Griffon Corp (GFF) 2013 Q2 法說會逐字稿

Good day, and welcome to the Griffon Corporation Second Quarter 2013 Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Doug Wetmore, Griffon's Chief Financial Officer.

Please go ahead, sir.

Thank you, Amber, and good afternoon, everyone.

With me on the call is Ron Kramer, our Chief Executive officer.

And before we get into the details of the call, there are certain matters that I want to bring to your attention.

First, as Amber mentioned, the call is being recorded and will be available for playback, the details of which are in our press release issued earlier today and are also available on our website.

Second, during our call we may make certain forward-looking statements about the Company's performance.

Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed.

For additional information concerning factors that could cause the actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in today's press release, as well as the risk factors that we discuss in our various filings with the Securities and Exchange Commission.

Finally, some of today's prepared remarks we'll adjust for those items that affect comparability between reporting periods.

These items are laid out in our non-GAAP reconciliations, which are included in our press release.

Thank you.

With that, I'll turn the call over to Ron.

Thanks.

Good afternoon, everyone.

This was a good quarter for us.

We're executing well against our internal targets and our results reflect the ongoing improvements we're making with all of our operations.

I'm pleased with both the level of our progress and, obviously, with the results.

The recent trends associated with each of our businesses continued throughout our second quarter.

Specifically, Telephonics had another strong quarter.

Plastics continued to show substantial operating improvement, mainly driven by the initiatives undertaken to address manufacturing inefficiencies arising from our capacity expansions in Germany and Brazil.

And Home and Building Products improved, benefiting from enhanced profitability in our doors business driven by a combination of favorable product mix and manufacturing efficiencies.

Ames True Temper revenue top line grew 2% and operating results benefited from reduced warehouse distribution costs and other cost-control initiatives at Ames True Temper.

Consolidated revenue of $489 million increased 1% compared to the prior-year quarter and consolidated segment-adjusted EBITDA was $45.4 million, increasing 13% compared to $40.4 million in the prior-year quarter.

Second quarter net loss was $0.02 per share on a GAAP basis compared to net income of $0.04 per share in the prior-year quarter, and our adjusted earnings per share were $0.08, compared to $0.04 in the prior-year quarter.

As usual, I'll now make a few comments about each of the businesses and then Doug will take you through the financial results of the segments in more detail.

Start with Telephonics.

Second quarter revenue totaled $122 million, increasing 7% compared to the prior-year quarter.

Excluding contract manufacturing revenue for ICREW and CREW 3.1 programs in both periods, revenue increased 8%, primarily due to the timing of certain work related to several foreign multi-mode surveillance radar system contracts.

EBITDA of $15.5 million increased 1% from the prior-year quarter.

EBITDA margin of approximately 13% was well within the target profitability range we've established for the business and in line with previous guidance.

This is a very important business for us.

Joe Battaglia and his team have done an outstanding job.

Over the past four years, Telephonics has grown its revenue by 20% and EBITDA by 50%.

The defense environment is rapidly changing, with budget cuts clearly in focus.

Our experience, however, suggests that demand in funding for intelligence, surveillance, and reconnaissance equipment remains strong relative to other areas of defense.

We expect continued growth in airborne ISR equipment and should see the benefit from both the continued upgrade and recapitalization of existing platforms as well as longer-term growth opportunities from selected new platforms, with secure funding, including the Fire Scout program.

Telephonics is also operating in a business environment with strong commercial market opportunity and many of our defense programs which are mission-critical give us a degree of insulation from the broader defense budget environment.

No one's immune from the impact of budgetary constraints; however, we remain poised for continued growth and profitability.

We have become more efficient and will continue to adapt our business accordingly.

Our funded backlog continues to build, ending the quarter at a new record -- $477 million.

We have good visibility on our programs, particularly our radar phase programs, going through 2013 and into early 2014.

There's going to be continued issues around the world and our products are an integral part of our national defense.

Additionally, we've taken a number of initiatives to accelerate our growth internationally to be able to mitigate the impact of whatever US slowdown in defense ultimately materializes.

Turning to Plastics, second quarter revenue totaled $141 million, decreasing 2% from the prior-year quarter.

Volume decreased by 5% and the top line was also negatively impacted by the translation of local currency Brazilian results into a stronger dollar.

Volume and currency impacts were partially offset by favorable mix as well as the pass-through of higher resin costs and customer selling prices.

