漢佰 (HBI) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the HanesBrands second-quarter 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) Please note today's conference is being recorded.

I will now hand the conference over to T.C. Robillard, Vice President, Investor Relations. Sir, please go ahead.

Good afternoon, everyone, and welcome to the HanesBrands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the second quarter of 2014. Hopefully, everyone has had a chance to review the news release we issued earlier today. The news release and the audio replay of the webcast of this call can be found in the Investor section of our Hanes.com website.

I want to remind everyone that we may make forward-looking statements on the call today, either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations or beliefs, and are subject to certain risks and uncertainties that may cause actual results to differ materially. These risks are detailed in our various filings with the SEC, such as our most recent Forms 10-K and 10-Q, and may be found on our website as well as in our news releases and other communications.

The Company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made. Unless otherwise noted, today's references to our consolidated financial results, as well as our 2014 guidance, exclude all one-time charges and expenses. Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP, can be found in today's press release, which is available in the Investors section of our Hanes.com website.

With respect to the pending acquisition of DB Apparel, any reference on our call today regarding our 2014 guidance excludes any potential contribution from DB Apparel. With me on the call today are Rich Noll, our Chief Executive Officer; Gerald Evans, our Chief Operating Officer; and Rick Moss, our Chief Financial Officer. For today's call, Rich will highlight a few big picture themes; Gerald will provide a sense of what is happening in our businesses; and Rick will emphasize some of the financial aspects of our results.

I will now turn the call over to Rich.

Thank you, T.C. Q2 was another great quarter for HanesBrands. We expanded operating margins 210 basis points and grew our earnings 44% to $1.71 per share, providing further evidence that when you combine our Innovate-to-Elevate strategy, our self-owned supply chain, and strategic acquisitions, we have a great formula for creating shareholder value. The fact that we were able to deliver strong profit growth despite a challenging retail environment also demonstrates that we have the right set of strategies and that we are executing extremely well.

Let me give you my perspective on the overall retail environment. Coming into the year, we expected that consumer spending would remain challenging. And that is certainly turning out to be the case. Retailers saw a bad winter followed by a tough spring, and this only reinforces our view that we need to remain prudent with our sales guidance. But even in spite of our view of the retail environment, we are confident that the benefits of our Innovate-to-Elevate and acquisition strategies can continue.

We are reflecting that confidence by raising our full-year earnings guidance $0.40 to a range of $5.20 to $5.40 per share. Investors are finally able to see the true earnings power of our business model, and we expect DB Apparel to add nicely to our current momentum.

Turning briefly to DBA, the more I learn about their business, the more it reinforces my belief that this is a great acquisition for HanesBrands. We're making good progress towards preparing for closing, which we continue to believe could be as early as the third quarter. We are working through the various deal requirements, including consultation with the European and French Works Councils. We are also organizing ourselves so we are in position to begin to develop our integration plans shortly after our anticipated close.

So, in summary, our business continues to perform extremely well. We have been able to deliver consistent double-digit earnings growth over the past several years by driving our Innovate-to-Elevate strategy, leveraging our low-cost global supply chain, and effectively deploying our cash flow. Add the Maidenform and DBA synergies to this formula, as well as the benefits from deploying future cash flows, and we believe we are well-positioned for continued double-digit earnings growth for the next several years.

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

Thanks, Rich. We feel really good about the momentum in our business. Innovate-to-Elevate is cascading through the organization. Our supply chain continues to deliver efficiencies, and the synergies from Maidenform are beginning to flow through our P&L. This combination delivered strong profit growth, as each segment grew operating profit and delivered double-digit operating margins during the quarter.

Let me start with a brief update on Maidenform, which continues to perform very well. The brand positioning is resonating with retailers, and we are on track to deliver $500 million in sales this year. The vast majority of the integration is complete and we began to recognize some of the SG&A synergies in the quarter. Two weeks ago, we reached another milestone when the first Maidenform bra came off the manufacturing line at our facility in Thailand, putting us on track to begin to recognize cost of goods synergies in the first half of 2015.

Turning to our segments, Innerwear had a solid quarter, given the overall retail environment. Operating margins increased 80 basis points to 23%, a testament to our strong brands and the ongoing success of our Innovate-to-Elevate strategy. Sales for the quarter, excluding Maidenform, declined roughly 2% from last year, as retailers continued to tightly manage their overall inventory levels. We saw this in April and in May, when our shipments fell behind point-of-sale trends. But our shipments recovered in June, as retailers prepared for back-to-school.

