Griffon Corp (GFF) 2006 Q2 法說會逐字稿

Hello everyone, and welcome to Griffon Corporation second quarter 2006 earnings call. With us today, we have Harvey Blau, Griffon's Chairman and Chief Executive Officer, and Eric Edelstein, Executive Vice President and Chief Financial Officer. After the prepared remarks, there will be a question and answer session. [OPERATOR INSTRUCTIONS] All participants will be on a listen-only mode. This call is being recorded, your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line.

I would now like to turn the call over to Mr. Blau. Go ahead, sir.

Good afternoon, and welcome to the financial overview of our second quarter of fiscal 2006, which ended March 31, 2006. I'm Harvey Blau, Chairman of the Board, and with me is Griffon's Executive Vice President, Eric Edelstein. I will discuss the overall results of the quarter, and then Eric will answer questions with respect to operations and financial results.

First I should point out that to the extent that matters to be discussed in this call include forward-looking statements, they involve certain risks and uncertainties that could cause the Company's actual results to differ materially from those in the forward-looking statements. Now to the report.

Consolidated net sales for the quarter were 366 million, up from 322 million for the second quarter of fiscal 2005. Pre-tax income was 11.5 million, compared to 6.1 million last year, and net income of 7.2 million for the quarter, compared to 4.1 million, resulting in diluted earnings per share of $0.23, compared to $0.13 last year.

Telephonics, our electronics information, and communication segment had sales in the quarter of 72 million, compared to 56 million last year, a 27% increase. Telephonics operating income was 4.8 million, compared to 3.4 million last year, a 40% increase. Overall Telephonics had a very solid quarter, with high order input and contract awards. Our backlog at March 31 is at an all-time high of $350 million. Generally Telephonics projects and programs are going well.

The MH60-R helicopter program is ramping up as projected, and contract work under the Syracuse Research Corporation contract is accelerating. The 16 million sales increase in this quarter of reflects SRC contract revenue of approximately $11 million. To date, Telephonics has received subcontracts of $175 million from SRC, we had previously noted that under the structure of the joint cooperation agreement with SRC, Telephonic's share of all production could exceed 150 million, and is now as I said up to 175 million.

Our practice at Griffon is not to give estimates of future revenues and profits, so-called financial guidance. However, the SRC contract is somewhat unusual for Telephonics, as it does not have a lengthy R&D phase, and thus will have an immediate and significant impact on Telephonics results. Approximately 70% of the subcontract awards of $175 million are expected to be completed by September 30, 2006. And the fulfillment of the total award will be complete by the second quarter of fiscal 2007.

As a result, we would expect Telephonics revenues in the second six months of fiscal 2006 to approximate 250 million, and thus total revenue for the year will be approximately 375 million. Our building products operations continue solid performance in what is traditionally it's weakest quarter.

Operating profits for our Garage Door segment reflect an improvement over the second quarter of last year, as steel price increases that were not recovered in fiscal 2005, were recovered in the current quarter. Sales on garage doors for the quarter were 122 million, compared to 110 million last year, and operating income was 3.6 million compared to the prior year second quarter of $700,000. Garage door sales increased approximately 10%, primarily as a result of sales volume increases, selling price increases, and a more favorable product mix to more premium line doors.

The operating income improvement was attributable to steel costs that's stabilized below last year's levels, and the increase in sales volume, and the more favorable product mix. In the second quarter of fiscal 2006 steel prices remained fairly level, as we noted in February, we do not anticipate unusual volatility in steel cores for the remainder of fiscal 2006.

For garage doors, the business environment remains positive. We expect to achieve sourcing and supply chain efficiencies that will contribute to the bottom line, also volume growth and the continuing shift of our product mix to more premium doors, should also contribute to revenue and margin improvement. All of this activity points to a year of further improvement in this segment's operating results for fiscal 2006.

Our service installation operation had sales in the quarter of $82 million an increase of 15 million over last year. Operating income was 1.2 million compared to 1.3 million last year. The increase in revenue is primarily attributable to increased volume in our Las Vegas and Phoenix markets.

