Hexcel Corp (HXL) 2014 Q2 法說會逐字稿

Good day, and welcome to the Hexcel Corporation hosted second-quarter earnings conference call. Today's conference is being recorded. Hosting today's conference are Mr. Wayne Pensky, Chief Financial Officer; and Mr. Nick Stanage, Chairman, Chief Executive Officer, and President. At this time, I would like to turn the conference over to Mr. Pensky. Please go ahead, sir.

Great. Thank you. Good morning, everyone. Welcome to Hexcel Corporation's 2014 second quarter earnings conference call on July 22, 2014.

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's filings, including our 2013 10-K, our second 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 recorded or rebroadcast without our expressed permission. Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO, and President, and Michael Bacal, our Communications Investor Relations Manager.

The purpose of the call is to review our 2014 second quarter results detailed in our press release issued yesterday. First Nick will cover the markets, then I will cover some of the financial details, and I will give it back to Nick for some final comments before we take your questions.

Thanks, Wayne. Good morning, everyone.

As you have seen in last night's release, we delivered another strong quarter with sales of $470 million, up 10.2% in constant currency from last year. Our operations continue to perform well, delivering adjusted second-quarter operating margins of 17.3%, up 30 basis points from last year's period. Our adjusted diluted EPS of $0.55 was about 15% above the second quarter of last year, very good conversion on our top line sales growth.

For the first half of the year, our sales were up 10% in constant currency from last year's period. Our first half adjusted operating profitability also grew nicely to 16.7%, up 60 basis points on the first half of 2013. Adjusted diluted EPS was up over 15% for the first half to $1.05. As an organization, we are very proud of these results, and the quarter after quarter we continue to improve, and raised our margins and our expectations.

Now let me turn to our markets. As usual, I will discuss year-over-year comparisons in constant currency. Our sales growth was driven as expected by a 13.6% increase in commercial aerospace revenues over 2013, as Q1 sales totaled $308 million. Total revenues from new Airbus and Boeing programs increased by nearly 20%, primarily driven by the A350 and the 787.

Sales for legacy platforms at Airbus and Boeing were up about 9% from last year's second quarter. Sales to other commercial aerospace, which includes regional and business aircraft were up over 20% compared to last year's quarter, and were at about the same level as Q1. Space and defense revenues for the quarter were $92 million, down 5.8% versus last year, while first half 2014 sales are down 3.6%. Our top 15 programs performed largely as expected, and sales to these programs were just above first half 2013 levels, as growth on new platforms offset the reductions associated with programs that are winding down or reducing build rates.

The overall decline in space and defense was the result of lower sales on our more than 100 smaller, less predictable other programs. Looking ahead, we have lowered our expectations in space and defense for the remainder of the year, and now expect 2014 revenues to be about the same as those in 2013. This means the second half of 2014 will be slightly higher than the first half, as well as slightly higher than the second half of 2013. In industrial markets, sales for the second quarter were about $70 million, up over 21% year-over-year.

For the first half of the year, industrial sales also -- are also up 20% over the first half of 2013. As expected, wind sales were up by over 20% from the levels of last year's weak first half, and the other industrial sales were also up, increasing just under 20%. Projecting forward, we believe industrial sales will continue to show year-over-year improvements, with typical second half seasonality resulting in modestly less sales than the first half.

Now let me turn the call over to Wayne for some additional comments on our financials.

Thanks, Nick.

Gross margin of $129 million for the quarter was 27.5% of sales, as compared to 27.6% in the second quarter 2013, a strong showing for both quarters. 2014's results had a small headwind from exchange rates of about 30 basis points. For the first half, gross margin was $258 million or 27.7% of sales, as compared to almost $229 million or 27.3% of sales in last year's period. Exchange rates were about 20 basis point headwind for the first half.

Our selling, general and administrative costs for the quarter were $37 million or 6.6% above last year, though just 4% in constant currency, as we continue to invest in people and processes to support our growing business. Research and technology costs of $10.9 million in the quarter were $800,000 higher than the comparable 2013 period, as we settled back down into the expected run rate for the rest of the year after a high first quarter. In the quarter, we took a $6 million charge to increase our environmental reserves for the ongoing clean-up of the Lodi, New Jersey manufacturing facility we sold back in 1986, and the related Passaic River.