This is the great thing about being in replenishment categories. Over time, our shipments tend to equal our sell-through. Looking at our inventory at retail, we believe we are in a great position in terms of weeks of supply heading into the key back-to-school selling season.

Switching to Activewear, our Innovate-to-Elevate strategy drove continued improvement in both sales and operating profit. Sales increased 8%, driven by strength in Champion in the sporting goods, mid-tier, and department store channels, as well as solid double-digit growth in both our branded printwear and Gear for Sports businesses. Operating profit increased 23% in the quarter, while operating margins expanded 180 basis points to 14.4% -- a second-quarter record for the segment.

Turning to International, sales were up 5% over last year. Our operating profit increased 26%, while our operating margin improved 200 basis points to 12.2%, as we continue to make solid progress in our regionalization strategy.

And lastly, I'd like to take a moment to comment on our supply chain, which continues to be a strong contributor to our performance and our increased guidance. One of the many benefits of owning our own supply chain is that we retain all of the efficiency gains we generate through our continued optimization efforts. We are capturing benefits from a variety of areas, including better material usage, which means less waste, and increased purchasing power with our suppliers, higher equipment utilization, and increased labor efficiencies.

So, to sum up, we are executing very well and this is evident in our results. Innovate-to-Elevate continues to drive margin improvement, and Maidenform is quickly becoming a solid profit contributor. Add this to our excitement about DB Apparel, and it's easy to see why we are optimistic about our outlook over the next several years.

I will now turn the call over to Rick.

Thanks, Gerald. We had another quarter of strong results, as we continued to execute on our strategies. Our operating profit increased 27%, driven by the same three factors we saw in the first quarter. The first is that Innovate-to-Elevate drove continued margin improvement in our core business, with Activewear leading the way. The second was better-than-expected supply chain efficiencies. And the third was the addition of Maidenform.

We are confident that the momentum in our business can continue, and we have -- and we reflected that confidence by increasing our full-year guidance for operating profit, EPS, and cash flow from operations. For the quarter, revenue grew 12% to over $1.3 billion. Currency, which took roughly 60 basis points of growth off total company sales in the quarter, was once again a headwind, but to a smaller degree than we've seen over the past few quarters. On a constant currency basis, core sales were up almost 1% versus the prior year, which is reflective of the current retail environment.

Our gross profit margin increased 160 basis points to 37.9%, driven by the benefits from Innovate-to-Elevate and the outstanding performance of our supply chain. We continue to lever SG&A in the quarter despite the addition of Maidenform and approximately $2 million in incremental media spend. As a percent of sales, SG&A declined 60 basis points to 20.6%, continuing a trend we've seen over the last several years. Operating profit increased 27% from last year to $231 million, while our operating margin increased 210 basis points to 17.2%. Interest and other expense, as well as our tax expense, were in line with our previously stated guidance, resulting in EPS for the quarter of $1.71, a 44% increase over last year.

Turning to our guidance, let me start by reminding everyone that our guidance does not include any contribution associated with our pending acquisition of DB Apparel. Also inherent in our 2014 guidance are the following assumptions. One, we remain prudent in our expectation that the challenging consumer spending environment will persist. Two, cotton costs in the second half will be higher than they were last year. Three, Q2 is expected to be our peak margin quarter, as is typically the case. And four, we expect to spend an incremental $5 million to $10 million in media in the second half relative to last year.

With that as the backdrop, we've refined our full-year sales guidance to approximately $5 billion, 75 million dollars, with approximately $500 million coming from Maidenform. We've increased our operating profit guidance by $45 million to a range of $710 million to $730 million. The midpoint implies an operating profit margin of 14.2% or 130 basis points above last year. We now expect Maidenform's profit contribution to be approximately $35 million to $40 million.

We continue to expect roughly $85 million in interest and other expense, and a full-year tax rate in the low-teens. Given our performance year-to-date as well as our confidence that the momentum in our business can continue, we've raised our EPS guidance $0.40 to a range of $5.20 to $5.40 per share. The midpoint represents an EPS increase of roughly 35%, which would come on top of last year's 49% increase.