In Phoenix we have achieved market share gains among national and regional home builders. In Las Vegas however, recent customer program changes and market share losses caused by new competition, may result in revenue declines for the segment in future quarters, unless we are successful in replacing the business through the development of new customers.

In Specialty Plastic Films, sales for the quarter were $96 million, compared to 95 million last year. Operating income was 8.9 million, compared to 6.2 million last year. Most importantly, the business recovered from a disappointing first quarter as resin prices stabilized, and our business with our largest customers was returned to more normalized levels.

Sales in the second quarter were positively impacted by volume increases in North America, and higher selling prices due to prior quarter resin cost increases. These sales increases were somewhat offset by the effect of a stronger U.S. dollar on translated foreign sales.

The 2.7 million increase in operating income was primarily the result of more stabilized resin costs. The cost of resin decreased approximately 15% in the quarter. Cost decreases continued in April. Through the end of April cumulative decreases since December 2005 in North America approximate 25% of the run-up experienced from August to November.

For the quarter, the decline in resin prices favorably impacted operating income by approximately 1.5 million. It is uncertain whether the declines over the last 5 months will continue and the upcoming hurricane season may impact the price of natural gas, and related by-products, such as resin.

Halfway through fiscal 2006, we are optimistic about the segment's volume and margin improvement progress. As previously noted, volume with our largest customers in North America has returned to normal levels, also our on-going sales development activities are yielding very encouraging results. Our strategy is to diversify and grow our Film business with new products and new customers, and to geographical regions with higher growth. During the quarter, we successfully qualified our products and negotiated supply agreements with several important customers, that will bring substantial volume into the business in 2006 and beyond.

For example, our European sales volumes to new customers doubled from the first and second quarter of fiscal 2006. Also with the start up of our new production capability in Brazil, we are seeing increased volume and sales of new products into this region. Year-to-date our volume in Brazil is up 20% versus the prior year.

Finally in addition to our sales development success, growth is on the rise with the introduction of new elastic films and laminates. These products will improve the fit, comfort, and appeal of future baby diapers, and adult incontinent products. The production capacity is being installed in North America to produce these products. Capacity expansion and sales growth in North America and Europe is expected over the next several years. Our consolidated operating cash flow in the quarter was 3.8 million and we continue to support the growth of our business with capital expenditures in the quarter of 8.8 million.

Our balance sheet at March 31 remains strong with working capital of 277 million, and total indebtedness representing 37% of capital. We continue to fund our common stock purchase program using 5.3 million in the quarter, to acquire approximately 225,000 shares of common stock. The second quarter, although our weakest quarter was actually the second best second quarter we've had in history of the Company.

Now I'd like to leave it open for questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question is coming from Bob Labick of CJS Securities.

Good afternoon.

Hi.

Hi, Bob.

First I just wanted to start in relationship to garage doors, obviously sales were very strong in the quarter, margins were a little lighter than we expected, but you said, you know, steel was not a factor. You talked about growing margins, you know, the rest of the year, could you discuss maybe the differences between 2 years ago when you had 4% margins in this quarter, and you know, 3 in this quarter what the factors are, and where you think you can get margins over the next, you know, 12 to 18 months.

Hi, Bob. I'll take the second part first. Our hope and expectation on margin growth runs to two primary things. First, the improvement in product mix that we have been talking about for a good 3 or 4 quarters now. We would hope that it would continue, maybe even accelerate, and I'm speaking about a move towards the higher end or premium doors, that Harvey referenced in his prepared remarks.

The second thing is getting more efficient, both in production and in logistics, that is controlling our costs, even better than we have up until now. Those are the two things that come to mind. Quite honestly, I can't just off the top of my head do a reasonable comparison to how we looked 2 years ago versus now, but as I said those are the things that we're looking at going forward.

Great. And just sticking with garage doors, we read a newspaper report suggesting you are looking for a new facility in Dayton, could you maybe elaborate on that, and the uses and the potential opportunity there?

Sure. Obviously there was coverage in the Dayton area. We're looking into the possibility of taking over a facility that's relatively new, it's quite close to one of our facilities that we are currently operating. It would give us some excellent opportunities relative to expansion, improving our efficiency, as it relates to employees, the majority if not all of our key employees will have no difficulty with the move.

