluding the 2013 specialty coatings acquisition and that decline was caused by a project, whereas Bob mentioned, we had cost overruns in the third quarter, and this project was completed late in Q3.

With regards to costs and expenses, our selling and administrative expenses did increase by $3.1 million over last year. That's a 17.6% increase to $20.6 million. That's principally due to increases in personnel-related costs, acquisition-related due diligence and legal costs, expenses reported by our newly acquired businesses that we did not own last year, as well as fees related to the preparation for and identification of a new ERP system.

S&A expense represented 12.3% of sales in the third quarter as compared to 10.8% last year. The increase is due mostly to the previously discussed cost increases on slightly increased sales.

So we are aware that obviously that our S&A expenses comparisons are unfavorable and not supported by adequate sales and gross profit improvement in the quarter. We do, however, feel strongly that these costs will generate attractive results and returns in future periods.

We are trying today to lay a foundation for future growth. Whether that foundation is in the category of a new ERP system that makes our organization much more scalable without adding headcount in the future, or adding cost for sales or R&D efforts that we believe will yield long-term benefits, or M&A activity that allows us to acquire businesses in a sustainable manner while maintaining a favorable risk profile, we believe the steps we are taking this year will yield the desired long-term positive results that we strive for and will benefit our stakeholders in a meaningful way.

Third-quarter pretax income was $13.9 million, or 8.3% of sales compared to $14 million, or 8.6% of sales in the prior year. As mentioned in our earnings press release, the effective tax rate for the third quarter of 2014 was 34.2% compared to 30.2% in the third quarter of 2013.

The current-year rate compares unfavorably to the prior-year quarter due to the recognition of discrete tax items related to certain state income tax matters during the prior-year quarter. Third-quarter income from continuing operations was $0.88 per diluted share into 2014 compared to $0.95 per share in the prior-year quarter.

Turning to the balance sheet, working capital net of cash decreased by $4.9 million in the current-year quarter. Accounts receivable decreased by $3.3 million. However, our DSO at the end of the quarter did increase to 48 days from 45 days at June 30 but still much improved from the 55 days at the end of March and 52 days at the end of the year in 2013.

The slight spike that we had this quarter was basically due to the average accounts receivable that we had over the past three months. We do that calculation on a 90-day average basis.

Inventory increased by $6.2 million while accounts payable and deferred revenue increased by $2.3 million. As Bob mentioned, cash provided by continuing operating activities in the third quarter was $18 million compared to $3 million of cash generated in the prior-year quarter.

For the first nine months of 2014 cash generated by operating activities was $49.6 million and that is compared to $2.5 million for the comparable prior-year period. The improved performance during the first nine months of this year is attributable to better working capital management especially with regard to accounts receivable. Also adding to the favorable comparison were decreased tax payments.

Our robust third-quarter cash flow came in handy as we closed on the Carr Concrete Products acquisition in July. The strong year-to-date cash provided by operating activities is also important as we've also increased capital spending in 2014, which is targeting several growth and profit improvement initiatives.

We anticipate spending approximately $16 million to $19 million in capital programs this year. These capital programs are inherent in all three business segments and are all under an umbrella of growth and profit improvement in the coming years that we believe will improve stakeholder value on a longer-term basis.

That said, we continue to forecast that cash generated from operating activities will exceed CapEx, debt service payments, dividends and share repurchases this year. Our year-to-date 2014 capital expenditures were $11.6 million compared to $5.6 million last year. The 2014 spend has been predominantly for buildings, yards and equipment aimed at providing new and expanded manufacturing capabilities, improved service and product availability to the customer and increased manufacturing efficiencies.

Cash at the end of the quarter was $86.5 million, down $1 million from June 30. Our cash was invested principally in AAA rated money market funds and other short-term instruments where preservation of principle and quick access to funds is a priority.

In addition to our strong cash flows and considerable cash balance at the end of the third quarter, we also closed on a new revolving credit agreement with our bank group. Our credit facility capacity was increased from $125 million to $200 million. The accordion feature inherent in the agreement was increased from $50 million to $100 million.