Finally, we've also increased our cash flow from operations guidance by $25 million to a range of $500 million to $600 million.

So, in closing, we had another strong quarter despite the challenging consumer environment. Innovate-to-Elevate and our supply chain continue to drive margin improvement in our core business, and Maidenform is beginning to contribute nicely to profits. And when you add in the remaining synergies from Maidenform, the synergies we expect from DB Apparel, and the benefits from deploying future cash flows, we believe we are very well-positioned to continue to drive solid double-digit earnings growth for the next several years.

And with that, I'll turn the call back over to T.C.

Thanks, Rick. That concludes the recap of our performance for the second quarter. We will now begin taking your questions, and we'll continue as time allows. Since there may be a number of you who would like to ask a question, I'll ask that you limit yourself to one question and a single follow-up, and then re-enter the queue to ask any additional questions.

I will now turn the call back over to the operator to begin the question-and-answer session. Operator?

(Operator Instructions) Eric Tracy, Janney Capital Markets.

Great execution.

Thanks a lot, Eric.

So, Rich, I guess if I could get you to start kind of big picture another quarter here of sort of challenges on the core Innerwear business, and you are prudently sort of reflecting that in the guide as well. Maybe just talk to what exactly you feel like is going on. First quarter, it seemed like it was sort of weather and some calendar shifts. But maybe just speak to what you're seeing on the consumer, particularly in the mass channel.

Yes. So, let me give you the overview and I'll turn it over to Gerald for a little bit more specifics. You know, coming into the year, we actually said that our expectation was that the consumer spending environment would probably be a little bit muted and a little bit choppy. We had seen that last year and expected it to continue. And that's certainly turning out to be the case.

You know, at first in Q1, everybody was saying, wow, it was really cold, and it's weather. But then you came right into Q2 and spring seemed to be relatively lackluster. And you've heard it from a lot of different retailers. This isn't just isolated to any channel. The great thing about our categories, though, is they are big to relatively stable. And while it can put a little bit of pressure on it overall, you know, it's a replenishment business and our sell-throughs tends to match our overall shipments.

You did see a little bit of retailers getting somewhat concerned about inventories. And earlier in the year, I think you've heard them talk about that. They seem to have replenished that. And I'll let Gerald talk a little bit about our sell-through and the retail inventory levels.

Yes, Eric, picking up on Rich's comments, certainly, we did find the retail environment to be very choppy in Q2, just as we had seen in Q1. While it was choppy, our overall POS trends did improve from Q1 to Q2. And broadly speaking, our POS trends were better than our shipment trends in the quarter, which I think really does reflect the careful manner in which our retailers are managing their inventories in this sort of unsettled retail environment.

While they did order cautiously early in the quarter, we did see a pickup as we moved toward the back-to-school period, which gives us confidence that we are well-positioned as we enter that back-to-school period. We know that our share positions are strong and expanding in our key categories. And we're certainly positioned well with a strong array of promotions and so forth going to that long back-to-school period. And, of course, we are running a nice load of advertising behind our key platforms as well. So we've been very optimistic about it as we look forward.

Okay. And then if I could just switch gears on the second question. Just tremendous execution here on Maidenform, and you've got DB Apparel in the pipeline here. You know, Rich and/or Gerald, as you think about the potential challenges of integration, one question I get quite a bit from investors is just the potential for capacity constraints. Fortunately, I've seen the Nanjing facility and sort of feel like there's a massive ability to scale. But maybe just sort of talk through that. Do you feel like there's any capacity constraints on the near-term? And how do you sort of build out that capacity as you continue to layer in acquisitions?

So I think it's important put the size of these acquisitions in perspective relative to our current global supply chain. As you well know, we've recapitalized that supply chain over the last number of years. We feel that it's running really, really well. And I'll say it is a clear contributor over and above Innovate-to-Elevate. The supply chain, the raw efficiencies, how well they are executing, has really helped us outperform in this first half and is also a contributor to our overall full-year raise in our overall guidance.

In terms of expanding capacity, Maidenform was around 10% of our overall size of our production. You're going to find DB Apparel in a similar size. So we're not talking about huge ramp-ups in overall capacity. In fact, on the margin, what we're doing is using the supply chain's efficiency gains and ability to drive more throughput, through the same footprint by moving dryers, and adding incremental places to eliminate bottlenecks. It's one of the reasons that we are able to continually drive our costs down as you put more and more volume through it.