The access to main roads is a little bit better, and the amount of space gives us a lot of flexibility over time, relative to acquisition opportunities. Quite honestly, it wasn't something we were looking for. We certainly were planning and thinking about space needs over the long term. This came on to the market, and we're working real hard to make it make sense for us, and close it out.

Switching over to films, you just began to discuss qualifications of new, essentially I would imagine private label diapers. Could you give us a sense of timing of you know the ramp for private label sales, and then also in the past we have discussed the potential new product rollout from your largest customer in that area, could you tell us where we stand on that?

Sure. I think the best way to give a feel of further clarification on that first question, is to remind you, remind everyone, we have spoken in the past about adding approximately, or maybe at a minimum, $50 million of incremental capacity in Europe. The best way to characterize it is that, we're in various stages of discussions with current customers, and potential new customers, such that if we were reasonably successful with a percentage, a decent percentage of those discussions and negotiations and competitions, whatever you want to call them, that we will have a good part of that capacity operating and revenue producing in the not-too-distant future. To say it another way, we have got a universe of opportunities that are sufficient, if we're successful have our normal hit rate, to utilize most of that capacity.

Great. And then the new product rollout, or potential new product?

We're continuing to work on it. I think last quarter we spoke about opportunities with a lot of different customers. That continues to be the case. We have done a lot of planning. We have ordered equipment, and you know, we're hopeful towards the end of the year that we'll be in a position to produce revenue with a new product.

Great. Thank you very much I'll get back in queue.

Thank you. Our next question is coming from Marty [Pulitz] of NWQ Investment Management.

Hi, guys nice recovery. Certainly business is. If I may just two questions, on capacity utilization at the moment can you just define what that is, you are saying your customers come back, but then you have got all of these products still in front of you. What is that today and how much CapEx do you need to really in a sense be able to maintain the growth?

Are you talking about plastic films-- ?

Plastic films, I apologize. Yes.

We have added a fourth line in Germany that has given us substantial additional capacity, basically using lines 1 and 2. That gives us the additional capacity, and we are getting new customers, which are private label and some branded name customers for our various products, and we think that by the end of this calendar year, we'll have a substantial portion of that capacity used up by these new customers.

In Brazil, we're up about 20%, we have added about $25 million over the prior capacity, we were doing about 25 million, and now we can do about 50 million, and we're pretty comfortable that some time by the end of this year that plant is just opening up now, and the other equipment being moved in, but by the end of this calendar year we should be substantially sold out in the Brazil market.

Overall, though, as you ramp up, what is the likelihood that you'll have some sort of costs that are effectively, I mean as you are talk about doing this, what are the start-up costs initially?

Well, two things there Marty. First maybe coming back a little bit to part of your first question, you know, we have produced around 400 million of revenue in this business. We have spoken about the capacity we have added, 80 million or so. So therefore, we have also spoken about the business potentially with what we have can do a 0.5 billion, or 500 million.

The CapEx question is we don't need to spend very much more to do that. We need to be successful, like I said before on the current business that we're competing for.

The other part of the question, we have and we will continue to experience some fairly significant start-up costs. We spoke about it in Germany at Finotech last year, and in fact in this current quarter, had some fairly significant costs, connected to getting the new line on in Brazil, producing samples for potential customers, et cetera, et cetera. It's not unusual for that cost to run as much as 3, 4, $500,000 in a quarter.

Just on the other side Telephonics, that Syracuse business, what kind of margins are you in fact looking for in that business? And how does it compare to some of the other key programs?

It's equivalent to our prior historical margins in that business which have run about 9, 10% pre-tax.

Thank you.

Thank you. Our next question is coming from Rob Norfleet of Davenport and Company.

Hi, all. Great quarter. Most of my questions had been answered. Eric, the first one was on corporate expense in the quarter, you know, up to about 4.9 million. I mean, what should we look for through the remainder of the year? That was obviously year-over-year, you know, kind of a nice rise. I mean, should we look at that kind of as the trend rate, or kind of walk me through what is encompassing that increase.