Plastics EBITDA increased 35% to $12.4 million from $9.2 million in the prior-year quarter, with margins expanding 230 basis points over last year to 8.7% from 6.4%.

The results were driven primarily from continued efficiency improvements made on past capital initiatives, notably those in Germany and Brazil.

Net resin impact on EBITDA in the quarter was $0.5 million, and it's been $5 million year to date.

As you know, Plastic's top priority for the past year has been to improve its profitability and operational performance.

In February, we announced plans to restructure the European business, aimed at eliminating unprofitable business and lowering our overall cost structure.

A portion of the volume decline in Plastics resulted from the shedding of unprofitable business.

Early indications of this initiative are encouraging, with the results in March showing the strongest monthly EBITDA performance in the past three years.

Furthermore, our Brazil operations have stabilized and operational execution continues to strengthen, setting the stage for growing our Latin American business from a stronger and more stable base.

We've made tremendous progress and customer demand remains robust, especially in North America.

Our expanded capacity has made us a stronger global competitor and is enabling us to service and sustain our increased market share.

We continue to target an annualized EBITDA margin for this business of better than 10%.

Alan Koblin and his management team have done a terrific job of turning around this business and our results reflect the excellence of their efforts.

Let's go to Home and Building Products.

Our second quarter revenues totaled $226 million, increasing 1% from $224 million in the prior-year quarter.

Although Ames's revenue increased 2%, both the 2012 and 2013 second quarter sales were significantly impacted by the absence of snow, resulting in reduced sales of snow tools in both quarters.

The late snow we experienced in the current year substantially depleted retail snow tool inventory levels, and therefore we would expect to see orders returning for the coming winter during our third and fourth quarters.

For the quarter, our Clopay building products revenue declined roughly 2%, primarily due to lower volume, partially offset by favorable mix.

Second quarter segment-adjusted EBITDA was $17.6 million, increasing 11% compared to the prior-year quarter, primarily due to favorable mix and improved manufacturing efficiencies at Clopay combined with reduced Ames warehouse and distribution costs and the impact of other cost-control initiatives at Ames.

Our manufacturing consolidation plans for Ames remain on schedule and on budget.

We expect to complete this initiative by the end of fiscal 2014, and estimate resulting annual cash savings exceeding $10 million based on current operating levels upon completion.

We expect to incur restructuring costs of $8 million and also anticipate capital spending of $20 million in connection with the plan.

Our doors business continues to perform well.

We're pleased with its overall performance and the progress made over the past several years and continue to look forward to a better environment to leverage our leadership position in this business.

There's evidence that the housing market is in the early stages of its recovery, with residential new construction levels in the United States steadily improving since the historic lows reached during the downturn.

Most recent housing data is encouraging as US new single-family home starts have accelerated, which should eventually bode well for our doors business.

However, new housing starts are growing at a faster pace than new housing completions, so there will be a lag effect in our business as doors are typically installed toward the end of completing new construction.

We'll have a better view of the housing market at the end of the next quarter, when we will have a better view of how the increase in permits and new housing starts translate into increased door revenues.

As housing recovers, due to our successful restructuring efforts relatively small increments of additional revenue carry significant profitability benefits for the Home and Building Products segment.

Moving to our corporate, we're executing on our strategy of improving our operations for each of our segments.

The businesses are well positioned and we continue to have excellent liquidity.

We remain committed to driving value to our shareholders through the full range of opportunities.

We're confident that we can make investments for organic growth, pursue additional acquisitions, and return value to our shareholders via dividends and share repurchase.

At the end of the quarter, we entered into a commitment with our banking group to amend and extend our revolving credit facility to $225 million, increased from $200 million.

The facility also has a $75 million accordion feature.

Maturity of the facility has been extended to March 2018 from March 2016.

We currently have no borrowings outstanding under the amended facility and there is approximately $23 million of standby letters of credit outstanding.

Earlier today, the Board declared a regular quarterly cash dividend of $0.025 per share, which is payable on June 26 to shareholders of record as of the close on May 28, 2013.

During the quarter, under our buyback program, we purchased 900,000 shares of stock for approximately $10.3 million.

At March 31, 2013, there were approximately $21 million remaining under our existing $50 million buyback program.

Doug will now take you through the quarter financials in more detail and then we'll come back for questions.

Thank you, Ron.

