H.B. Fuller Company (FUL) 2009 Q2 法說會逐字稿

Good morning. Welcome to the HB Fuller conference call to discuss the second quarter results. At the request of the Company, this call is being recorded for instant replay purposes. This event has been scheduled for one hour. Following today's remarks, there will be a brief question-and-answer session. Instructions will be given at that time if you wish to ask a question.

Management in attendance on today's call include Mr. Michele Volpi, President and Chief Executive Officer, Mr. Jim Giertz, Senior Vice President and Chief Financial Officer, and Mr. Stephen Brazones, Assistant Treasurer. At this time, I would like to turn the meeting over to Mr. Stephen Brazones. Sir, you may begin your conference.

Thank you, and welcome, everyone. Today's conference call is being webcast live and will also be archived on our website for future listening. In addition, this call will be available for replay approximately one hour after we are finished with the question-and-answer portion of our call.

Before beginning, I would like to inform everyone that certain matters discussed during this call will forward-looking statements as that term is defined under the Private Securities Litigation Reform Act of 1995. Since such statements reflect our current expectations, actual results may differ. In addition, during today's conference call, we will be discussing certain non-GAAP financial measures, specifically operating income, earnings before interest expense, taxes, depreciation expense and amortization expense or EBITDA, and return on growth investment or ROGI.

Operating income is defined as gross profit less SG&A expense, EBITDA is defined as gross profit less SG&A expense plus depreciation and amortization expense, and ROGI is defined as trailing 12 month gross cash flow divided by gross investment. All of the non-GAAP measures discussed today should not be construed as an alternative to the reported results determined in accordance with GAAP.

Management believes that a discussion of these measures is useful to investors because it assists in understanding the operating performance of the Company and its operating segments, as well as the comparability of results, and provides insight into the ability of the Company to fund such things as debt reduction, acquisitions, and share repurchase programs. The non-GAAP information discussed today may not be consistent with the methodology used with by other companies. All non-GAAP information is reconciled with reported GAAP results on the last pages of our presentation.

For more information, please refer to our recent press release, quarterly report on Form 10-Q and report on Form 10-K filed with the Securities and Exchange Commission, all of which are available on our website at www.hbfuller.com under the investor relations sections. Now I'd like to turn it over to Michele.

Thank you, Stephen. Good morning everyone, and thank you for joining us today. We are quite satisfied with our second quarter financial performance, especially in light of the continued end market weakness we are experiencing. Clearly, the external environment has had a negative impact on our volume. Nonetheless, we have continued to make progress in a number of key areas.

First and foremost, we've had 300 basis points expansion, both sequentially and year over year. We have successfully restored our gross margin to a more appropriate level. This was accomplished through continued pricing discipline and diligent efforts to reduce raw materials costs. Second, we were able to keep selling, general and administrative expenses relatively flat in absolute dollars, both sequentially and year-over-year. This was the result of the many actions we have taken over the past few years to streamline our structure, as well as discrete cost controls and discretionary spending limits we implemented early in 2008, in advance of the current recessionary economic environment.

Next, we were able to post an increase in our operating margin, both sequentially and year-over-year. Sequentially, we more than doubled our operating income margin to 9.3%, and year-over-year, we achieved a 20 basis points improvement. The sharp improvement in gross margin more than offset the drive from holding SG&A expenses flat in a period of lower volumes. Fourth, we reduced global inventories, as we committed to do at the end of the last quarter. This reduction not only allowed lower cost inventory to flow through the income statement and benefit gross margin, but also resulted in a $28.7 million benefit to cash flow from operations in the second quarter.

Lastly, it is important to recognize that our North American segment continued to perform very well in the second quarter through sustained discipline in pricing, success in negotiating lower raw material costs and continued cost controls. EBITDA margin expanded by 600 basis points sequentially. At the same time, the North American region continued to strengthen its customer facing organization and won new business that will provide benefits in future quarters. The North American region is our largest operating segment. So the positive results here provide strong support for the Company overall. All in all, we are pleased with our accomplishments this quarter.

However, this quarter was not without its challenges as operating profit still declined year-over-year. Our foremost challenge has been and continues to be weak end market demand. During the quarter, volume was down 15% on a year-over-year basis. And this resulted in both a decline in organic sales and lower operating income year-over-year. Beyond the challenges from generally weakened market demand globally, we also faced other challenges specifically in Asia Pacific.