Yes. I anticipated the question so I spent a good deal of time looking at it. I said in the past there's an awful lot that goes in there a lot of small items, in some instances are not in any way interrelated, legal expense, accounting, things like that. I think the best observation I can make at this point is probably where we are after 6 months is a pretty good run rate for where it will continue.

Having said they, I could be proven wrong either way, but given what might happen in the future, one of the key elements there is how much we actually allocate out in the form of management fee, and that's driven by the profitability of the segment, but everything said, the 9.7 million for 6 months is probably pretty indicative of what it should be on an annualized basis.

Okay. Just real quickly Harvey answered a question, and Eric you did too, on the margins in the garage door business. The question was the 4% that was achieved in the quarter 2 years ago, and again, a nice improvement over last year. I guess my question is as we continue to shift towards some of the higher more premium based products, I mean, should we anticipate that margins year-over-year should certainly improve? I guess the question is, are we at least trending in the direction that we should see implied margin improvement in the segment year-over-year.

Yes. We have talked in the past about trying to move this business to, you know, a full 10%, and we probably would have gotten there last year, '05 if not for the problems with steel, and we have had steady improvement over the last 3 or 4 years, and would expect that to continue.

Harvey noted and I'll re-emphasize that the second quarter, especially for this business is traditionally the weakest quarter, and it's not been unusual for the margins 3, 4% to be quite a bit lower than, you know, what we have been able to produce for the whole year.

Okay. That's--

And it's driven by volume.

Right. Right. Last question I know you discussed the installation business. I guess I'd just like your thought a little bit on, clearly we're seeing a slow down on the residential markets, albeit the markets that we're currently focused on being in Vegas and Phoenix, areas like that clearly the market still remains fairly high, but there are certainly pockets of weakness, and I guess I want your insight, relative to what you are seeing from some of the builders, in terms of the their backlogs, and if you see looking out over the next 6 to 12 months any weakness in that segment?

I'll come back with what you embodied in your question. We are in two very, very hot markets, Las Vegas and Phoenix, and I think we have also made it clear that the majority, if not all of the profitability of this segment has been coming from those locations.

At this point, it's hard to detect much of a drop off, if any. It is just generally in what is going on. New developments are being started on a regular basis, subdivisions are being added on to current ones, and it's still seems strong. There's certainly a lot of press that even those markets that would give one the impression that things are dropping off, but the markets themselves are holding strong.

We did make some remarks earlier about how we're doing in the markets, and at the moment, we're making real progress, and getting our fair share in Phoenix, and not doing quite as well in Las Vegas.

And last question I know you have briefly talked about resin costs obviously continue to come down. Where are we relative to the price increases that obviously we put into effect within the last 60 to 90 to 120 days, are those being fully recognized currently, or is there still a little bit of lag, in terms of some of that increase should still be coming through in the third quarter?

No, those increases are all put through at this point.

All right. Thanks so much.

Okay.

Thank you. Our next question is coming from [Zahid Sadiq] of Gabelli & Company.

Hi, good afternoon.

Hi.

Couple of questions, one on the installation services, despite the fact that your sales went up 22% or so, your margins have fallen I believe, 40 basis points, and I just wanted to get your thoughts on that.

I missed the back end of that, you are looking for a comment the margins-- ?

Right. Year-over-year margins for installation. Why did they decline when sales actually--

Right. Okay. There was actually probably a number of things that go into that, but the biggest thing is in the kitchen installation business, where we haven't been able to realize net margins on those installations, at levels that are satisfactory to us.

Either our goals, in the form of improvement on those levels, or in some instances achieving what we have been able to achieve historically. Installing a kitchen can be pretty complicated, and the key is to be able to do it in one, maybe two visits, and we have also had some issues, in terms of shortages of components for the kitchen, and so the piece there that's brought the overall margin down is the kitchen part of the business.

Okay. Thanks. And my next question is on SRC. The Syracuse Research contract. After fiscal year '06, are we not going to incur any additional revenue for that?