Consolidated revenue totaled $489 million in the quarter, an increase of 1% in comparison to the prior-year quarter.

Telephonics revenue totaled $121.6 million, representing an increase of $7.6 million compared to the prior-year quarter.

Both the current and the prior-year quarters included about $13 million of revenue related to electronic warfare programs where Telephonics serves as the contract manufacturer.

Excluding revenue from these programs from both periods, current quarter increased 8% in comparison to the prior-year quarter, again primarily due to multi-mode surveillance radar solutions contracts.

Telephonics segment-adjusted EBITDA was $15.5 million, an increase of 1% from a year ago.

Segment-adjusted EBITDA margin decreased to 12.7% from 13.5% in the prior year.

The value increase in segment operating profit obviously benefited from the sales increase.

It was also driven by lower expenditures associated with the timing of research and development initiatives and proposal efforts, partially offset by the impact of program mix.

In the current quarter, Telephonics was awarded several new contracts and received incremental funding on current contracts.

And at March 31, 2013, backlog totaled a record $477 million, up from $451 million at September 30, 2012, our year end, and from the then-record backlog of $467 million at December 31, 2012.

Turning to Plastics, second-quarter revenue reached $141 million; that was a 2% decrease compared to the prior-year quarter.

As Ron mentioned, there were a number of elements impacting Plastics' reported revenue, most notably a 5% decline in volume.

A portion of this volume decline directly resulted from the actions we announced in February of this year with our plans to exit certain low-margin business.

And substantially all that business has, in fact, been exited.

Translation also unfavorably impacted Plastics' top line by 2%.

With respect to translation, the euro-dollar exchange rate was essentially flat with the year-ago period.

However, the Brazilian real weakened 12% versus the dollar compared to the prior-year quarter, accounting for the translation impact.

These unfavorable factors were partially offset by the benefit of favorable mix of 3% and the pass-through of higher resin costs and customer selling prices, up 2%.

And remember that Plastics adjust selling prices based on underlying resin costs on a delayed basis.

As Ron mentioned, we continue to see improvement in Plastics' operating results.

Second-quarter segment-adjusted EBITDA was $12.4 million, an increase of 35% from the prior-year quarter, driven by product mix and continued efficiency improvements.

And those results were partially offset by the $0.5 million of unfavorable impact of higher resin costs not yet reflected in customer selling prices.

As we previously announced, in February we undertook plans to restructure the European business.

In the current quarter, we took restructuring charges of $5 million, primarily for one-time employee termination benefits and other personnel-related costs.

Essentially, all of those affected by these actions have left the employ of the Company.

Home and Building Products revenue was $226 million, an increase of 1%, compared to the prior-year quarter.

Ames True Temper revenue increased 2% to $136 million, and door revenue was down 2% to $89 million, mainly due to lower volume, but partially offset by favorable mix.

Second quarter Home and Building Products segment-adjusted EBITDA was $17.6 million, which was an increase of 11% compared to the prior-year quarter, and that was due to favorable mix and improved manufacturing efficiencies in our doors business.

Ames profitability was also supported by the modest top-line increase as well as reduced warehouse distribution costs and other cost-control initiatives.

On a consolidated basis, our gross profit in the first quarter was $105.5 million, representing a margin of 21.6%, an improvement of 30 basis points compared to the prior-year quarter.

Consolidated selling, general, and administrative expenses were $86 million in the quarter, also in line with last year, although declining just slightly as a percentage of sales from 17.9% to 17.6%.

We had a loss in the second quarter of $800,000, or $0.02 per share, and that's compared to $2 million of net income, or $0.04 per share, in the prior-year quarter.

However, as you can see from the GAAP reconciliation in our press release, the current quarter results included the restructuring costs, net of tax, of $5.8 million, or $0.10 per share, as well as a discrete tax benefit of $300,000, or $0.01 per share.

On an adjusted basis, current-quarter adjust net income was $4.7 million, representing $0.08 a share, compared to the $2 million, and $0.04 per share, in the prior-year quarter.

Our second-quarter effective tax rate was a benefit due to the pretax loss compared to a tax rate in the prior year.

The benefit was 65.7%, compared to 57.4%.

We continued to have a lot of noise in the effective tax rate.

In both years, the effective rates reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves, and changes in earnings mix between domestic and nondomestic operations, all of which are material relative to the level of the pretax result.

