Hexcel Corp (HXL) 2012 Q3 法說會逐字稿

Good day and welcome to the Hexcel Corporation third quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Wayne Pensky, Chief Financial Officer, please go ahead, sir.

Good morning, everyone. Welcome to Hexcel Corporation's 2012 third quarter earnings conference call on October 23, 2012. Before beginning, let me cover the formalities. First, I want to remind everyone about the Safe Harbor provisions related to any forward looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward looking statements today. Such factors are detailed in the Company's SEC filings including our 2011 10-K, our third-quarter 10-Q and last night's press release. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be we rerecorded or rebroadcast without our express permission.

Your participation on this call constitutes your consent to that request. With me today are Dave Berges, Hexcel's Chairman and CEO Nick Stanage, Our President and CEO; and Michael Bacal, our Communications and Investor Relations Manager. The purpose of the call is to review our 2012 third-quarter results detailed in our press release issued yesterday. First Dave will cover the markets, and then I will cover some of the financial details, and Dave will return for some final comments.

Thanks, Wayne. Good morning, everyone. We had another very good quarter with sales of $392 million, 13% better than last year on a constant currency basis. And, adjusting out one time items from last year, diluted EPS of $0.39 for the quarter was a 15% increase over 2011. Thanks to good execution and conversion on incremental sales, our $60 million operating income was 23% over last year and resulted in a margin of 15.3% of sales, 150 point basis point improvement over last year. Commercial aerospace sales of $234 million for the quarter were up over 13% in constant currency from last year's third quarter, with the growth coming primarily from large aircraft. Revenues for new programs again increased by more than 30% for the quarter versus the prior year and now account for more than 30% of our total commercial aerospace sales.

Sales for legacy platforms at Airbus and Boeing were up 9% from the third quarter of 2011 and we believe are currently in line with build schedules. Sales to other commercial aerospace, which includes regional and business aircraft, were about the same as the third quarter of the prior year but were down about 10% from the robust levels of the first half. Space and defense revenues were about $91 million, up over 14% on a constant currency basis versus the third quarter of last year. Growth in both civil and military rotorcraft continued to be the primary drivers, though we are also beginning to see the impact of the new composite-rich European A400M transport. In industrial markets, sales for the third quarter were $67 million, up about 11% year-over-year on a constant currency basis. Wind sales were up significantly over last year's third quarter but were down sequentially almost 20% as we begin to see the impact of a US slowdown. Sales from our US wind prepreg facility were down both year-on-year and sequentially and now account for less than 30% of our global wind sales.

Let me return the call to Wayne for some additional comments on the financials.

Thanks, Dave. Gross margin of $99 million for the quarter was 25.3% of sales as compared to 24.6% in the third quarter of 2011 due to good leverage in the sales volume. Our reported Sales General and Administrative costs were only 1% above last year and in just 3.5% over last year in constant currency. Our Research and Technology costs were up nearly 17% over last year in constant currency as third quarter spending levels were consistent with the first half of 2012 run rate. In total, SG&A and R&T combined grew less than our revenues and thus improved to 10% of sales versus 10.7% of sales for the third quarter of 2011. Foreign exchange rates contributed about 30 basis point for the higher operating income percentage in the quarter as compared to last year. Our operating leverage continues to be strong, and, after adjusting for exchange rates, we delivered 24% incremental operating income on the sales growth for the quarter, and the year to date leverage is almost 26%.

Our year to date effective tax rate is now 31.6%, down slightly from the first half rate of 31.8%. As a result, our third-quarter effective rate was 31.1%. As a reminder, 2011's third quarter rate of 27.4% benefited from a release of $1 million to reserves for uncertain tax positions and a reduction on our estimated tax rate for 2011 to 31%. Free cash flow for the first nine months of 2012 was a use of $58 million as compared to the source of $12 million in 2011. This reflects the higher capital spending for ongoing capacity increases partially offset by $49 million increase in adjusted EBITDA. Through the end of September we paid cash of $209 million for capital expenditures in 2012 as compared to about $100 million in 2011. Our year to date accrued capital expenditures were $175 million, and we are now targeting accrued capital expenditures to be between $230 million and $250 million for this year, a modest reduction from our prior estimates of $250 million to $275 million. We expect we'll use between $40 million and $60 million of cash for the full year. Net debt at the end of the quarter was $253 million, which is a decrease of $14 million from our debt level at the end of June.