Our maximum leverage ratio was increased from 3.1 to 1 to 3.25 to 1 and our pricing remains very attractive. The agreement was executed in September and it has a five-year duration. We believe that the Company's enhanced liquidity and ability to generate strong cash flows will enable L.B. Foster to pursue organic growth programs and meaningful strategic acquisitions, while still allowing for some modest increases in our dividend, as mentioned by Bob and announced by the Company last week.

That concludes my comments on the third quarter of 2014. I will now turn it over to Chris to open up the session for questions.

Thank you. (Operator Instructions) Mike Baudendistel, Stifel.

I just wanted to ask you, I guess the rail congestion issues have been with us all year. They seem to continue to be with us.

It seems like it impacted you. On the revenue side are your customers coming to you with orders for various products to address any of those issues and is that something that you think is going to take place going forward?

No, we really needed to just solve that ourselves. We got into a situation where we just couldn't move enough product through our facility and we just needed to expand the capacity and we have done that and we have that behind us but that is really what that was about. It was all on our operations.

Okay. Are the customers looking for ways to de-bottleneck their rail operations sort of independent of yours where you see the Allegheny products or other areas in your rail group should benefit from just the entire industry trying to become more productive?

I don't think they are doing anything that is dramatically different to try to address that. Everybody has a lot of projects that are going on out there. The rail that is being used in the industry is the product that has been used for some time.

There is more premium rail that is going into the marketplace. Premium means we sometimes call head-hardened rail, which means heat treated, so it will last longer. And so there is a trend moving toward that which means that they won't have to replace it as often and that is basically reduced operating costs for them when they do the lifecycle analysis.

The rest of the strength that we are having out there it's due to wear-and-tear from traffic, from gross tonnage that is moving over the rails, for a need to lower operating cost and even some PTC. Our Allegheny Rail products is benefiting from the fact that the positive train control trend that is underway in the investment there is leading to the need for the joints that we put in the track that handle the connections to the signaling process at crossings.

Great. Thanks for that detail.

And then with the recent tuck-in acquisition, I was wondering if you could just review your acquisition strategy? What are you looking for in acquisition targets? And if we look over the next few years how much capital would you be willing to deploy for acquisitions?

That strategy we continue to execute what we have been talking about for the last year, so it hasn't changed much. So the review of that is the attractive marketplaces for us are adding to our rail products business and any rail services that we can also step into that are largely going to probably be in the maintenance way. Our business is really in the track infrastructure and maintenance way.

I don't see a stepping into things that are in rolling stock and those sorts of areas. So to the extent that we can build on products that we have and services that surround all of those areas, those are attractive areas.

And we are also intending to increase our exposure into the energy markets because we like what we do in our tubular products businesses that have exposure into the energy markets, particularly gas pipelines in the mainstream markets. There are other spaces out there that we think are very adjacent to the businesses that we are in. And we are looking at stepping into those markets to increase our exposure to energy in addition to what we get as well and even in the rail business like in crude by rail.

We have said in presentations in the past that we think that we can acquire somewhere between $200 million and $250 million worth of sales in our planning period. I continue to believe that we can make that happen.

While the deal we just did was small, we continue to see more sizable ones that we are engaged in and so we don't want to do that in too many small bites at a time. So the work that Dave spoke of a moment ago about upping our credit facility is intended to support that and I am sure we will challenge the size of that credit facility to get the sales that I just spoke of.

Great. Thanks for that detail. And just I wanted to ask, with the most recent acquisition being based in Europe, what is your Europe revenue on an annual basis?

It is in the area of $25-plus million, if you convert that to dollars. So that deal was the first of what I call a multi-step strategy to really increase the scale of that business. We have other things in mind at the moment that we can do to increase that and improve the presence that we really have in serving that market.

And are those expected to be transit-based primarily, or freight?

Well, most everything over there has some transit exposure to it and more so than freight. So yes, you will see more transit exposure.

Great. Those are all the questions I had. Thank you.

Robert Kosowsky, Sidoti.