As I just mentioned, the second quarter rate also benefited $300,000 from the retroactively extended research and development tax credit that was signed into law January 2, 2013.

So the current quarter reflects two quarters worth of that credit.

There were no material discrete items for the prior-year quarter.

For the full year 2013, I continue to expect the effective normalized tax rate, excluding discrete items, to be in the range of 46% to 48%.

So no change from the prior guidance.

Capital spending in the current quarter approximated $14 million, down from $20 million in the prior-year quarter.

Depreciation was $15.7 million in the quarter and amortization was just under $2 million.

And we continue to expect capital spending of $65 million to $70 million in fiscal 2013, which is slightly above the expected $64 million in depreciation for the full-year 2013.

The $65 million to $70 million expectation contemplates the capital to be incurred in connection with the Ames plant consolidation initiative.

Full-year 2013 amortization expense is expected to be $8 million, in line with the prior year.

At the balance sheet, at March 31, 2013, we had $117 million in cash and total debt outstanding net of discount of $698 million, resulting in net debt of $581 million.

The cash position reflects seasonal buildup of working capital at both Ames and doors, as well as some temporary buildup in working capital at Telephonics.

As Ron mentioned, we have no actual borrowings outstanding under our amended credit facility, although we do have utilization of $23 million for standby letters of credit.

Now, with respect to guidance and our expectations for fiscal 2013, they're pretty much consistent with those discussed previously.

We expect consolidated revenue to be between $1.9 billion and $2 billion, and with that Home and Building Products revenue is expected to increase in the low single digits.

Telephonics core business is expected to increase in the mid-single digits and Plastics, on a reported dollar basis, will increase in the low single digits.

In providing this guidance, we're mindful of certain risks that may impact these results and which bear mentioning.

As we've seen in the past, the Ames business is the most subject to the vagaries of weather, which can dramatically impact point of sale at many of our customers, directly impacting our revenue.

While we've enjoyed pretty good weather in April, the last couple of years have demonstrated that caution is merited during the important lawn and garden season, which we're in right now.

Similarly, we continue to expect a gradual recovery in housing.

As housing starts and issuance of permits for construction grow, we expect to see door activity pick up in the months ahead.

And also, when the new houses are occupied lawn and garden tool demand should benefit as well.

While Telephonics backlog is at a record level, we continue to be mindful of the potential risks of Department of Defense budgetary constraints and what they pose for us.

Many of the prime defense contractors are equally cautious as sequestration remains an issue.

And finally, as I consistently note on our calls, Plastics guidance is the most susceptible to variation due to a combination of resin pricing and foreign currency fluctuation.

And we're also mindful that more than half of our Plastics business is in Europe and Brazil, where macro economic conditions remain uncertain at this time.

Based on the revenue expectations outlined, we continue to expect our segment-adjusted EBITDA to approximate $180 million, a 5% increase over what was achieved in fiscal 2012.

Corporate and unallocated expenses are expected to be in the range of $29 million to $30 million.

Corporate includes all equity compensation for the Company, which will be between $11 million and $12 million for the year.

With that, I'll turn the call back over to Ron.

Thanks.

We're obviously pleased with our overall performance this quarter.

We own a very attractive portfolio of companies and each of our businesses is strategically well-positioned for enhanced operating performance as the global economy continues to recover.

Telephonics is poised to grow; Plastics will continue its improvement; and we expect the Home and Building Products businesses to benefit from a recovery in housing.

We believe that over the long term, our businesses have room to grow and will our-perform their competition.

We have ample resources to invest in these businesses to support their growth and are optimistic about their prospects.

We see excellent growth opportunities both in our existing businesses and through strategic acquisition, particularly with smaller tuck-ins, that can meaningfully boost profitability.

The foundation of our Company is solid.

As we look out at the next few years, we believe that conservatively we can sustain our organic revenue growth, expand our EBITDA margins, and significantly increase our earnings per share.

We've accomplished a lot over the past few years and believe that our earnings growth will reflect those efforts as the economy continues to gradually improve.

With that, I want to thank you and we're going to ask the operator to open it up for questions.

(Operator Instructions) Robert Labick, CJS Securities.

Good afternoon; congratulations on a nice quarter.

Thanks.

I wanted to start with films.

Nice pickup in margins there, as you noted.

I was hoping you could expand just a little bit on the exiting of the low-profit or unprofitable business.