Major raw material costs were not reduced to the same extent as they were in the other regions, and our operating margins suffered accordingly. The vast majority of our problems in this region relate to our Australian business, where we are still digesting the impact of the sharp devaluation of the Australian dollar late last year. The combined affect of high inventories, slower raw material costs reduction, inability to raise price as fast as currency devaluation, account for the majority of the issues in Australia.

Further, volume declines in China and Thailand and incremental investments into the region to support future growth resulted in operating income being down both sequentially and year-over-year. Also worth mentioning, both Asia Pacific and Europe were adversely impacted by currency devaluations year-over-year. Consequently, foreign currency translation resulted in a nearly 15% reduction in net revenue for both regions.

With that, I will now turn the call over to Jim to provide a summary of our financial and operational performance.

Thank you, and good morning to everyone. I will now take you through our financial score card. As you may recall, we have identified four key financial metrics and long-term objectives for each. We think it is appropriate to review our performance against these metrics each quarter when fresh results are available.

As expected, organic sales declined year-over-year in the second quarter. This was driven by both the very weak end market demand environment and inventory destocking by our customers. The downward pressure of these forces significantly outweighed the successes we had in landing new business during the quarter. EBITDA margin was up significantly versus the first quarter, and we also accomplished a slight improvement year-over-year. Continued pricing discipline, together with our efforts to reduce raw material costs, primarily led to the improved results. Although SG&A expense was higher as a percentage of net revenue, the improvement in gross margin outweighed they this effect.

Next, return on gross investment declined 40 basis points sequentially. This was primarily the result of lower EBITDA dollars year-over-year, and the corresponding reduction in trailing 12 month EBITDA.

Finally turning to earnings per share performance, although we were down year-over-year, due to the challenging economic environment, we were able to improve our year-over-year trend versus the first quarter.

So now let me provide you an update on our balance sheet position and cash flow. Our balance sheet position not only remains strong, but it has continued to improve. Despite the adverse business conditions we face, we have continued to increase free cash flow year-over-year. This has enabled us to pay down debt and improve our balance sheet metrics. In the second quarter, our net debt declined approximately $55 million versus the first quarter. In the second half of the year, we expect further reductions in net debt.

Cash flow from operations was up $54 million sequentially, and $28 million year-over-year. The year-over-year improvement in cash flow was primarily due to the reduction in inventory and other working capital items. Sequentially, improved profitability together with reductions in inventory led to the improvement. As a result of our ability to sustain a strong credit profile in this tough environment, Standard and Poor's reaffirmed our BBB credit rating and stable outlook during the second quarter. In this business climate, we feel fortunate to be an investment grade company and we are committed to maintaining this profile. With that as a summary of our financial performance in the second quarter, I will now provide more color on the business from a regional perspective.

From an operations perspective, we did a lot of things right in the second quarter; however, the results were mixed between the regions. Noteworthy performance came from North America which continued to deliver improved results. This was particularly impressive when you consider the fact that they faced one of the most severe reductions in end market demand of all the regions.

On the top line, pricing was a positive factor with average selling price up slightly versus the first quarter. Although volume declined at a slightly faster rate than in the first quarter, the deterioration was primarily due to incremental weakness in construction related end markets, as the volume development in adhesives related end markets improved slightly.

Actions to reduce raw material costs and keep discretionary spending levels in check, together with discipline on pricing, primarily led to the strong improvement in operating income both sequentially and year-over-year. On a year-over-year basis, operating income also benefited from the absence of unusual items which totaled $2.7 million in last year's second quarter. As mentioned earlier, the North American region also made great progress in the quarter, building out a more focused and experienced customer facing organization. The energy level is high in the region and several key customer wins are already in hand that will support our revenue development in the second half of the year. Our biggest region is running well and better, despite the tough operating environment.

In Europe, Middle East and Africa, the challenging end market conditions continued to mirror those of North America with packaging and nonwoven end markets faring far better than construction end markets. On the top line, EMEA was the only region to post an improvement in volume trends versus the first quarter. For the region, the sequential change in volume improved by 400 basis points to down 12.6% from down 16.6% in the first quarter. Clearly, not the type of demand situation we are particularly keen with, but the regional situation appears to have stabilized somewhat.