Was hoping you could just dive a little bit more into the sheet piling issues that you had and kind of how far you are as far as kind of rectifying some of the issues and also what this might mean for fourth-quarter earnings -- fourth-quarter revenue -- because last year we did see a nice bump up sequentially third quarter to fourth quarter. I am wondering if that is still in the cards this year just given kind of working through some of these issues?

Well, we started the year with a decent order outlook and continue to build the backlog and as we went through the second quarter we were talking about how the backlog was increasing in that particular area. So we just had some shortfalls in product supply in the quarter.

We continued to have some shortfalls in product supply. We are attempting to work through those with our partner. It's hard from where we are sitting today to be able to project exactly how that might unfold under the coming quarter but I can tell you that there's investments that are being made in operations.

There's technology that is going into operations all in an effort to improve those things. So I would like to say that we will continue to see some better execution in product supply going forward but we've really got to see that happen. And so I've got to kind of put that into the wait and see it happen kind of category before I'd comment, I think, more positively on that and that's not to say it is negative, I'd just like to see it move up in a little stronger manner than we've been able to move it up.

Okay. So that sounds like obviously the issues and distribution on the construction side are going to linger for a little bit longer maybe to a lesser extent, then maybe when we get into 2015 you should see I guess more efficient operations come through, or more ideal operations?

I think that mindset is fine to have. Yes, there is always a bit of risk there.

Okay. And then otherwise I was wondering if you could break out what manufacturing versus distribution sales were for the entire Company, if you could, if you even have that number?

Distribution was around 45%, Rob.

No, I mean from a growth standpoint, sorry. How much manufactured products were up versus what distribution may have been.

In the quarter?

Yes, in the quarter.

Yes, I can't think of that one. I didn't break it down that way.

If you are talking about quarter over quarter?

Yes, just third quarter this year versus last year. Because I know you had some issues on the distribution side so I am wondering how much manufactured products were up versus distribution being some of the issues, how much of that was down just to get a better sense of kind of the core growth of the Company.

I would tell you that distribution was probably down around 10%.

Yes, because piling was down 23% (multiple speakers)

So manufacturing obviously made up the balance.

Yes.

All right. So that means manufacturing was up a good 10%, 15%, something like that?

Yes, it has to be a double-digit number. Yes, it's close to that anyway. Right now the fact that manufacturing is probably 55% of our business and distribution is 45%, manufacturing would've increased just a tad less than distribution decreased.

All right, cool. In an otherwise, just a little bit more granularity as to the scope or size of this ERP implementation and kind of what we should be thinking about for SG&A expenses in 2015?

I guess how big of a step-up that is going to be, is that permanent, does that step back down in 2016? Just any kind of high-level thoughts on that.

Well, I would tell you that there will be some additional expenses next year related to this but at the point where we actually commence implementation the cost will then be capitalized instead of flowing through operating expense. So I wouldn't expect to see a significant increase in the expense side of it from this year to next year, maybe a little bit. But at some point when we get into more of a full-fledged implementation those costs will be capitalized as part of the entire ERP system.

Okay. When would you expect the ERP system implementation to be concluded?

We will probably need to talk more about that in some of the coming calls, I think, in addition to the cost, Rob. To answer your scope question, we need to address almost the entire Company. There's probably parts of it we can look past.

We are a couple of different older systems, some of it Tier 1 suppliers but much outdated systems that just can't carry us forward into the future, decades-old. So we've got to eventually get around to the whole Company.

We don't have any kind of big fire on our hands here where things are breaking down.

So we have the luxury to approach this thing in a manner to make it successful and not run high on costs. So we're in the process of planning that right now and that's what the expenses was for, to do our homework upfront to get our house in order and to approach it in a way where when we do go live we don't have things that aren't working properly.

Okay. Thank you very much and good luck.

Alyssa Johnson, DA Davidson.

This is Alyssa in for Brent today. I was wondering if it was possible to quantify the impact that the product supply had on the revenue?

No, I can't really break that down into actual dollars for you. It clearly had an impact on the quarter as we've talked about but I wouldn't go into that in the actual dollars by each product line. The growth rate that Dave spoke of a little while ago is the better way to think of it.

Okay. That sounds good. Thank you.