Has the full impact been seen?

Is there a little more uptick there?

And then, could you maybe just talk us through some of the next steps expected to get you to that 10%-plus EBITDA goal?

Bob, essentially all of the affected employees in Europe, with just a few minor stragglers, have left the employ of the Company late March, early April.

There's still a little bit of business that we're exiting from because we wanted to make sure that we didn't leave any of the customers that were being affected by this in the lurch.

So we continue to manufacture a little bit in the current quarter, the third quarter, that we're currently in, until the transition to new production locations is achieved for those customers.

So there'll be a little bit of affect in the third quarter and then it should essentially be done.

Okay, great.

And then the next couple of steps you expect in films?

It's just continuing to drive the efficiency of the manufacturing process.

What we kept behind was larger volume throughput and the better-margin product.

The larger volume allows us to produce longer production runs with less frequent changeovers because changeovers are one of the areas, or the events, that trigger scrap and underutilization of equipment.

So I think you continue to see the benefit of the actions undertaken, along with a number of the other initiatives that Plastics management has put in place and has a plan for over the next couple of quarters.

So we're going to continue to drive profitability improvement and efficiency improvement.

And I'd add to that that it starts with a management change that we made in Germany that was in the early stages of having its impact on the business.

Right-sizing the mix of product is all in process.

So we feel like we've weathered the macroeconomic issue in Germany and that this is all about internal process improvement that has happened, and with new management we expect it to continue to happen.

Okay, great.

Thanks for that color.

And then just sticking with films for a second, I know Kimberly [Collectors] announced they're exiting Europe.

Has there been any impact on any of your customers?

Do you see any uplift there or is that still a potential opportunity for some volumes?

I think we've seen a small amount of uptick and I think it's a potential for further growth going into the balance of this year.

Certainly we're targeting it for next year.

Okay, great.

And then, over in Home and Building Products, Scotts reported a tough March quarter but a strong pickup in April.

Are you seeing similar favorable trends in lawn and garden for Ames in April and beyond?

Bob, as I mentioned, we saw very good weather in April in many of the markets that we serve -- or, our customers are serving.

And the weather on the weekends, most notably, has been beneficial to us.

We saw a very good performance in April last year but then May and June, because of a variety of weather impact, most notably, didn't sustain the improved level.

So that's why we are continuing to be cautious about the balance of the third quarter.

This is a very big operational quarter for Ames; it's the biggest quarter of any operational year for them.

And lawn and garden is the biggest part of our business so one month does not the quarter make, which is why we continue to be cautious.

Okay, great.

Thanks very much.

I'll get back in queue.

Zahid Saddique, Gabelli and Company.

Good afternoon, everyone.

Hi.

Hi, just a few questions.

One, on the ATT restructuring.

Given that you bought the company from private equity, one would assume that they would have done a lot of the restructuring, so why is there a need to do so?

If I remember, you had paid up quite a bit for that acquisition.

So would you say there was a flaw in your thinking?

What has resulted in this restructuring at this point?

Well, I'd answer it that market conditions change and part of what you have to do is manage through cycles, both expected and unexpected.

No different than any of our other businesses.

Remember the phrase shovel-ready?

Well, there was never a recovery in the infrastructure building in America, so I think the housing markets, which at some level are showing the early signs of recovery, but the flow-through to things like lawn and garden and the variability of weather that we've had to deal with in the 2.5 years that we've owned Ames, have given us reason to take a fresh look at what the future of this business is going to look like.

And we own it for the long term and we're going to plan for the long term.

And part of what management is supposed to do is look at the business, not just through the rear-view mirror but what's coming at you.

And we see very challenged operating conditions that we need to take actions to be able to remain the market share leader, which we are, in each of the categories that we're in.

And to be able to continue to deliver outstanding products at value pricing to our customers.

And we are really investing for the long term, Zahid.

Ames was owned by a couple of different entities for short periods of time and there wasn't the motivation to invest for the long term for those.

So we're looking at maximizing factory absorption, efficiency, and utilization of working capital.

These are steps that are going to bode well for the long-term success of Ames True Temper.

Okay.

Next, I want to confirm that you have actually reduced the guidance for the Building Products segment from mid-single to low single.

Is that correct?

That is correct and that basically took into account the weak snow that we had.

When you look at the six-month results, snow was down year over year.