No, we expect that this contract, which is $175 million, will be about 125 million for this fiscal year, so you'll be talking about 50 or $60 million a quarter in the next 2 quarters, and then another piece of the business will be going into 2007, and that's without any additions to the program, that we're hoping to see.

Okay. And is it fair to say, then that you have not recognized any revenue up to this point?

That's a very good, that's very accurate.

No, we had just the 11 million that we noted in this quarter, 13 million in total.

The last question on the Specialty Films, the idle capacity of 80 million or so, you have commented on that at least for the last 2 quarters, and we still have it at 80 million, why are we not I guess ramping up, you know, the expectation was that by now we should have ramped up somewhat, but we're still at 80 million?

No. We didn't reference, at least I don't think we referenced it, as idle capacity of 80 million, but rather was referencing it as additional capacity that we brought on. Additional capability.

50 million of that 80 million came on in the May, June, July timeframe of last year, and what we have been talk about is the requirement of an extended cycle, to sell to customers to fill up that capacity, and we haven't made any direct predictions on how long. We have said that it wasn't going to be something that would take a month, and I think we have also said, that we would be highly disappointed if it took us as long as 5 years to do it. And you know, since then, since June of last year we have been saying we have been tracking fairly nicely.

The other 30 million of capacity is in Brazil, and we have actually spent the last several months, I guess maybe an overstatement slightly, but perfecting the line, so it does the the ability to produce salable goods. So we have just reached the point where we have the potential to actually sell out that capacity. So it's not something that has been sitting around a long, long time. We're as anxious as everyone, having said all of that, to fill it up as quickly as possible.

Okay. Great. Thanks for your explanation.

Okay.

Thank you. Our next question is coming from [Julian Allen, Kanal Capital].

Hi, good afternoon. By way of clarification. If I'm right in reading this, that 2.072 million of other income is included in your segment operating income when you break down the four divisions, what is that other income?

Yes, it is included. So you got that right. And it's primarily in this quarter gains on debt. In some instances, it's gains on German debt payable in euros, and in other instances it's Brazilian debt, payable in U.S. dollars, where the currency fluctuations in this quarter gave rise to a significant gain. If you actually look at year to date, you'll see it for the most part it's an offset of a pretty significant loss in the prior quarter.

And so if that's Germany and Brazil, is that gain reflected exclusively in the Plastics Film division?

That's correct.

So potentially the plastic films margin looks a little better because there's financial adjustments but they would not have effected the operating performance of the other divisions.

Correct.

Okay. Thank you. Second quick question, could you comment a little bit more on installation services? I think Harvey referenced potentially losing some business, and seeing some revenue declines. Perhaps you could give us a little color on that situation plus some of your longer term thoughts with respect to that division.

Yes. Just to reiterate what Harvey had said, we believe on an overall basis, we have picked up market share in Phoenix, but on the other hand, some of our key customers programs in Las Vegas have changed, that is there is new competition, and over a period of time, it looks like for some of those customers, we will lose business. This is going to play out over a fairly extended period of time, 6 to 9 months, so it's hard to tell exactly what it means to the total business. But, you know, our job is to comment on how we're doing, and so the headline is up in Phoenix, and down in Las Vegas at some point.

I guess the other half of your question about our longer term thoughts about the business, we certainly don't like dealing with problems, and we have had this issue. You know, having said that, we have never had an expectation that this is a 9, 10% business. The nature of it has been such that, we have been understanding of the fact that it's more in the 3, 4, 5% range. We continue to work at it, and try to improve it. Look at opportunities to create synergies across our key markets, and the other point is that we feel like it's a relatively easy business to manage in a down cycle. We had the earlier question about new home construction.

Certainly, if things were to fall off in those markets, it would hurt us, but we would not have issues about, significant issues about inventory, because we have very little inventory. We don't have a significant amount of overhead, and then finally, we would be able to adjust our work force fairly quickly. So I guess what I'm really saying is what appears for some to be a real negative on this business, we actually don't think of it that way.

And as a practical matter, because it is the business that has the least profitability potential, if we were to have to force rank, it would probably be the last of our businesses, but you know, finally on the other hand, it has produced decent profits. It's allowed us to absorb various types of overhead, and that's probably it.