I think from a capital perspective, we've talked about -- we hit some low marks a couple of years ago, right after we had sort of built everything out. We said capital would increase over time from that $50 million, up to the depreciation level of around that $90 million to $100 million. And that's what's happening. It's hitting about $70 million or so this year. And that's more than enough to keep our supply chain competitive, continue to drive cost savings, and incrementally add capacity for these types of bolt-on acquisitions.

Susan Anderson, FBR Capital Markets.

This is Andrew Schmidt on for Susan. Congrats on a great quarter. On the gross margin line, clearly a good job of driving Innovate-to-Elevate strategy, but if you'd provide some more color on sort of the MFB margins relative to the core margins? And then also some more color on what drove the MFB guidance increase for the year. That would be great.

Sure. First, how MFB performed in the quarter. We saw MFB perform a little better in a couple of places. Number one was the gross margin on that business was a little higher than we expected at this point. The team has done a great job of focusing that business on the profitable core; probably a little bit more quickly than we had expected them to be able to do that.

And second was, we've been able to achieve the SG&A synergies a little faster than we had expected to get there. So those both drove profitability -- improved profitability for Maidenform versus what we thought. When you look at those things, we expect those trends to generally continue through the balance of the year. And that's what gave us the confidence to give guidance to a higher profitability level at Maidenform for the full-year.

Matt McClintock, Barclays.

Good afternoon, everyone, and outstanding quarter.

Thanks, Matt.

So, Rich, I was wondering, within Innerwear specifically, I understand the challenging retail environment, but I'm really encouraged by the strong growth that you continue to see in your more innovation-related product categories. And I was just wondering, as we think longer-term, we continue to see strength in innovation-type categories, and you talk a lot about megatrends, but just what levers do you have at your disposal to maybe accelerate the adoption -- consumer adoption of these categories versus your maybe more traditional product offerings?

You know, I think at the end of the day, we're doing all the right things. We've got great product. We are generating trial. We will continue, as Gerald said, ramping up advertising in the back half of the year to get that message out to a broader set of consumers. And then we find in a lot of these innovations, when people try them, they substantially convert a large portion of their drawer, if you will, to these kind of products.

So we feel good both about the overall momentum that these products have. And that's across all of the platforms, wouldn't you say, Gerald?

Yes, I would. And what I would add to that is, we are very disciplined now in treating these as true platforms. Something like ComfortBlend that started as underwear has been pushed very quickly now into women's and men's basics, such as socks and panties. And, in fact, in ComfortBlend's case, we are now pushing it into Activewear T-shirts, in which we had a lot of success this year in the mass channel with that T-shirt as well.

So we think there's a lot of legs. X-Temp is the other one we are pushing out very fast, as well as our Flexible Fit platform across Intimate Apparel. So there is a great deal of room yet to extend these innovations.

And then if I may ask a follow-up on Maidenform as well. Now that you are starting to layer Maidenform onto your supply chain specifically, if I could ask about the next level of integration with Maidenform Innovate-to-Elevate. Can you just update us on how you're thinking about Innovate-to-Elevate specifically with Maidenform? And perhaps should we see that coming sooner down the pipeline, as some of these synergies and the acquisition integration has clearly come a little sooner than initially expected?

Well, in the case of Maidenform, we've always said that the supply chain synergies would begin to come in 2015. And as you heard in the comments -- in my comments, we've just begun to make those bras and bring them into the supply chain. And you'll certainly begin to see that right on schedule in 2015.

We've also said it would take a little longer to begin to get our hands around the design element of the line and bring our true Innovate-to-Elevate concepts to it. And that will begin to come in the fall of 2015 line that we are beginning to work on now. And we're pretty excited to be able to bring that same discipline that we've brought across our other businesses there to that. So we're really right on schedule. And you'll see really the most benefit out of Innovate-to-Elevate in 2016, which, again, is right on schedule with what we had said it would be.

David Glick, Buckingham Research.

Thank you and my congrats on the quarter. A couple of questions. One, on Champion, if you can give us an update in terms of the traction you're getting there. Obviously, the Outerwear business was one of your stronger segments this quarter, and some of the stay schemes that you might be seeing, given that retailers are kind of in a spring 2015 decision-making mode.