(Operator Instructions) Brian Rafn, Morgan Dempsey Capital Management.

Give me a sense either Bob or Dave, you are talking about $16 million to $19 million in property, plant and equipment CapEx. Can you highlight maybe some of your larger investment allocations across your three segments of that?

Well, we have a substantial project that is upwards of $4 million, $5 million going into our coated products facility to modernize the technology there. We stepped into the roll forming business in our bridge business here in the last year that was stepping into a market we hadn't served. We put a building in place and some new roll forming equipment there that is in the couple million dollar categories -- a few million, I guess, as I think about the total addition that we had in that particular category.

We have some equipment that is rather expensive going into some of our rail divisions to launch some new product lines that's fairly substantial as well and even directing some of it to one of the new businesses that we acquired there at Carr Concrete as well. So there's -- and we put the -- when I spoke earlier about our rail distribution yard, putting those tracks in place there and expanding that, that was a pretty significant investment that took place there.

Again we are talking above $1 million for that and we are in the process of executing on that new service center that we have in the Midwest for our serving our construction customers. So those are some of the more notable ones. Everything there is in the millions.

Okay. All right, good. If you guys kind of look across your three segments, give me kind of a 50,000 foot view, what is kind of your capacity utilization and how many shifts might you guys be running on labor?

Well, in terms of our physical capacity in our facilities, they are all in a position where they can take on some more business at this point. Our distribution yard was running well over capacity there in the last quarter, so again we've gotten that fixed.

We have some locations where we are running second shifts and we have some locations where we are running around the clock right now. I'll go as far as saying that we are running two shifts or better in Allegheny Rail products in some factories. We are running more than a shift and two shifts in concrete products, mainly concrete ties and we've got a facility in coated products where we had been running around basically around the clock and still have one other one of our newer facilities in the specialty area that is running just about 7 by 24 right now.

So it depends where you look across the Company. For that reason I tend to try to stay away from statistics and quoting exact utilization because it really depends on the factory and the business line.

Yes, sure. No, I think that that is helpful, Bob.

If you look at the rail segment, can you just kind of again from kind of a high level talk a little bit about where you are seeing some product strength whether it is concrete ties, friction or lubricants, rail technology, maybe track? Are you seeing more maintenance track or more new line installation track from that standpoint? I'm just looking to kind of granular from the rail side.

When you look at our business, the bulk of what we do is maintenance and refurbishment of existing track and rebuilds of certain lines. Because in comparison to how much track is out there versus how much track is going in that is new, there is just so much out there that it still dominates our business. And then when you throw on initiatives like PTC, we get the benefit of some of that, but again that is all in existing infrastructure.

The new projects that are going on for us that are most significant where the new track is going in is into the industrial areas, which means mainly in the process industry, crude by rail, other people that are shipping petroleum products and gas and those sorts of things, liquids and transit where there's transit projects that are going on all over the country. So there's a fair amount of new build work going into the industrial, so we're getting a nice benefit from that. But it is still small in comparison to everything that we do for the rest of the freight business in North America, at least, which dominates our sales.

Yes, okay. I think that's fair. Given the ineptness relative to these extensions on the highway bill, if we were to get a new Congress and a decent highway bill next May, a six-year bill, with $270 billion or $280 billion, would that help your bridge decking business and some of your piling support business?

I believe it would absolutely help. There is no doubt in my mind and I say that because the existing bills have been essentially continuation of the same spending. They haven't had the ability to get something through that would actually put some stimulus out there and some investment in infrastructure, so we are essentially spending at the same levels.

So if we could get something through -- and of course they continue to just keep the highway trust fund kind of floating at what they know they will need to keep it going. So if we really got serious about some infrastructure investment, which is what you would think would be in a bill if they actually took it on, then yes, I think we would have a little shot in the arm. I wouldn't expect a big one but I think a little one.

Okay. Then give me the sense -- and you alluded to it a little bit -- if you look across your different businesses, ex- the book and ship type business where you are looking at backlog, how from the standpoint robust or how would you define kind of your bid quote activity and then maybe your sales conversion of bid quotes say relative to the last five to eight (technical difficulty)?