Now let me turn the call back to Dave for some closing remarks.

Thanks, Wayne. As you've seen, we've updated our full year 2012 guidance. We now expect sales to be in the range of $1.56 billion to $1.59 billion. This narrows the range from our previous guidance and falls in the upper quartile of our original 2012 guidance, if you adjust for the $40 million impact of the currency translation on the year. But based on continued strong leverage on the growth, we are increasing the top end of our adjusted EPS guidance from $1.55 up to $1.59. Regarding capital expenditures, as Wayne mentioned, we have lowered our forecast for this year and next to reflect recent yield and productivity improvements, reduced cycle time to replicate and qualify new lines, plus our latest demand model.

We would be happy now to take your questions.

Thank you.

( Operator Instructions )

[Amit Mamehocha], Deutsche bank

The mix between the newer 55 meter blade and the older 44 meter blade in the business, and could you just help us in how we should think about what the net impact of the lower volumes would be but the higher incremental content of the larger blade?

Amit, the first part of your question was cut off, could you repeat it please?

Yes, sure. Can you just give us the mix in the wind business between the newer 55 meter blade and the older 44 meter blade in the business?

I do not know was the production mix will be. The orders in the Vestas backlog as best I can determine look to be about 25% or 30% of the backlog is the newer large turbine, and those blades take upwards of 50% more of our content as best we can determine. So, whatever declined there might be from production tax credit or other global pullback on deliveries from Vestas will be at least partially offset, if not completely offset, hopefully by the improved mix.

Okay, that's helpful. And just one question on the revised Cap Ex guidance, does this imply that 2012 CapEx is the peak, and we're on a sliding slope starting next your. Or is the reduction more of a deferring, and we will seek CapEx creep back up when there's more clarity on some of the timelines in the programs?

Well, we are long term thinkers. I am hopeful that we will see additional peaks in the next couple of decades. But I would say, based on what we know right now, this year would at least on the interim be a peak. As you know our biggest capital driver comes when our carbon fiber specifies. So, we work hard at keeping in sync with major drivers like the USEC centrifuge project, the joint strike fighter A350 and jet engine programs. We can't miss on the short side, so we plan our balance sheet for the most aggressive a scenario and scale back as we get new input. So that is really what the reflection is. But probably, as or more importantly, the vast majority of our major investments are on track to meet or beat our output for capital targets. And thus we've been able to reduce contingencies on our spending plan. So our ongoing spend rate per dollar of sales is likely be better than what would have envisioned two years ago.

Okay and just one last quick one, maybe for Wayne, and then I will hop off. This is -- it is on the Gurit infringement claim. When do you expect that to get resolved? What are some of the milestones we should watch out for, and should we expect any reserves, or are there already reserves in place? What should we think -- how should we think about that?

Yes, we have not taken any charges against that as we do not believe we have any liability, but it is a litigation matter. Who knows how long it'll take, but we will keep everyone informed as it goes along.

Okay. All right. Thanks a lot.

Richard Safran, Buckingham.

Just had a quick question here on CapEx and free cash flow. You reduced CapEx $20 million to $25 million. Your free cash flow is now a use $40 million to $46 millions versus $50 million to $57 million like previously so that's a $10 million to $15 million improvement. I just was wondering if you would discuss why the reduction in CapEx is not completely flowing down to free cash flow?

Yes, Rich, I'd argue it's pretty close. In general, we only dropped CapEx the $20 million to $25 million. It includes working capital and everything else when you start looking at your total cash flow. I hope it goes down a little bit further, but right now 75% of the year looking into it we think we made the appropriate change.

Okay. Is this anything to do with like accrued versus cash or anything?

By the time you get to the fourth quarter, the accrued and cash are kind of in line. We probably confused a little bit of most people earlier in the year. If you remember in the fourth quarter of 2011, we incurred a lot of CapEx commitments that we ultimately did not pay for until the first quarter. So the cash piece for the first quarter of 2012 was much higher than the accrued piece, but they are now sort of generally in sync.

Okay. Thank you very much.

Howard Rubel, Jefferies.