And then, secondly, how should we expect the core Innerwear trends to be in the second half of this year? You made some positive comments as the quarter was ending heading into back-to-school. Can we see that business maybe flattening out versus last year in terms of what's baked into your outlook? Thank you.

Let me start with the comment on the Activewear segment. Activewear segment had a very strong quarter, as you heard in my prepared remarks. Certainly, Champion performed very well, as well as Gear for Sports and our printwear businesses as well. For the half, the Champion business is up about 9%. And it continues to be driven by strength, particularly in the sporting goods channel and the mid-tier and department store channels, both a combination of new distribution, but also expanded distribution in our current accounts.

And we remain very bullish on that business, and believe it will certainly deliver that 10% growth range for the year that we had spoken about before. And that brand is really firing on all cylinders right now, doing very well.

On the Innerwear side, Gerald, you know we've seen the trends -- let me just go ahead and touch on that, David. We saw the -- when we were looking at sellthrough at retail across all of our accounts, we actually did see sellthrough pick up a little bit better in Q2 than we did from Q1.

In this environment, inventory moves by retailers -- I think I've said this over the last couple of years -- retailers seem to have their finger on a hair-trigger when it comes to managing their inventories, as they face sort of a tough challenging environment. And what ends up happening -- even though it may not be impacting our sell-through, since we're ordered at once -- if they feel inventories are getting a little high, they tend to go to the places they can impact in the shortest term. And tends to be replenishment businesses.

Nice thing is, they are quick to respond and pull them back up going into a key selling period. So I think retailers are cautious. They are a little nervous. We do see slightly better trends in Q2 than we saw in Q1. And that's why we want to be prudent about the rest of the year, neither pessimistic nor overly optimistic. And I think we've incorporated that into our guidance.

Bob Drbul, Nomura.

Congrats on the nice quarter. This is Kevin Heenan on for Bob. I was hoping that you could maybe offer some more color on Champion kind of from an international perspective, and some of the markets outside the US where it's performing well, and maybe some areas where you might be able to generate some more business or enter into going forward. Thanks.

So, I'll take that. You know, overall, the business that we have with Champion, the lion's share of it is in the United States. The business for the rights to Champion Europe actually is by a different company that we don't own. The only pieces that we have internationally are really in the Japanese business, which is a portion of that business. And I think, overall, the trends there are fairly good, and a little bit in Australia.

Okay, thanks very much.

Jim Duffy, Stifel.

A couple of questions for you guys. Just looking at the seasonally adjusted run rate of Maidenform, it seems to be running pretty comfortably ahead of the $500 million annual pace outlined in the guidance. Am I missing something there with the $500 million guidance? Or is there room for that to go higher?

No. I think we've always said from a sales perspective, Maidenform's run rate, as we sort of focus their business on their more profitable core, would be about $500 million. That was actually the guidance that we had coming into the year, and it's the guidance that we still, from a sales perspective, maintain for the full-year. So I think we are tracking right there.

As Rick said earlier, we've taken the operating profit guidance from Maidenform up from originally, I think it was $25 million coming into the year, to now $35 million to $40 million. And as Rick said, the beat's in a little bit of two places: their gross margin in their core business is a little better, and we are running a little bit ahead of schedule on realizing some of the SG&A synergies.

So does that change your ultimate accretion potential as you think about it for Maidenform? I think it was $0.60 and $65 million of free cash flow. Or do you think of this as just earlier realization of that potential?

Yes. So -- yes, and I'll just turn it to operating profit. So we talked about $80 million of operating profit by year-three. I think we're still on track. In terms of the synergies, we might be running a little bit ahead on SG&A. That's not necessarily that we'll ultimately recognize them higher.

And as Gerald said a little bit earlier, we are tracking exactly right to the supply chain savings that we just started internalizing their production on track this month. And then you'll start to see the Innovate-to-Elevate begin showing up in fall of 2015. So we feel really good about it. And we feel it was a great acquisition. Most of the integration actions are behind us, and you'll start to see it play out on the P&L over the next couple of quarters and years.

Taposh Bari, Goldman Sachs.

Nice job, guys.

Thanks.

Rich, earlier this year, you had spoken about taking some price at retail. I think you quantified it as low to mid-single digits. I'm curious to see how you think halfway through the year, the retailers and consumers are responding to that action?