Well, I'd still call the market I'm just using the term that the market outlook is positive as opposed to trying to put an exact growth rate on it, particularly with all the different businesses we compete in. It's a mixture of a lot of different things but I say that because I see the project activity and the quote activity out there as remaining positive based on what we track.

And that goes across all three of our major segments, rail, construction and tubular. I think our win rates continue certainly to hang in there.

I don't see any real trouble other than the fact that I think in this last quarter when we struggled a bit in our distribution businesses I think there were probably a few losses that we suffered along the way because of inability to ship as quick as we needed to deliver. And so I'm sure that we lost a few orders we would've otherwise won in this last quarter.

Okay. You talked about roughly $25 million on your euro railroad infrastructure. How much of the other legacy products are you looking to build that European platform source from manufacture components in that that you buy or acquire in Europe, or is there some cross selling you can do with current product lines here domestically in the United States that can be sold into Europe?

Well I will first say that when you look at our European strategy that there are some of our heavier products that we don't participate in over there that you would have to make locally to serve any market. Heavier meaning steel rail, concrete ties, products like that, which we don't participate in there. So our strategy is to go after more of the other value added products and services along the lines of like our friction management, which lead the way.

We do have local manufacturing for our track components products, so we ask we do have operations there. What we add we will add assuming that we will have some local manufacturing that will take place.

But we also do trade products that go from North America over there and I think with what I am seeing in the way of deals, in fact the latest one that we put together as a friction management product line that we think we can immediately bring to North America. But we will probably localize that manufacturing in North America when we do that.

Okay. From the standpoint of Europe a little more dense, congested, you do a lot of public transit versus here in America where everybody rides by themselves in their own automobile, give me a sense from the standpoint the European rail from friction management usage, PTC -- would you say their technology footprint is as good or better than the US either transit or freight?

Well, the predominant market over there is transit in terms of a volume of what takes place. It's what really drives the market because the freight lines aren't anywhere near as significant and I would rate the technology and the design of the infrastructure there as superior. I don't think there's any question about that.

And to that extent I believe that they will also spend more money to get the right technology into their rail infrastructure. But with that said, they also depend on government spending to make that happen and that's not the prettiest picture in the world.

Okay. And just one final one.

What is your sense, either Bob or Dave, kind of the markets for what you guys are looking at acquisition wise, multiples of EBITDA, pricey, more financial buyers than strategic buyers? Give me a sense of what you are finding? How lucrative are the markets right here given the cash that you have and the financing and that from a price standpoint.

Well, Brian, here's the way I would have you think about that. There are what appear to be good opportunities out there for us. We are seeing deal flow that is substantially above where it had been in the last few years.

So there's I think more than enough opportunities for us to find attractive businesses in those market segments that I spoke of earlier when Mike asked that question. So we are staying disciplined to go after the markets that are high on our strategic list and the adjacencies around all of those particular areas.

We continue to remain prudent about the pricing. We compete against both strategics and financials on these deals. From time to time there's somebody hungry for a deal that wants to take it off the table at a price more than we will pay.

Anybody that is getting up into the double digits of EBITDA is probably going to be successful with that because we are not going to that kind of level. But the deal multiples, they range all over the place. It depends on the industry, the quality of the company, lots of different circumstances.

I would say that you don't see a whole lot of things down around the 5 or 6 level these days if it is a decent company, but you can see things that will go through 10 if they are really attractive. We are typically not going after those. It's just too expensive and so we are going to be somewhere in that area, maybe in the 6 to 9 is the most likely area that a lot of these things will land and the more attractive they are in quality companies, the more they tend to be toward the higher end of that range.

Okay. Then I will just ask, given 12 touchdowns in the last two games are your Steelers going back to the Super Bowl?

I would not be putting my money on that, although I also can't explain what has happened in the last two weeks either.

All right. Okay, guys. Thanks much.

And we have no further questions at this time.

All right, Chris, thank you. Thanks, everyone. Appreciate the questions there.

We look forward to catching up with you next quarter. Take care. Bye-bye.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation.

You may now disconnect. Have a great day.