Great. Thank you. Last question. You were active in the market with stock buybacks in this last quarter. It looks as if the SRC contract will be something or may be something of, I don't want to use the world windfall, but will clearly boost results for the next 3 or 4 quarters. Does that impact any of your thinking with respect to future buy backs, and perhaps you could comment on your current thoughts with respect to using cash for buy backs.

Our buy back program is determined not by the price of the stock, but by availability of cash, and our needs for cash. So as we earn cash, and we have taken care of our current operating issues and capitalization, we spend all of the rest of the money on buy backs, and the first quarter, the cash flow was a little low because the results of the Plastic Films business that's getting better in the second quarter, and we hope that as the year progresses we'll have resumed our normal cash flow position, and will continue buying back stock notwithstanding the Syracuse Research program.

Okay. Thanks very much.

Okay.

Thank you. Our next question is coming from [David Rosen, CR Intrinsic].

First on the defense business on the 375 million in sales that you guys had provided in 2006, how much of the MH60-R is in that number?

I would say a relatively small number. The MH60-R, which has gone into production is on LRIP now, Long lead reduced production, and is only a few ships sets this year. It will increase in 2007 and 2008. Ultimately it will be approximately 25 to 30 ships sets a year, which would be approximately 80 to $100 million of business for us, but that will be out probably in 1.5 to 2 years.

When should we actually start to truly see that ramp?

I would think that the ramp-up for the MH 60 Romeo will be in 2008. 2007, 2008. You will see more in 2007, and more in 2008. Not in this year.

Okay. And then if I take out the Syracuse for the first half of the year, you are actually still seeing a reasonable amount of growth. What can you attribute that to?

All the programs. We're on many, many programs.

Okay.

We're than C-17, AWACS, we're on Homeland Securities radars. We're on radars for the Coast Guard. We're on a whole huge number of programs. We won a program on the Canadian Navy equivalent to the P3. We won a retrofit for the Blackhawk helicopter, the C-130. The F18. We're on 50 platforms.

One of the things, now you guys are really ramping up in this IED business, and if you look at public market comparables, there's a small little company, nowhere as qualified as you guys, called Ionatron, that has a billion dollars capitalization, any thought to IPOing a piece of this business?

This company you say, has what, a billion dollars market cap?

Yes and it has revenues probably, and it's supposedly an IED business, and it has about I don't know, call it 1/50th of revenue in IEDs that you guys have now, with the Syracuse ramp up. Any thought to maybe IPOing a piece of your Telephonics?

We thought about that. There are a lot of people coming to talk to us about Telephonics, but you know, we're not sure which way is the best to go. You know, one of the things, what was the name of that company by the way?

It's called Ionatron, the ticket symbol is IOTN. N as in Nancy.

Okay, I will take a look at it. We've been talking to a number of investment banking firms about valuations. It's obvious that Telephonics has a very, very high valuation. You know, not as high as you get in the Street, but you know, people want to buy it kind of thing, and the evaluations are way up from where they were, but more importantly in a lot of ways than the IED program although that's a very hot and exciting program and big, and is going to have a major effect on us in the second six months, is the last helicopter program, because that places us in a whole different level within the military strata of the type of technology that we have, and it's opening up doors for a lot of other marine programs for us, so when that starts going on further production at the higher rates, starting in 2007, '08, I think that we'll get a lot of benefit out of that program also, the marine radar. But we have to take a look and see how we can best monitorize Telephonics.

Okay.

The second line of questioning is on Specialty Film. If I recall correctly last quarter you mentioned that you had a $4 million negative from resin prices.

Right.

And this quarter you said you received 1.5 million of that. Would it be fair to assume that based on the lag that you have in your contract, that the remaining 2.5 million, we should see in the second quarter?

No. I think you meant our third quarter--

I'm sorry, yes.

But the answer is still no. What we're trying to do, both for our sales and for interested parties, is understand the impact of resin if it were to stay neutral versus moved the way it did, and then we're comparing that to the year ago quarter. The movement in those quarters. And so what we were not saying was the 4.5 million we were, or 4 million, we recovered 1.5 million, and we have got 2 to go. We're comparing the results in the quarter to the prior year, and what would happen if the movement had been consistent.