Our adjusted operating income as a percent of sales was 17.3% this quarter. This compares to 17% in last year's period. Exchange rate had an unfavorable 20 basis point impact as compared to last year. For the quarter, operating income leverage was almost 22% on the incremental sales when adjusted for exchange rates impacts. For the first half incremental operating margins were 25% after adjusting for the impact of exchange rates, and we remain on track to hit our 23% target for the year.

Our effective tax rate for the quarter was 31.3%, up from last year's effective rate of 30%. Our guidance for the balance of 2014 is also at 31.3%, reflecting our best estimates for the mix of income by country and states. For the first half, the free cash flow was a use of $9 million, compared to a source of $16 million in 2013, as cash used for capital expenditures was $119 million in the first half as compared to $92 million in the 2013 period. Our free cash flow guidance remains unchanged at $25 million to $75 million for the year, which correlates with our unchanged capital spending plan of $225 million to $250 million for the year.

During our second quarter, we completed the $150 million share repurchase program that was authorized last July. And as previously disclosed, in June our Board authorized an additional $150 million share repurchase. So during 2014's second quarter, the Company invested $66 million and bought back just over $1.6 million -- 6 million shares (sic - see press release, "1.6 million shares") of Hexcel.

We have $145 million remaining under our currently authorized share repurchase program. The impact on diluted earnings per share from the buybacks versus our original 2014 guidance is about $0.04 on 2014 full year earnings. Having said that, if exchange rates stay where they are, we expect to lose about $0.025 of earnings for the year versus our initial guidance.

So now let me turn it back to Nick for some concluding thoughts on our guidance before we take your questions.

Thanks, Wayne.

We have tightened our 2014 sales guidance, and now expect sales of between $1.810 billion and $1.860 billion, as lower space and defense sales should be offset by higher industrial sales. We have raised our full year adjusted EPS guidance to a new range of $2.06 to $2.14 from our previous range of $2.00 to $2.12 To achieve the midpoint of our guidance, we need to keep pace and exceed our 23% operating income leverage target. This implies nearly a 17% operating income margin for the second half.

I want to remind you that we do operate in a modest seasonal business, where second half revenues and margins are typically not as strong as those in the first half, due to reduced customer activities during the summer and holidays. We remain confident in our operational focus to achieve this continuous improvement while working to position the Company for the forecasted growth ahead, as we support our customers by investing in technology, capacity expansion, manufacturing innovations, and our people.

We would now be happy to take your questions. Tom, if you could facilitate, please?

Thank you, sir.

(Operator Instructions)

We will take our first question from John McNulty with Credit Suisse.

Thanks for taking my question. So a couple of things. So on the space and defense side, we know it is normally a relatively lumpy business, but with it being attributed to some of the smaller platforms, it seems like there is kind of a simultaneous pullback from all of your -- on all the smaller platforms. Is that what we are seeing, and if it is, what is driving at?

Well, thanks for the question, John. If -- again, starting with our biggest programs, our top 15, which make up two-thirds of the space and defense sector business, those pretty much performed as expected, and were slightly higher than last year's level. If you look at the small programs which vary across rotorcraft, civil and commercial, space and defense, launchers, a host of other items, it is really not possible to pin it on one in particular item. We do tend to see a little lumpiness based on campaigns, so that is probably part of it. And there has been some pressure as we communicated during last quarter on European rotorcraft.

So we have seen some of that in the first half. So again, we are a little more cautious. We are predicting flat to 2013, but again there is really not one major driver. Again, looking at the big programs, obviously V-22 and C-17 are weaker as expected, offset by the F-35 and A400M which are growing, and those are having some of the bigger impact.

Okay.

Fair enough. And then, just a question with regards to the guidance. So you have narrowed the range on the sales side, and yet you have upped the EPS. And the thing that is a little confusing to us is that normally I believe your space and defense business is a slightly higher margin business, whereas industrial is a little bit lower margin business. So the mix should be working against you, so what is the offset to that? What is helping you to raise the numbers in a -- kind of difficult mix outlook for the back half of the year?

Well, there -- as you mentioned there is some headwind on the mix. But I would point out that after the significant falloff in wind in 2012, after we had our record year, and the markets went down by over 25% in 2013 our team did an excellent job in cutting costs and stripping out infrastructure to get our costs in line. So I would tell you that the leverage we achieved on the incremental and industrial sales growth has been very strong. So some headwind there, but operational performance, and the job the team has done, has more than offset that.