Wayne, I cannot understand how you could miss your FX number by 2%. I mean this is really something I am shocked by. But, no, in all seriousness, very nice numbers but a little bit of fourth quarter, when we look at the seasonality typically forth is a little bit stronger than Q3. Q3 again, very nice numbers. Is it FX that is impacting what you are thinking about Q4, or is it some schedules, or can you elaborate a little bit on that?

I guess, Howard, if you look at the midpoint of our guidance for the fourth quarter, or what it is implied I should say, it is down a little bit from the third quarter. I would say probably wind is the largest contributor to that, as I believe, if you look at the aerospace markets, it is probably pretty flat with the third quarter.

Okay. That makes sense. Are you yet getting anything more than sampling, Dave, on Leap-X and on NEO?

Well, it depends on the component. The Leap-X engine has been in development for years, actually. And so the front fan blade, which is an infusion carbon fiber blade, has been in development for quite a number of years. So we have been shipping our intermediate modules fiber for quite some time. There is a lot of development work going on on containment rings and acoustical treatment and a number of other programs that I guess I would still call sampling phase as the designs are finalized.

Because, at some point, you will have to think about adding that as one of the new programs that you address as opposed to the four the you are indicating now. I was just trying to get a sense of either volumes or timing.

Well, it is a good point. I actually haven't look at whether the volumes are enough on those two programs to start to include in new programs, but we will take a look at that over the coming quarters.

And then the last question, SG&A seems to be well under control. Is that again partially attributable just to FX, or is there something else you are doing, because you do get some very nice operating leverage. It wasn't all SG&A -- excuse me, it was not all cost of goods. It was also very good control over SG&A. Did you (multiple speakers)

Well, I think control over SG&A is one of the hardest things to do in a corporation that is growing as quickly as we are. I think we could probably do better, quite frankly. There was some FX help, but there is no dramatic change one way or the other in what we are planning. We just try to do what we need to do to support the growth without getting carried away and having it grow proportionally so that we can maintain our plus 20% incremental leverage.

Is your census up sequentially year over year? You have the data points?

I'm sure it is year over year.

Yes, it's in the -- I'm sorry, Howard, did you say people?

Yes.

We're up roughly 400 or 500 people.

Steve Levenson, Stifel Nicholas.

Could you talk a little bit about opportunities on some of the new engine designs that are coming and, in relation to that, opportunities on a 777 revision that may have a composite wing. Do think you have an opportunity to displace the incumbent or just an opportunity for some incremental growth?

Well, as I said on prior calls, the incumbents are both another composite player and another aluminum manufacturer. So it is a hill to climb for sure, but there is no program that we do not go after if it is going to fly. So, I am very certain, though, that our content on any new airplane will increase. My competitors could probably say the same things at least those in the composite world. I think our focus right now is, as you point out at the beginning, engines -- it all starts with the efficiencies that are gained with new engine technologies, whether it's a single aisle replacements or any change to existing aircraft. So, we are working with all of the engine manufacturers trying to maximize our participation and content and help them improve their acoustical signature and their structure and their weight.

Okay. Thanks. And then I understand that you recently expanded the plant and Parla, Spain. Can you talk about that a little bit? Is that actually in production now, or is there a qualification process there, too before you start delivering parts? And is that plant specifically for A350?

Nick, you were at the grand opening. You want to?

Yes, we had the grand opening a few weeks back, and it is a prepreg plant that is an expansion from our other prepreg within the area, primarily to focus on A350 but also other European customers as well. The line is in the process of being qualified now, and then we will shortly convert into production.

Okay. And is that three months, six months?

We are not sharing that at this time.

Okay. Got it. Thank you very much.

John McNulty, Credit Suisse.

This is [Avi Rejinron] calling in for John. A couple of quick questions -- so on free cash flow looking to 2013 with continued earnings growth and now the lower CapEx forecast, is it reasonable to assume that you should be cash flow positive? And, if so, could you maybe touch on some of your key priorities for cash usage as you start generating cash in the next year and beyond?

Well, we are going to try to give guidance for the year after we have finished our planning cycle. So about mid-December we will give you some color on that, but we certainly expect to be cash positive next year as we do for the second half of this year. We have got a pretty good track record going here of EBIT and EBITDA expansion, I think 10 quarters in a row. So we have a lot more to work with, and with CapEx spending going down we certainly expect to deliver some cash next year. As for what we do with the surplus, we do not consider ourselves in the surplus category yet until we have fully funded our organic growth. But, beyond that, all the obvious candidates will be considered.