On the pricing side, the results were not as favorable. Average selling price was up only slightly year-over-year, and actually declined sequentially. The competitive environment in Europe, coupled with the region's meaningful exposure to construction related end markets, has hindered the regions pricing efforts. All together, operating income, although still down year-over-year, increased almost threefold versus the first quarter to $6.3 million. As a result, EBITDA margin expanded 450 basis points on a sequential basis.

Like the North American region, our Latin America region was able to show improvement in operating income, both sequentially and year-over-year. Pricing in the region was largely sustained versus the first quarter, and raw material costs were reduced to meaningful amount. However, volume declines driven by weak end market conditions continued sequentially, which tempered the benefit of our internal initiatives to improve profit margins. EBITDA margin was up 260 basis points sequentially and 60 basis points year-over-year.

And finally, in Asia Pacific as Michele noted in his earlier comments, we experienced a set back in financial performance in the second quarter. Whereas demand declines decelerated in the other regions during the second quarter, they accelerated in Asia. In addition, the region was challenged in driving down raw material costs during the quarter.

Although pricing levels were slightly better than first quarter level, the combination of sharply lower volumes, lack of meaningful raw material cost reductions and higher investments, led to the sequential decline in operating income. After a tough start to this year, we are expecting significant improvements in our Asia region in the second half of this year, as end market demand stabilizes, new business is brought on stream, and the balance between raw material costs and pricing is recaptured in our Australian business.

I will now turn the call over to Michele for some final remarks.

Thank, Jim. I would now like to discuss our outlook for the remainder of our fiscal year. Clearly, these are unprecedented times. The global recession has significantly impacted end market demand and we expect this to persist in the second half of the year. While we are expecting a slight bump in volume from the inventory destocking cycle coming to an end, underlying demand will remain a significant drag on our top line.

With that said, our customer intimacy business model is helping us to mitigate a portion of this head wind. We are successfully landing new business and expanding existing customer relationships. As a result, we continue to expect net revenue for the full year to be down 10% to 12% versus 2008. This is consistent with the guidance that we provided at the end of our first quarter.

The gap in gross margin on a consolidated basis, we have fully recovered the losses of 2008 through our disciplined pricing actions and efforts to reduce raw material costs. For the second half of the year, we will strive to maintain our gross margin while we invest in additional resources to help us identify and execute upon new volume opportunities. We do not expect to see any further significant reductions in raw material costs in aggregate during the second half of the year. To the contrary, we have already seen signs of upward pressure and it is possible that raw material costs will increase late in the year.

We have done a good job of controlling discretionary spending in the last six quarters and our cautious approach in this area will continue. That said, we want to take full advantage of business opportunities that are available in this market environment. So additional investments are planned.

This will primarily be focused on talent enhancements in the customer facing areas of our business. As a result, we anticipate a slightly higher level of SG&A spend in the second half of the year. In summary, although we continue to be affected by weak end market demand, we are investing in our people and our business to better position ourselves to capture new market opportunities over both the short and the long term. When this economic environment improves, we expect these investments to lead to sustainable top and bottom line growth. That concludes my prepared remarks, and I would now like to open the call up for your questions.

(Operator Instructions). We will pause just a moment to compile the Q&A roster. At this time, we are experiencing technical difficulties. Please stand by. (Operator Instructions). Your first question is coming from the line of Mr. Jeff Zekauskas, your line is open.

Hi. Good morning. Can you hear me?

Yes. Good morning, Jeff. Sorry for the technical difficulties. Hope we are fine now.

Right. Maybe if you could start off and talk about whether you see any green shoots, that is when you look at the various geographies and the economic activity of our customers, are you beginning to see any signs of life other than the end to the inventory draw down?

Well, unfortunately I don't see that and all of the comments I have been getting from my team and from other players in the industry are actually that the second quarter was slightly worse in the first quarter. So all of our comment of slight improvement sequentially in the second half of the year are banking on some destocking, which clearly is not demand driven. It is simply that people have low inventories and lower you can't go, but also now are willing to turn on their efforts, and I think we are doing a fine job, not only in terms of what is seen in the ledger on the top line in reality terms, but also on what we are really creating for the future. But as for us, the macroeconomic environment, we really don't see right now any signs of life. Actually, we were even expecting if you go back to the previous call, a more robust impact of inventory stocking happening earlier, and it is still not there.