Okay. So I guess if I were to step further, you have actually now already realized all of the resin cost increase, or the benefit from the cost decrease, so we shouldn't expect to see any of that tail into the third quarter.

Didn't say that, no.

Okay.

Recognize it's a pretty dynamic situation, but if you look closely at the resin price cost movement over the latter part of last year, and you then factored in a 4 or 5-month lag, you would probably see there potentially is still some benefit to be picked up.

Okay.

Having said that, you then get into what happens if resin starts to increase, and again, then we go back to the point of having to wait, and so that can also impact us in the same three-month period of time.

Got you. My final question--

Another way, today we don't know what the impact of resin will be for this quarter by the end of the quarter.

I understood, just because you don't really know where resin prices are going, because you don't have an estimate of what oil prices are or natural gas prices.

That's right.

Okay. Second question, and I think this may have been addressed before, but I'm just going to ask in a different way to make sure I understood your response. You said you were at $80 million of additional capacity in the Specialty Films business, you also said 30 million of that is in Brazil. You said Brazil volumes were up 20%. Would I be able to imply then, of that 30 million, you have revenues now on a run rate basis of 6 million, out of that 30 million in Brazil.

We had a Brazil plant that did 25 million. We added 25 million in capacity. We're doing business at the rate of 20 to 25 million year. We're up 20% in Brazil, so that's an additional 5 million, so we should be doing business there, now at the rate only somewhere around 30 million.

So you have an incremental 25 million of capacity in Brazil.

Yes, we put on an incremental 25 million capacity in Brazil, and we have probably 15 to 20 million left to be sold.

Got you. And then of the remaining 50 million of capacity, how much of that have you recorded revenues on, or do you have basically an immaterial amount of that?

It's not a significant amount at this point, and also we're getting, no fault of anyone, too granular, because we're talking about it as if nothing happened with the rest of the business, you know, the other 150 odd million of capacity that we have there. And a lot of things have happened, so including a new line, which every day we learn can be more efficient in doing things than our old line, changes in terms of the types of film we're producing, so it's not quite as simple as there is this free capacity that sits there, and then all of a sudden we use it, and so the answer is we have the potential to do a lot more, and we have an awful lot in the pipeline to get there.

Thank you very much.

Thank you. Our next question is coming from Joe [Plevolic] of Snyder Capital Management.

Hi.

Hi.

Question on the installation services. Specifically in Las Vegas, given the increased competition there, are you seeing any pressure on prices, and have you had to decrease your prices there?

Yes, there is, it's to some degree pressure on prices because of more competition.

Not because of less capacity or less business, but more competition for the business.

Right, but have you guys decreased your prices there as a result?

Well, we don't have flat posted prices. We're bidding all the time on various projects for customers, and you know, an awful lot goes into those bids, but generally speaking, we're putting bids together that are more sharply defined than they have been in the past.

Okay. Thanks.

Thank you. Our last question is coming from Shaun Nicholson of Kennedy Capital.

Hi, guys, how are you doing?

Good.

Real quick, I know most questions have been answered, I was just curious I know on the last call last quarter, you guys talked about you weren't too uncomfortable with what the Street estimate was at that time. It was $2 at that time. I mean, does that still hold, that you are not uncomfortable with that.

We don't like to give forecasts. We never give forecasts. And I think the Street estimate is between $1.80 and $2.00. So, you know, I don't know how to answer that question. Except to say that we're comfortable that we're going to do a lot better in the second half of the year, than we did in the first half.

Okay. It was a great quarter, I appreciate you taking the time.

Thank you, we have no further questions. I would like to turn the floor back over to management.

Thank you very much. We're looking forward to the third quarter, and we're looking forward to having another conversation like this, and we think the third quarter will be a critical quarter for us, to show where we're going to be for the rest of the year. Thank you very much for coming on.

Thank you. This does conclude today's Griffon Corporation conference call. You may disconnect your lines, and have a wonderful day .