Okay. Great. And then a quick question on space and defense, what sort of growth can we expect in this business looking to next year given some of the moving parts in the market including rotorcraft, joint strike fighter as well as some of the other platforms?

Well, again, we haven't given detailed guidance for next year yet. We have said for some time now that we do think the secular penetration of composites in this market and the conversion of many rotorcraft to composite blades plus the emergence of the a A400M will help offset any softness in older platforms. So we do expect to continue to be able to deliver single-digit growth. The more this year looks like double digits, the bigger hill we have to climb, but, if you smooth it out over the next few years, I think we can keep the average to be above neutral and in the single digits.

Okay. Great. Thanks very much.

Michael Lew, Needham and Company.

With regard to the reduction in planned CapEx, you had highlighted better productivity and more qualified capacity coming online. Could you provide a little more granularity as to where the gains were made? Was it in carbon fiber, fiberglass, resin, honeycomb, or some of the areas?

Well, every program that we approve has targets for what the cost is going to be, what the contingencies are and what the output per capital dollar will be. I would say 80% of the -- 90% of the projects that we have launched in the last two years have met or beat those targets. So, as we rework our outlook, there are some of the worst case scenario contingencies that we are able to take out of our outlook. So it is just sort of good performance by Nick and his team.

Okay. And with regard to the wind energy business, I am curious. Does your outlook also incorporate the big wind farm that was recently approved in Wyoming that could begin construction next year as your biggest customer? It has been named as a potential supplier. It is the one in Wyoming.

I'm sorry to say I'm not aware of it. I look at the Vestas announced orders and the Vestas backlog, principally, and I have not seen any announcements in this quarter from Vestas on US orders. If you know of one, I'd be happy to hear about it.

They are one of the potential suppliers that is been named. Nothing has been confirmed yet.

And we are one of the potential providers of the raw materials?

If you work with Vestas. Just one final question on the wind to space, the wind energy space, what is your long-term view on it? Do you expect it to eventually recover? Do you have more customers in the pipeline that could be announced over the next year or so?

We work with a number of customers. The one that drives the top line, though, and is easiest to point to for understanding of our outlook is generally Vestas. They still have a very strong backlog. They have lowered, however, their forecast for 2013 from what their projection is of production this year. So I think all of that support the wind market are sort of preparing ourselves for a little bit of a slowdown perhaps even a pullback. Long-term I'm not sure your definition of long but I do still think the wind energy business is a very good long-term market industry and will 5, 10 years from now still be a strong part of the mix in energy.

Okay. Thank you.

Ken Herbert, Imperial capital.

First, just wanted to ask with the strong growth on the commercial aerospace side from the new programs, can you provide a little more color on the mix within that? It seems like A380 was maybe flat at best and probably some more pressure there, but was the growth really 787 or are you starting to see other programs like the A350 in particular step up as well?

I think in general the A380 has been the leader over the last six quarters or so. It did as you suggest taper off as they modified their build rate projections so I would -- it is hard to separate seasonality and the wing repair work that they are doing from the trends. But I think it would be safe to say the A380 is probably going to level out at its current level; although, it has been strong for a number of quarters. The 787 had a lull a year ago the lasted about four quarters as the delay was absorbed in the supply chain and is now ramping pretty nicely. We think we are generally in the right level trend wise on each of the programs by the current numbers. It is hard to tell on a new program exactly what our sales should be with so many ship- to's and yields ill defined. But right now we think the growth that you are saying is appropriate for the current build rates.

Okay. That's great. And just one follow-up on the 787, you are running then I'm assuming for a quarter or two in anticipation of the five a month build rate and as that continues to step up into '13. Are you expecting to follow that path, or are there any inventory issues that you are aware of specifically on the 787?

I expect that we should follow that path. There can be all sorts of things that go on under the covers with inventory, but right now I think we are on the right pace. We have obviously have been supporting the five rate that you are talking about for some time now, because we tend to be on average six months ahead of our customer ship date. So we are working down five.