And when we provided the guidance in February, we were anticipating that we would still have normalized snow for the balance of our second fiscal quarter.

That's the only change.

Okay.

And what I'd add to that is that our overall level of profitability -- that we've done an outstanding job of managing a business that has had no top-line improvement.

And so we're very pleased about what's going on in home and building products in terms of the run rates and being able to take costs out of the business without a big top-line expansion.

We think that that top-line expansion is ahead of us.

We think that as the housing markets and as the economy improves for both the door business and for the Ames business -- so the fact that our top lines are sluggish and that our profit lines continue to show improvement is part of what gives us an encouragement about the future of those businesses.

Okay.

And then on garage doors, I was a little disappointed that the revenue actually declined.

You did point out due to the fact that there is a lag.

But a lot of the data have been improving for several quarters now; many companies have shown improvement.

So why have you not caught up, even with the lag effect?

I'd answer it this way.

We think we've increased market share over the past sequential and year-over-year quarters.

The problem is that the growth of single-family homes is nowhere as robust as the numbers that are swayed by multi-family housing indicate.

And so we view the door business as a caboose on the housing train, but the housing train is moving down the track and we think that -- we're very pleased, we're not at all disappointed.

We think that we've managed the business.

And as I said, if I thought we were losing market share, there'd be something to talk about.

We think that we're in fact very well positioned within the door category.

Going to continue to grow that top line as the housing markets recover.

And I think what you should take away from it is how early the recovery in single-family homes in the United States is.

Okay.

Thank you so much.

(Operator Instructions) Philip Volpicelli, Deutsche Bank.

Good afternoon.

My question's with regard to the guidance.

I believe the last caller asked part of the question, but was it previously $180 million to $185 million of segment-adjusted EBITDA and now it's just simply $180 million?

Is that correct?

No.

It was $180 million and we're confirming our $180 million.

Oh, okay; so there was no -- I was wrong about that.

Okay, thanks.

And then, when we look at the Plastics business, how fast do you think that the ramp-up there will occur in Germany and Brazil?

Is this something that we should start seeing some better numbers in the third quarter here, or is it still a little bit away?

We think you're seeing good numbers in the second quarter.

We think that year-over-year improvement, quarter-over-quarter improvement has been continuing and you should expect that improvement to continue.

We couldn't be happier with what we're doing within the Plastics business, particularly given the headwinds in Germany and the problems operationally that we've solved in Brazil.

Business will continue to expand its margins and we've said consistently, expect it to be more than 10% at the EBITDA line and that's going on for two years now and we're well on track to achieving that goal.

Great; thank you very much.

Marty Pollack, NWQ Investment Management.

Nice quarter.

Just two questions, if I may.

On Telephonics, certainly the backlog continued to rise, looked impressive.

Just wondering what the book to bill might have looked like for this previous quarter.

And as you see the rest of the year unfold, do you see backlog continue to stay firm?

Book to bill is not necessarily the best indicator because the revenue recognition may vary a little bit from the billing just because of meeting certain contractual commitments, Marty.

But I think the revenue recognized -- basically we improved by about $10 million because the backlog improved by about $10 million from the backlog at December 31, 2012.

That can vary from month-end to quarter-end, but over all, I think Joe and his team feel very good about the orders booked during the course of the current quarter.

Okay.

On the Plastics side, it seems that part of that improvement, as you indicated, was on the recovery of some of the margin, some of it passed through.

Did you see a catch-up there on resin costs that would explain part of this recovery in the quarter here?

And how are you positioned now, looking out for the rest of the year?

Marty, as Ron mentioned in his comments, there was about a $500,000 unfavorable resin impact on EBITDA in the second quarter.

And year to date -- so for the first six months -- right around $5 million; I think it's $5.2 million unfavorable.

So I guess the resin situation, you can characterize it as having been improved from the first quarter.

If resin were to stay exactly where it is right now, we would obviously catch up further in the third quarter.

But resin is a commodity and does have a tendency to fluctuate, as you're well aware.

So hopefully in the second half of this year, we'll see a stable or perhaps even somewhat declining resin market so that we can catch up a little bit on the negative impact from the first half of the year.

Thank you.

Thank you very much.

That does conclude our question-and-answer session.

I will now turn the call back over to the speakers for any additional or closing remarks.

Thanks for joining us and we look forward to updating you after our third quarter in early August.

Thank you.

That does conclude our conference; you may now disconnect.