That's helpful. Secondly,in the cash flow from operations for the quarter, of $56 million, basically you have got about $25 million or $25 million to $26 million from net income and depreciation. Where did the other $30 million in cash flow come from? And do you have to give some of that back in the future quarters?

Jeff, hi. This is Jim.

Good morning.

Are you referencing just cash flow in the second quarter?

Yes. Sorry.

Okay. Yes. Well, it was really net income. Obviously, depreciation, amortization and then significant improvement in inventory. So inventory was down $28 million in the quarter, and that is the contribution, the significant contribution to our cash flow from ops.

And then you're losing some money in your Asian operations and you expect some reversal, can you talk about what the dynamics of that reversal are or what the magnitude of the reversal is?

Nobody is happy here with what happened in the first half. Clearly, the currency in Australia has been a big, call it, somehow uncontrollable item. And remember that Australia is a sizable operation so it has an impact. Clearly, the situation has been slightly improving and going the other way, so that should help. Clearly, we got into this devaluation with too high inventories and that has aggravated the situation. Both from networking capital and from a gross margin standpoint.

Lots of actions are underway. So that's why we are more optimistic for the remainder of the year. Actions on pricing, because we really didn't recoup the devaluation and lots of projects underway. Lots of actions on raw materials in making sure that we are more aggressive there. And significant actions in reducing the inventory, and that will clearly have an impact. But it is fair to say in the first half we are late in this region compared to others, both for external and controllable items, but also for some operational issues we had.

Okay. Thank you very much.

And your next question comes from the line of Eric Swanson from Keybanc Capital Markets. Your line is open.

Morning.

Morning.

First question here is if raw materials had stayed at the high levels we saw last year, do you think you guys could have gotten these type of gross margins with your pricing ability alone?

Excuse me. I don't think I got your question. Can you repeat, please?

If raw materials had stayed at the high levels we had seen last year, do you think you can have gotten these type of gross margins with your pricing ability alone? And I guess I guess another way to ask the question was how much of the gross margin improvement was structural versus pricing over raw materials?

I would say that a good portion of our gross margin improvement was raw materials, and our perspective is that part of this is market related, because clearly there has been a reduction of raw materials. But I think, honestly, that our teams have done a very good job and continue to do a good job. It is not just negotiations, it's also public relations, it is working with customers and making sure that the solutions are win-win with customers. So it is both raw materials and pricing, and within raw materials, part is market driven and part is excellent execution, specifically in some areas of the world.

As we have recently seen various petrochemical based raw material prices rise, how confident are you in your ability to pass through pricing to maintain these margins for the remainder of 2009.

That's exactly one of the bigger question marks that are out there. And that is why we are cautious with our tone for the second half of the year, because it is clear that demand is -- we don't expect to turn around. Lots of companies are going to be even more under pressure because the situation continues, and you can hold for one or two quarters, but then companies are going to feel it even more. And clearly, that is going to apply pressure on our selling prices, and we don't expect raw materials to go further down in the second quarter.

Now clearly, we are having our plans in place to keep doing a good job, alignment of price with cost to serve, walking on the water fall. But we are here also to make sure that we guarantee long term growth and maintain good relationships with our customers. So, if I have to recap for the second half of the year the challenges that we are going to face, and that we need to respond to are weak end market demand that continues, maybe it is getting less worse, let's put it that way, because of destocking and because of our new business landed. Clearly, raw materials I don't think we are going to see further decline. Actually, the desire at this point in time from service supplies to go up.

So in the other direction, and pricing pressures will increase, and we will do our best to mitigate them. But in a collaborative way with our customers.

Okay. Final question here is since Jim took over in North America, there has been significant positive changes with your profitability. Can you just give us a little more color on your focus on customers and customer wins and what other changes there have been implemented and what's still in progress?

Well, as far as what I can say is Jim, is a terrific leader. He has brought a lot of intelligence, a lot experience and skills to the organization. He has really worked very diligently with the team, upgrading the team where it was needed and bringing other talented experienced people from the industry and from outside the industry. But also making sure that he was developing and motivating some of the great talent we already had previously at HB Fuller. Putting all things together and bringing a very good commercial perspective, and I think that's the direction that we are trying to propagate all around the Company. That's why you are going to see more of this level of activity because it is clear that in tough times like this one, people are those that make the difference.