Great. Thanks very much for the color.

Thank you, John.

And we will take our next question from Amit Mehrotra with Deutsche Bank.

Thanks. Good morning.

Good morning, Amit.

First question is on A350. Nick, how comfortable are you with respect to the execution of that program at this point? Obviously, it is a big undertaking. Are you seeing anything pop up that you do not expect? And maybe also as importantly, how is the productivity of the new capacity tracking versus your expectations?

So we continue to be excited and well-aligned with the A350 and with Airbus. They have five aircraft flying today. They have accumulated over 2,200 hours in a 2,500 hour flight test program. They have communicated certification and first delivery still on track for the end of this year.

So with respect to the program execution and the performance to date, I would have to say, it has been exceptionally strong. With respect to our alignment on putting CapEx in place to support the growth, as you know we are in their facilities. We see how their plants are running. We are talking to them every day, so we make sure we stay aligned, so that we provide the product that they need as the demand continues to grow. I would also point out that they have recently communicated that they expect to be at a build rate of 3 per month by the end of the year, ramping up to 10 per month by the end of 2018. So that gives you a little color on, at least the endpoints of their expected slope on the ramp rate.

Yes. Just to follow up on that, can you offer some more comments on maybe where you see inventory levels of your products specifically with Airbus? And what I am trying to sort of understand or get at is, was there potentially some inventory building middle or late of last year at Airbus, as they were planning EIS, or a ramp-up of the A350 later this year?

Well, again, we look at that very close, because it is pretty complex. Take just for example, the 350, we have over 40 customers just for that program. Especially during the ramp up period, each of these customers will be at different rates, depending on their offset and when their parts are required for final assembly. So we keep a close eye on our direct customers as well as the OEMs and how they are building, to make sure we stay aligned, and make mid course adjustments as required. But we have not seen any material supply chain build up or wind down, and just feel that we are pretty well-aligned today.

Okay. That's helpful. Thanks very much.

Thank you, Amit.

We will take our next question from Steve Levenson with Stifel Nicholas.

Thanks. Good morning, everybody.

Good morning, Steve.

At Farnborough, Rolls-Royce showed their new composite blade. I know it is not designed into an engine yet, but have they given you any time table on when the next engine might come, when you might start to see some use of that application?

Well, I really don't want to get ahead of Rolls Royce in predicting when they are going to launch their new engine with fan blades. I would tell you, we really love the engine in the sell business. We are well-positioned with our products and we continue to invest in technology. If you look at GE launching the GE90 back in 1995, and producing 1,400 engines, which is over 30,000 fan blades with near flawless performance, I think there is a large pull for composites into the front end of the engine, to take advantage of composite strength, and the strength to weight ratio that you get. So we are actively working with Rolls, but again, I really don't want to get ahead on where they are at this point in time.

Okay. Thanks. Are you working on other engine applications beyond fan blades, cases, and the containment?

We are. Certainly, we are working the GE9X with GE and Safran, and we have other development programs that are early on, but we continue to look for opportunities not only on fan blades, but cases. As you know, we have the LEAP blade materials and the carbon fiber, and we continue to promote and use our Acousti-Cap, which provides exceptional noise dampening characteristics, and introduce that on the new engines, as well.

Okay. Last one, is for Wayne on capital expenditures. I am not really looking for guidance going forward, but can you give us an idea of the progression, if this is year going to be the peak for a while? If you see it coming in a little bit, and then when the next precursor [launch] are needed?

Yes. So Steve, we will give 2015 and guidance beyond later in the year. I wouldn't say this year is the peak. It will really just ultimately depend on where the customers are in their schedules, and how we need to add capacity to meet those schedules. So I wouldn't to commit to any number, other than we do have several years ahead of us of meaningful CapEx spend to go. But again, it will really be delivered -- be determined by our customer delivery schedules.

Okay. Thanks very much.

Thanks, Steve.

And we will take our next question from Noah Poponak with Goldman Sachs.

Hello. Good morning, everyone.

Good morning, Noah.