Okay. That's great. Thanks, David. If I could just one quick follow up on the wind markets. Clearly a bit of a step back in the quarter, and I think without pushing on sort of a 2013 outlook, I would ask a similar question. Vestas, your customer there, does not have necessarily the best track record in terms of their inventory management. And you're looking at a step down in their shipments in 2013 based on their latest guidance, is there any concerns we should have about inventory and your shipments into Vestas as a volumes potentially step down? Or are you feeling good again about at least inventory levels and that part of the business with your customer on the wind side?

Well, our particular inventory is pretty tightly controlled between our plant and the blade making plants because the volumes are pretty significant. Whether they get ahead on an inventory -- on the inventory of their finished blades is something that is a little beyond our control. But over the years of working, and in particularly in the areas where we have factories very close to their assembly plants, I think we are in pretty close coordination, and I do not expect to see big inventory swings.

Okay. That's helpful.

Peter Cozzone, KeyBanc Capital Markets.

Great quarter. A competitor of yours recently noted some temporary destocking in the commercial platforms. You touched on it a bit I think, but it sounds like you believe inventories are at appropriate levels now across the supply chain. Could you just maybe talk a little bit more about your visibility further down the supply chain?

Well, we try to stay pretty close and pay pretty close attention. We did in a number of prior quarters point out that shipments for legacy aircraft seem to be running ahead of what line rates would suggest. But I always assumed that to be a restocking effort over the 2009 pullback which I thought was a destocking. Our current sales seem to be in line with the announced rates so I would maybe say the restocking is perhaps complete rather than destocking underway at least with our customers as far as we can see. So, I think barring any year-end inventory seasonality, we should be tracking more closely with build rates by going forward.

Similar question in regard to the JSF, we talked about a bit about the slowdown there earlier this year. Has that activity largely ended as we enter the fourth quarter here?

I am not sure what slowdown you are referring to. We provide the fiber to a competitor who makes the prepregs so we monitor their output pretty closely, and there has been a little bit -- that has not been a smooth and even trend just because campaigns that are run. But it is not a big, big part of our total mix as of yet, and we still think incrementally the joint strike fighter is going to be a contributor going forward.

Great. And then just one more if I may, in terms of incremental margins you seem to be tracking well above your 20% long-term target for 2012 on some better execution. Looking towards 2013, is there any reason or headwinds that you might not be able to at least see incremental margins in that range assuming commercial aerospace production rates continue a steady ramp? And then it seems that some of your upfront qualification costs are winding down here?

Well, we always have headwinds, and occasionally we get a tailwind, but I'm not sure what you mean by in that range. If in that range you mean over 20% as is our target, yes, I do expect we're going to continue in that range. If you mean our year-to-date range, I hope so, but that is not our guidance at this stage. We will you know in December.

Great.

[Christine] (technical difficulties), Bank of America, Merrill Lynch.

The government fiscal year started in October 1, and the DoD is operating in a continuing revolution again. Are you seeing any changes in order activity from the customer at this time?

We are so far down the supply chain that we don't have a short cycle reaction like -- that we would be able to distinguish. We are still going pretty strong particularly in the helicopter business and rotorcraft business. A lot of that is increasingly coming from civil helicopter sales, which I remind you we report in the same space and defense segment, because we cannot really separate that out. Oil exploration, executive travel, emergency medical services, search and rescue are all putting good demand on helicopter providers. We also have a very participation in the European defense business and Asia for that matter. So I still don't expect to see a big downdraft in space and defense just because of some domestic programs slowing.

Sure. And then I guess the other part, I know you guys have a pretty big exposure to the V-22 as well. Has the customer provided any sort of guidance on how to deal with sequestration if it were to happen? As we get closer to January 2, it seems like the risks keeps going up, right?

I heard Mr. -- Governor Romney last night saying he is going to increase defense spending and President Obama saying sequestration wasn't going to happen. But, at the end of the day, we are supporting our customers demands, and the C-17 as in important program for us but has a number of important orders including foreign military sales. And while we do see some softening over time, it is not enough to take us off of our growth trajectory on space and defense. In fact, the A400M transport will probably more than cover an ending of the C-17 if in fact it ever does end. I'm sorry, V-22 was that the question? (laughter) I'm tired. The V-22 we are aware of the step down schedule from a multi-year procurement that I understand would be more expensive to cancel than to continue with. But, again, I think these other programs are going to help us fill that gap just like we filled the gap of the termination of the F-22 and earlier programs.