Thank you very much.

Thanks.

Your next question comes from the line of Mr. Jason Miner from Deutsche bank. Your line is open.

Thank you. Good morning.

Good morning, Jason.

It appears that with some of these wins you might be gaining market share. So I just wanted to look around, I mean are you making market share gains outside of North America adhesives? And if so, and if you are within adhesives and I'm right, what is really driving them do you think?

Well, I think that what we have seen in the fourth quarter and the first quarter which is publicly available data from our competitors that we have been doing I would say less worse than others, because the environment is still that everybody is down compared to previous years. I think a lot is related to leadership, to the new team, at several levels of the organization. But I think a lot is the change in strategy, everybody is energized, it is motivated.

We are really making sure that we work both with existing and new customers. We are pushing for technology. And clearly, our bet is that in the long term this is going to give even more substantial results than what you are seeing today. It is critical that we manage this turbulent times, both from a cash system point, customer relationships.

But our approach, and we were very, very clear in the first quarter was not to have major reactions, doing what is right. And as you can see, even in the short term, we are getting, I would say relatively good results, and the most important thing is that we have more chances than other companies to get our long-term plan executed.

That's helpful. If you think about the recovery we might see later in the year, do you anticipate any mix change or possible head wind to margins, suppose lower margin business might come back first?

Well, first of all, I am still very cautious before we can speak of recovery late in the year. And I know that I'm not alone there. So what I am telling to my team is to bank on our own forces and make sure we do a good job without banking on the help of a market tail wind.

Clearly, I think that the situation, we will call it the continuation of this aggregated market demand, is going to apply even more pressure on price. So our teams will have to do an even better work in terms of working collaboratively with customers and looking at ways to get savings for both of us. And that's why we said that we strive to maintain gross margins in the second half of the year. But we are going to do it in what we expect to be a smart way.

For sure, pressure on pricing is there, has been there in the second quarter, is going to be there in the second half of the year, and we will do our best, but clearly it is an interesting panorama. Let's put it that way for the second half.

Okay. That's fine. That's helpful. Thanks. One other longer term question, if I look back to 2005 and follow the volume changes, the total Company volumes look like they're down perhaps a third from 2005, but arguably the full year earnings level is roughly the same. Maybe if we take a longer term view, could you talk about the changes over this time frame that have allowed us to accomplish these earnings with these volumes?

Well, I think we were very, very clear already in October of 2007 when we had our investor conference and we outlined our five year plan, that to really heated long term, we need to grow the top line, both organically and through acquisitions. That's our commitment.

Right now we are in Phase II of that plan can which is basically optimizing, improving and strengthening the core of the organization and making sure we're positioned for the long term. It is clear we have to hit on several aspects. That's what we are working on is clearly volume, is clear profitable pricing, is clear that we have networking capital.

So I would say it's been an interesting time so far in the first half of the year in doing all those changes in the worst recession in 70 years, but I have to say I'm pretty encouraged because the team is really doing an excellent job, and what I consider an excellent job is both managing the shop in the short term, and I am speaking of only pricing and raw materials, SG&A, speaking also of networking capital, but mainly doing what is right for the long term.

Okay. Thank you very much.

Thanks.

Your next question comes from the line of Mr. Dimitry Silversteyn of Longbow Research. Your line is open.

This is Eugene Fedotoff sitting for Dimitry. Thanks for taking my call. I just had a question about inventories. You continue to reduce inventory the second quarter. I'm just wondering, given volume declines stabilized around this level for the second half, are you happy with your level of inventories or are you expecting to reduce that further in the third and fourth quarter.

I think that inventories came down, but if you remember in the first quarter we were not happy with our inventory levels because we thought that we could have done better. So I would say that we are somehow getting to where we should have been. And clearly the work is not finished at all because in aggregate, we did decent work but it is clear that the -- so there are regions that still have to perform in that sense. The other key thing I am asking to the teams is to make sure that we bring inventories to a reasonable level, but also that we don't compromise service levels and growth opportunities the customers.

Okay. And then just on the raw materials, you said you're seeing sequential increases in the raw material costs, I just wonder what the magnitude is and will the expectations for raw material costs for the second half, and where you should still see positive raw materials year-over-year. Is that the expectation there?