Just going back to space and defense, I am curious how much visibility you feel like you have, or how confident you are that you can bounce back to a positive growth rate in the third and fourth quarter? Because you have really only had one or two negative year-over-year growth rates this -- during the downturn and if the piece of the business that is diversified is what's bringing it down, where you are saying there is limited visibility. I know the comps are a little easier in the second half, but I just curious if there is one or two programs that are starting to ramp more earnestly, or if there is something else that gives you better visibility in the back half?

Yes. Noah, I am probably not going to help you too much, but I think one point you made was the comps do get easier. So that obviously helps a little bit. Our guys -- our sales guys do a fairly good job of working with customers to forecast what they think they need in the second half, and we are really relying on that. But I wouldn't look at any one program to drive it one way or the other.

I think it was just the addition of all those different programs adding up together. But I think when you look at the second half, hopefully it is -- like I said, the second half of the last year, particularly the fourth quarter were low, so the comps get a little bit easier. You have got to remember for the second quarter of this year, we are comparing to the second quarter of 2013, which is the highest in our history.

Yes. Is the V-22 program for you now -- fully reset for the move to the second multi-year that the customer is undergoing?

No. Actually, our V-22 sales are still pretty healthy, so there is still some more room to go down.

Okay.

And how long that takes is probably not clear, but not so much in the second half, it is probably more about next year going lower.

Okay.

Well, I would add that there is a lot of [FMS] activity going on and communication floating around. So it remains to be seen what the total impact will be.

Right.

Does -- on that point, does the customer tell you to stay producing at a level that is elevated beyond where that second multi-year goes, because they are anticipating recovering pretty quickly on the other side of that due to international?

They pretty much provide us guidance based on what they know. So it can change, and we stay aligned to that.

Okay. And just one other question on M&A. I guess at the Investor Day, you sort of suggested there was potential for M&A to pick up -- obviously, haven't seen anything and the share repurchase has picked up. Can you just talk about what you are seeing out there in the M&A environment?

Well, again our priorities remain unchanged. And I just again, want to go through them. First and foremost we are investing in technology and organic growth, in putting capacity and to support that business. M&A is active. I -- don't assume that the lack of action is a lack of appetite. We do have an active process going on.

At the same time, we are going to be very disciplined, and it is going to make a lot of sense when you do see something. And then third, to maintain the leverage that we think is appropriate for the business, we return to shareholders. And that is what has driven the stock buyback.

Got it. Okay. Thanks.

Great. Thanks.

Thank you, Noah.

We will take our next question from Ken Herbert with Canaccord Genuity.

Hello. Good morning.

Good morning, Ken.

I just wanted to follow up on the commercial aerospace, the new program growth. I mean, it dropped a little bit below 20% it looks like. I understand the larger aircraft, A380, 747, maybe headwinds there. How much -- can you provide any more granularity on what you are specifically seeing on the 87 and A350, and the re-engined narrow bodies, relative to the larger aircraft as part of that mix?

Yes, Ken. So I would first, when you look at the Neo and the Max, so those are still very small numbers compared to anything else. So while their growth percentage looks astronomical, the dollar amount is just not very big yet, so I wouldn't get too excited about that.

I think the real reason we see 20% growth as opposed to a higher number, is because we do have the 747 and the A380 in there, and without that the growth rate would be significantly higher. With respect to the 787, I think Nick has already mentioned our build rates -- or excuse me, our sales are in line with Boeing's build rates. And actually, our A350 sales are in line with the numbers Airbus has talked about, as well. So I would say there is really nothing unusual in there.

Okay. And is this -- as we look into the second half of the year, you expect similar growth? Or do we see a little, slowdown in 87 as we steady at the 10-a-month here heading into 2015?

Yes. So as I was just going to say, so the A -- I am sorry, the 787 comps sort of get more level out, as they hit the run rate in the prior year. So from a growth rate perspective, 787 probably doesn't add as much. But with respect to the total numbers, we are not going to get into specific guidance on a quarter by quarter basis or anything like that.

Okay. Great. Thank you very much.

Thanks.

(Operator Instructions)

We will take our next question from Greg Konrad with Jefferies.

Good morning. Just to stay on the 787, Boeing continues to take weight out of the aircraft. Have you seen any type of content gains on the 787?

We continue to work with Boeing on materials and parts, but really there is nothing material to talk about there.