Yes, that was in selected categories. It wasn't across the board, as -- remember, the world is now in, I believe, a secular inflationary trend from a wage perspective, as the developing world is seeing high-single to low double-digit wage increases. And it doesn't look like that's going to abate anytime soon. And so there's just sort of a general background of sort of a cost push inflation working its way through the apparel chain. And I think that's going to be a long-term trend.

At the end of the day, we had over a decade of deflation. And I think that those times are now over. We're talking about very small modest price increases, not across the board. And I don't think it's really impacting the consumer or the retail environment at all, would you say, Gerald?

No. I think that they were put in place in February. And in many cases, we saw competitors follow. And, yes, it's just, really, we haven't seen any major impact one way or the other on that. (multiple speakers)

And then you put that in perspective a couple of percent or a few percent on some of the core products, but we are seeing a lot of traction with those trade-up products that we've discussed that are 30% to 50% higher. So, you get the right value equation with the right brand, consumers respond. And I think that's what's driving our business.

Great. And the other question I had was just on cotton prices rolling over lately. Can you help just remind us how that flows through to your P&L? I know you said that cotton would be a headwind -- I guess marginal headwind in the back half of the year. But if you could remind us what kind of exposure you have to cotton, and what the timing is like in terms of flow-through.

Sure. We generally hedge our cotton position out about six to nine months ahead of delivery. And then we -- and then the cotton goes through -- it takes about six months for the cotton to go through the production process and in inventory. So it's usually around a year or so for it to really take effect.

So, the -- so, for example, today you're seeing cotton prices in the upper 60s. You'll see those lower prices start to flow through our P&L probably somewhere around the second-quarter of next year.

Andrew Burns, D.A. Davidson.

Truly impressive margin performance in the first half, so congratulations.

Thanks, Andrew.

With the Maidenform and the pending DB Apparel acquisition, you will have more than doubled your Intimate Apparel business in just over a year. Can you speak to the long-term benefits of this type of scale, not necessarily from a supply chain side but from a broader category perspective? Do you think this type of scale changes the competitive environment in any sort of way, making it more difficult for smaller brands or brings the potential for greater pricing discipline? Just looking for a sort of a big picture view of the category, given your new scale. Thanks.

Yes. And let me talk a little bit about that first in the US, and then I'll talk about it in terms of Europe, although, obviously, those plans aren't as well-formulated.

You know, in the US, I think there is an overabundance of brand fragmentation in the Intimate Apparel segment. This gives us the ability to drive Innovate-to-Elevate through a couple of big, strong key brands, bring innovation that consumers are looking for. And if you can come with great brands, with great product, with innovation that consumers are looking for, your business is going to grow. And I think that will be good for us and for our overall retailers. And that's -- and you can only get that with that kind of scale and scope that we are talking about in our disciplined Innovate-to-Elevate process.

When you look at DB Apparel, they've got great brands and good shares, strong shares in number one or number two in key categories and key geographies there. And so it will be open for the same type of Innovate-to-Elevate discipline to help drive their business and drive their margins in the future. So we feel really good about our expertise in this category and our ability to continue to drive successful growth.

Thanks and good luck in the second half.

Thanks.

Carla Casella, JPMorgan.

This is Paul Simenauer on the line for Carla Casella. My questions have all been answered. Thank you very much.

Thank you. And we have time for one more question. Our final question for today comes from the line of Steve Marotta from CLK & Associates.

Thanks for taking my question. I just have one tonight. I know that you guys have already commented on cotton as well as labor inflation, but just to put a finer point on it, do you intend to increase unit pricing in the second half and beyond to the same extent that your costing is going up on a linear basis?

You know, we don't look at exactly what our cost is, other than I will say in 2011, when things were going -- rapidly changing. We generally don't price on a quarter or a half basis. We look at what we believe is sort of the longer-term run rate on cost, and price accordingly. So, in terms of the back half, most of the price increases we talked about before, Gerald, weren't they put in earlier in the year?

Yes. We had seen a number of these input costs coming before we entered the year, and certainly took that into account to maintain our margins as these costs came through. And we put those prices in place in February. And we think we are well-positioned.

That's great. Thank you.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back to T.C. Robillard for any closing comments.

I'd like to thank everyone for attending our call today. And we look forward with speaking with you soon.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.