Well, what I said sequentially is that there is the possibility of raw material increases in the second and fourth quarter. Clearly, we are here to avoid that and do that in a smart way through negotiations through the firm relations. And I am speaking at this point in time of pressure. Raw material suppliers have announced increases. We have to see if that has legs and there is a real rationale and the basic market that supports those. I think everybody is still trying to understand that. Inventories of oil and raw materials are high in the world, demand is still down, it is not expected to recover, but clearly we are monitoring the situation. Right now we see a desire of going up, so we have to watch out.

These announcements in the raw material costs, are you seeing more rational behavior on pricing from your competition especially in Europe?

Well, I think that overall everyone has been focused on managing margins for what we have seen, and we believe so far has been pretty rational. We have to see what happens in the second half with an end market demand that continues, rationality may be challenged.

Okay. And just the last question, in the Press Release you said that you are expecting SG&A increases in the second half due to a higher number of employees. I am just wondering what geographic areas are you hiring in right now?

Well, I can tell you that we are making sure that we have the right talent for what we want to do in the long term. So, every region including corporate is working on that. And it is clear that there is going to be investment in the organization, and to prepare for the turn to do what is right, to work better with our customers, be more innovative. And I think it is a great opportunity because there is a lot of talent available out there, and we are making sure that we grasp all of the opportunities that are available.

Okay. Can you put a dollar amount on increases in SG&A costs?

I would prefer not to do that at this point in time. I can tell you that actually that we expect to go up. But there are lots of variables.

Okay. Great. Thank you.

Your next question comes from the line of Mr. Mike Harrison from First Analysis. Sir, your line is open.

Hi. Good morning.

Good morning.

Obviously, you're seeing a decline in volume that's related to the overall demand level. But can you quantify how much of the volume loss that you are seeing might be due to your stance on pricing and maybe walking away from business where margins might be less attractive?

Overall, high level I can tell you that we have done a pretty good job on pricing. We have a very collaborative approach with our customers, and I am pretty satisfied. Overall, I think actually we did slightly better than the market, and I wouldn't say that we have lost customers due to price increases.

And then in terms of the overall demand level and what changes you have seen in demands, can you walk through some of your major end markets and talk about whether you saw some sequential improvement or deterioration in April and May as compared to February and March levels?

Well, what we saw in our second quarter, March, April and May, was really a picture that was very stagnant in all the four regions. So we haven't really seen an improvement and some of the small deviations you see have been more of good work done by our teams in terms of landing new business, recovering things that maybe we didn't do properly in the past. But I would say it is a critical feature in terms of end market demand. So it is not that we have anybody going gang busters and anybody going far worse than the others. So, as I said before to Jeff Zekauskas of JPMorgan, we haven't seen yet really dramatic turn arounds. So we wanted to be cautious and you know what approach, it was also like that in 2007 and 2008. Get prepared for the worst and make sure you take actions early. And this is what our teams are currently doing.

And then last question I have is on your European business, it sounds like you're saying you're seeing stabilization in that business. We've heard other companies talking about seeing demand trends actually worsening in the May and June time frame. Are you seeing any signs that your European business is worsening or are you pretty stable?

We have stabilized the low levels. That's how we would picture is. But exactly as you were saying, I have also noticed and heard that the second quarter, specifically in Europe, has been more challenged in terms of end market demand in the first quarter. So the situation is that region and history repeats itself. I think that when we will get out of this recession, the United States will get out sooner than Europe.

All right. Thanks very much.

Your next question comes from the line of Christopher Butler from Sidoti Company, your line is open.

Goods morning, guys.

Good morning, Chris.

Just wanted to touch back on the demand environment a little bit. You seem to indicate that you're expecting destocking to show an improvement here as we move forward. Yet the indication that you have given as we look through March, April, and May is that there hasn't been any real progress. Could you give us an idea of what you are looking at that gives you the hope that we are going to see better things to come as we move forward?

if you look at what is the sequential improvement we see at Fuller in volume, first half versus second half, half of that we attributed to inventory destocking phasing out, and half of it to our own forces, new business is landed or new business is going to be landed. So clearly, you are speaking of maybe an improvement of five to nine points versus the first half, and half of that is going to be inventory destocking. And that is based on simple math that more than a certain level you can't go, like we are more than a certain level we will not be able to go the same as for our customers, and that's the assumption we are having.