All right. And then, just to revisit capital allocation, obviously you have increased that for the year, and have been very active with the share repurchases. Is there a target debt-to-capital ratio that we should think about?

Well, we have internal targets that we used as guidelines. I would say, we like to stay below 2.5. We have said that before, and we thought we were too low before. So really don't want to give you exact numbers, Greg, but that gives you a feel for where we are comfortable.

Okay. And then just last, I mean, it is probably really early in the process, but any opportunities you see with the A330 Neo?

Well, it was just launched last week with strong orders, I think over 120 aircraft orders, so we -- it will be a derivative engine. I think they are taking the Trent 1000, and making some modifications, and it is a pretty aggressive program with entry into service planned for 2017. So as we always say, anytime there is any reengining or a new opportunity for a launch, we believe there will be more content. But again, too early to declare any numbers or solidify any opportunities at this time.

Thank you.

You're welcome.

We will take our next question from Gautam Khanna with Cowan and Company.

Yes, thanks. Good morning.

Good morning.

So, I wanted to just ask -- I mean, one of your competitors mentioned kind of a pick up in rate on the 87 and 37 programs. Did you see any sort inventory realignment or changes to your delivery rate or order schedule on some of the legacy programs in the quarter?

Well, for our numbers, we saw legacy grew about 9%, which was maybe a little bit higher than we expected. We attribute approximately half of that to rate increases, so there is some seasonal pull that accounts for the rest. So I wouldn't get too excited, and I wouldn't say we have seen anything that we have identified as any prebuild or supply chain adjustments.

Okay. And could you opine on what your CapEx needs are likely to be over the next couple of years? Just given the A350 ramp appears to be on schedule as of now, what does that necessitate in terms of CapEx? Are we still in the $250 [million] range looking out?

We -- Gautam, we really aren't going to get ahead of 2015 guidance, so I will do that later in the year, December time frame. So other than we are in the $225 million to $250 million this year, working hard to secure new programs, which if we are successful, hopefully will require us to continue to invest in the core business.

Last question, I mean, can you remind us what the share creep is from option exercise and the like each year?

Yes, Gautam, it is -- generally, I would say it is 1.5 million to 2 million shares. It is kind of in that range.

Okay. And so, the pace of buyback will be to offset the creep, or do you hope to actually reduce?

Yes. We are not going to give forward guidance, but as you know we have $145 million left under our current authorization if that helps you.

All right. Thank you.

Thanks, Gautam.

You're welcome.

We will take our next question from Steven Cahall with the Royal Bank of Canada.

Yes. Thank you, and good morning.

Good morning, Steven.

First on the margin, it looks like you picked up around 40 bps from R&T, and SG&A being lower in the quarter. Maybe that was diluted a bit by FX. Can you give us a bit of a steer as to what the rest of the year looks like in terms of our R&T and SG&A? And then, what it -- and it looks like FX maybe a bit of an increase in headwind, so how we think about that as well?

Yes. So, I am not sure I will get them in the right order, but with respect to FX overall, if rates stay where they are, then for the year we will have about $0.025 of earnings from the FX headwinds versus our original guidance. If you look at R&T, I do think the spending in the second quarter is probably in rate with what we expect in the second half, and the same really for SG&A, as well. So I wouldn't look at anything different.

Great. That is very helpful. And then, I was wondering if you could just speak a little bit more on the CapEx plan for the rest of the year? I mean, at this point with two quarters to go, the range in the guidance is pretty dramatic for two quarters. So wondering if you could just let us know what you are seeing? And then, what are the key elements that would put you at maybe the top end versus the lower end of that, with -- just a few months left, five months or so?

So again, I really don't want to get more specific than -- we have been a little slower in the first half which is not unusual. Typically, our second half spend is higher.

I would say the things that influence it are the rate at which the programs, new development programs are ramping up to make sure we stay aligned. So as of right now, we still feel real good about the $225 million to $250 million range, and I am not going to get more specific at this time.

That's great. Thank you.

Thank you.

We will take our next question from David Strauss with UBS.

Yes, hello. Good morning.

It is actually Matt on for David. Maybe I missed this, but did you give an updated share count guidance for the year?

No, we didn't, but I am -- we can. I mean, we are at 99.2 million for the quarter, and for the year, it's probably going to end up in that -- around the same range. (Multiple Speakers). That's based on what has been bought back to date, through June 30.