I guess I'm switching gears, can you talk about opportunities for further IM fiber use in industrials?

We do not have anything large enough to draw attention to at this time. Intermediate modulus fiber is the premier fiber for the most difficult of applications, and in the industrial world there are areas where it is and can be used, but it is not of significant enough volume that it is worth a lot of time on.

Sure I mean I think you guys are in the Lamborghinis, but are there opportunities for other luxury cars but not in that category, let's say a step down like Mercedes, BMW or anything like that. Or is that still not a use for IM fiber?

There are a few applications that take our best fibers, but they tend to be more Formula One and such. There are a lot of improvements that can be made on Lamborghini and other cars with high-strength fiber, and industrial fibers if they can afford the premium. And we do participate in those markets, but again it is nothing significant enough that we would be investing additional capital in.

Great. Thank you.

Noah Poponak, Goldman Sachs.

You have highlighted the other bucket in aerospace where you house regional jet business jet as flat on a year over year basis down sequentially. Can you just maybe parse that out of little in terms of the specific programs that are driving a sequential decline there?

Well, I do not know exactly about sequential decline, but just generally let me say that regional jets, not surprisingly, are struggling, and large business jets are contributing. So the larger business jets such as the new Gulfstream, Desso, Embraer and Bombardier business jets, the larger class aircraft seem to be doing pretty well, and they have increasing composite content. So those are contributors, and then the all other beneath those small jets, of course, Hawker and regional jets are suffering.

So the regional jet manufacturers are pulling product from you slower now than they were three, six, nine months ago?

I do not have that in front of me, but I would be stunned if they are not, because that the business, the demand is certainly down and build rates are not going up. I would say it is down a little bit from what Wayne tells me.

Okay. You touched on the productivity and cycle time improvement component of the CapEx reduction. The other part of that sentence in the release is your latest demand model. Can you elaborate on what specifically you were referring to there as it relates to the CapEx reduction?

The big driver as I said before is when our carbon fiber specified. So I think we try to track all of the programs just like you do at a top line we try to do it on a carbon fiber style and type pound for pound for pound because we want to get the capital right. We have a big complex model that tries to track everything that uses our fiber, and we rerun it regularly and then we make a review about when we are going to start the next tranche of capacity expansion or when we are going to fire up and hire on the capital dept that's been deployed.

Any noticeable change in any specific programs or aircraft type embedded in that, or sort of you pull it all together, and this time it was a little lower than before?

Some are up and some are down. Engines or engine support is up with the new engines coming online, those that use our fiber. USEC is still out there but fairly delayed. If it gets funded, we'll have to support that, but we've taken it out of our 2013 requirements. And the joint strike fighter build rates are less than what we envisioned two or three years ago. The A350 announced a three-month delay this summer. Those are some specifics on the downside. On the upside, jet engines and A400M and some other programs are a little more upside than what we had anticipated.

And then just one last one. Is there a step up in the tax rate in the fourth quarter relative to where it has been trending year-to-date?

No, no they -- we have got the year-to-date rate at 31.6%, and that is where we expect to end up. So there is a minor true up in the third quarter to get it down to the 31.6%, but that is where we expect to end the fourth quarter.

Okay.

Avinash Kant, DA Davidson and Company.

Maybe you talked about this one, but could you give us some qualitative understanding of how to think of the wind business in the fourth quarter? It was down significantly this quarter, but in your guidance what are you thinking about?

I think that we will see continued softness in the US, and I don't have a number for you. But our guidance, if you backwards calculate with the fourth quarter looks like it looks a little softer than you might expect if wind were growing at the pace it has been growing. We see aerospace continuing to grow nicely in the fourth quarter, but we have put a little caution into the industrial outlook.

And actually my second question was on that too. It looks like ex the wind business your industrial business actually was up sequentially. Given all the negative news that is out there on the industrial side, do you to still see that business doing -- staying at a similar level in Q4 compared to Q3?

Avinash, I would view the inconstant currency, I'd view the industrial businesses as generally flat.

So on a sequential basis Q4

Excuse me, outside of wind just to be clear.

Outside of wind could be flat sequentially versus wind could even go down further in Q4?

Yes, if you look at our implied guidance, that would be reasonable occlusion.

Operator, I think we are finished. Thanks very much.

Thank you. That does conclude today's conference. We do that you for your participation.