Just to be clear, are you seeing any improvement specific to destocking at this point?

Not yet.

Okay. As far as sorry if I missed it but did you give a CapEx number for the quarter?

Chris, it is Jim. CapEx for the quarter was $5.4 million.

And the one other thing that I missed I'm sorry, that was looking for a little bit more on is when you are talking about Europe, you are talking about the, your pricing efforts were hindered and that was part of the reason that your margins were a little bit softer than what you had shown for some of your other segments. What was that specifically?

Clearly, when you compare the price variance quarter-over-quarter and year-over-year of Europe versus the other regions, it is clear that we had lower numbers in terms of positive pricing. Part of that is clearly structural, and typically the European environment is much more conservative, and part of that is internal operations that we are working on.

Okay. And just looking at pricing in general, is the rebound in oil providing any sort of boost as far as negotiations go? Is that helping you at all.

I would say so far what we have seen in terms of starting to move is this desire of raw material supplies to go up in price. I think that nobody really has clouded the basic fundamentals if that has legs. But it is clear that we are monitoring carefully. And as for us, pricing clearly it is one support in terms of raw materials if they go up. But there is a big detractor which is demand that continues to be down. And every quarter makes it worse, specifically for the companies that are less financially sound.

And correct me if I'm wrong, but typically when there seem to be indications of price increases due to, in this case raw materials, you see some prebuying activity in front of that. Would the demand environment be the reason we are seeing none of that at this point?

At this point in time, we are giving you signs of trends that can materialize, but I think that we are picturing their scenario of raw materials that may go up for sure, we don't expect them to go down. Pricing under pressure mainly due to a demand that is not going to get any better sequentially in the second half versus the first half. That's what we see right now, and I would say let's talk when we have the third quarter results to see how it went. Meanwhile, our team keeps doing what they have to do and they're excited about it and if there are negative trends in the market, we will do our best to offset that.

All right. Appreciate your time.

Thank you, Chris.

Your next question comes from the line of Mr. Richard O'Reilly from Standard & Poor's. Your line is open.

Okay. Thank you. Good morning, gentlemen. I want to get back to about your new wins, the new business you have generated. How much of that is you've won business from others versus new applications and the new uses by your customers.

It is always a mix, and it is clear that shorter term typically you get more of the share shift gains, and the service gains because somebody can't deliver, can't supply on time, doesn't have access to raw materials, while our global footprint allows us to have some edge there. But the critical thing for our team is to start landing also new business. And I think that over time that mix will go more toward the new business gains in terms of really new applications, new products, but clearly that has a longer time on the horizon. So right now, clearly what you get is more of the tactical market share gains, but what is strategic behind that is customer relationships that are being reinforced.

That's it. Thank you.

Thank you.

(Operator Instructions). We do have a question from the line of Mr. Christopher Butler Your line is open.

Hi guys, I just wanted to circle back on your top line guidance for the full year, you had maintained that. If I remember from the quarter, you were looking for volume declines for the year of 10% to 12%, FX coming down 5% to 6%, and then 5% to 6% price increases. I would have to imagine that those three have shifted here over the course of the quarter. Could you give us an idea of how that breaks down as you see the year progressing at this point?

Chris, it is Jim. What you said is exactly right, that's the guidance we gave, and if you look at the first half, the first two quarters put together. That's essentially what happened. Now your question is how does that project forward in the second half. Yes. I think if I had to modify that a little bit, I would say volume would be down a little bit more than we had originally guided. Price would be a little less. Currency, I don't think has really changed very much for us.

If that's the case, then wouldn't the guidance come down a little bit if you are bringing the volumes and the pricing measurements down a little bit?

I think the issue is that the gun doesn't really shoot quite that straight, and so what we said is that on balance we think the guidance that we gave a quarter ago is still valid. There's a lot of uncertainties out there yet, but we dind't think that it was worth -- I am just telling you that relative to how we saw the world a quarter ago, it is relatively the same with some minor deviations. But we are not really able to forecast quite that accurately, I don't think, in this environment.

All right. Thank you very taking the follow up.

Yes.

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Thank you, ladies and gentlemen. That does conclude today's HP Fuller second quarter 2009 investor conference call. You may now disconnect.