Okay. And then, maybe just one more on the L3 composites that you announced is that -- can you give us an update on that and maybe when that could get certified?

I'm sorry. What was the program?

This is the L3 composite airline seat.

Oh yes.

The development program.

Yes. That is strictly development. So there is some advance work, proving concept out that we are working with various customers, Zodiac being one. We don't have any launch date targeted, I am not in the position to communicate.

I just see that as a development activity.

Yes.

Okay. Thanks.

Okay.

We will take our next question from Ron Epstein with Bank of America Merrill Lynch.

Hello. Good morning. It is actually [Kristine Liwag] calling in for Ron this morning.

Hello, Kristine.

Hello. When we think about your engineered product segment, how much of the margin expansion is attributable to operating leverage from volume growth, versus let's say higher pricing on (technical difficulty) proprietary content on products like pre-price of the 787?

Yes. I would just do engineered products of -- it is -- it would just be operating leverage. I mean, with respect to engineered products, like on the materials side, there is a little bit of a learning curve on new programs. And so, those margins sort of ebb and flow a little bit, depending on where we are in various programs, but I wouldn't view it as price. I would view it more as just how efficient we are in operating - -and where we are.

Operational performance.

Yes, and where we are in various stages of the programs.

Okay. Great. And then, I was wondering if you could provide the -- how much of carbon fiber do you use in-house -- in the make versus buy?

Yes. We are definitely -- it is my guess, it is in sort of the two-thirds versus one-third that we are making versus buy, but that is in a broad range.

Okay. Great. Thank you.

And again, as time goes on, the more and more a new fiber grow -- on new programs we are always going to be using our own fiber, so that number will continue to grow higher. So that we will continue to have more make than buy.

Great. Thanks.

We will take our next question from Yair Reiner with Oppenheimer.

Hello. Good morning. This is [Wade Lee] for you here. So to clarify, around Farnborough, Airbus begin talking about the potential ramp in the A350 to10 a month, faster, and maybe increasing that to 12 a month. Is this already factored into your thinking, or is this new news? And if so, does this imply that you might need to increase your CapEx?

Well again, we are not authorized to share our detailed schedule beyond what Airbus has provided their supply base, but 10 per month is what were planning to in 2018, and aligning our CapEx spend to that. We have done studies, and have looked at higher rates, but just as studies at this point in time. So not really ready to communicate that until Airbus declares what they may want to grow to.

Okay. Great. Thanks.

Thank you.

And we will go next to Michael Derchin with CRT Capital Group.

Hello, everyone. I was just wondering on the, going back to the A330 Neo, is there any concern about cannibalization of sales of the A350 or the 787? Or do you view this as incrementally new strong demand?

Well, Michael, if you look at the A330 Neo, our content today is about $900,000, and certainly we would expect that to grow. The amount is TBD, as we talked about before.

So if you look at cannibalizing on the A350, the Dash 800 is -- most of those orders have been migrating to the Dash 900. I think there is only 34 in backlog today, on the total backlog for the A350 of almost 750 aircraft. So we don't see that as being a material impact. And on the 787, where our content is $1.5 million per ship set, if there might be some competition at the small size, maybe there would be a little. But again, it would be immaterial to our results.

Thanks.

Thank you. Tom, are you there?

I am, sir. We do have a follow-up question from Amit Mehrotra with Deutsche Bank.

Hello, thanks. Just one quick follow-up.

That $2.5 billion revenue number you have for 2017, I don't think you -- when you put that out, you made clear what was assumed in that number. Obviously, I assumed to a certain degree A350 was ramping toward that 10 a month by 2018, but can you remind us if you had the re-engined narrow bodies in there, as well? And obviously you did not have any of the A330 Neo in there, and that would make sense. But more specifically with the respect to the re-engined narrow bodies.

Short answer is yes. I mean, the $2.5 billion is predicated on the OEMs hitting their build rates, and that is really what will get you there. With respect to the narrow bodies, I think by -- if you look out by 2017, you are not going to have Max at its full run rate by any stretch of the imagination, and Neo probably still isn't there either. But you will have them involved.

Okay. Thanks.

All right.

And ladies and gentlemen, this does conclude today's conference. We appreciate your participation.

Great. Thanks.