Hyster-Yale Inc (HY) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2014 Hyster-Yale Materials Handling, Inc. earnings conference call. My name is Katina, and I will be your coordinator for today.

At this time all participants are in listen-only mode. Later we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Christina Kmetko. Please proceed.

Thank you. Good morning, everyone, and welcome to our 2014 second-quarter earnings call. I am Christina Kmetko, and I am responsible for Investor Relations at Hyster-Yale. Joining me on today's call are Al Rankin, Chairman, President, and Chief Executive Officer of Hyster-Yale Materials Handling; Michael Brogan, Vice Chairman and Chief Executive Officer of NACCO Materials Handling Group; Colin Wilson, President and Chief Operating Officer of NACCO Materials Handling Group; and Ken Schilling, our Vice President and Chief Financial Officer.

Yesterday we published our second-quarter 2014 results and filed our second-quarter 10-Q for the three and six months ended June 30, 2014. Copies of our earnings release and 10-Q are available on our website at hyster-yale.com. For anyone who is not able to listen to today's entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months.

Before we begin, I would like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today in either our prepared remarks or during the following question-and-answer session.

We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. Additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-Q.

Also, certain amounts discussed during this call are considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our 2014 second-quarter earnings release, available on our website.

Finally, we have made some changes to our presentation format. We are not going to provide as much detail from our earnings release as we have in the past. Instead, I will be providing a brief overview of our quarterly results and business outlook, and then I will turn the call over to Al Rankin and the panel for your questions.

Now let's discuss the quarterly results. In the 2014 second quarter, revenues increased to $684.7 million from $659.6 million in 2013. Net income was $32.9 million or $1.95 per diluted share for the second quarter of 2014 compared with $36.2 million or $2.16 per diluted share for the second quarter of 2013. Also, operating profit was $47.7 million for the second quarter of 2014 compared with $35.9 million in 2013.

We have two large items affecting our second-quarter comparatives that we should discuss first. On a positive note, we completed the sale of our current Brazil land and facility earlier than anticipated, and during the second quarter we recognized a gain of $17.7 million, which is $11.5 million after-tax or $0.68 per share on that sale.

The second large comparative item relates to a tax benefit of $12.8 million or $0.76 per share, which we realized in the second quarter of last year from the release of certain income tax valuation allowances.

We believe our five strategic initiatives are continuing to gain traction, as evidenced by an increase in unit and parts volume and favorable material costs in the second quarter of 2014, which together improved gross profit. In addition, one of our strategic initiatives is focused on increasing sales of warehouse trucks. Greater sales of warehouse trucks contributed in large part to the current-quarter volume increase.

However, certain of these warehouse trucks are sold at lower margins, so the resulting shift in sales mix in all geographic regions to units with lower average profit margins was expected, as were the additional costs incurred during the second quarter of 2014 to support the Company's five strategic initiatives, both of which partially offset the benefits of the higher sales volume. Nevertheless, we did not anticipate significantly higher US healthcare costs, which affected both our gross profit and selling, general, and administrative expenses unfavorably during the second quarter.

Finally, increased warranty expenses, as favorable adjustments in the second quarter of 2013 did not reoccur in 2014, also contributed to the reduction in gross profit and operating profit. Lower incentive compensation estimates compared with the 2013 second quarter did partially offset the decline in operating profit.

Now, turning to outlook, we expect the global market for forklift trucks to grow moderately during the remainder of 2014. Generally, this growth is expected to be concentrated in developed Western markets and China and is expected to be partially offset by weakening in certain developing markets. As a result of this anticipated global market growth and expected increases in our market share, we anticipate an overall increase in our unit shipments and parts volumes and, as a result, an increase in sales over the remainder of 2014 compared with 2013.

Specifically, we expect the majority of this increase to come from North America and Western Europe, with smaller increases in Asia-Pacific unit shipments. We also expect weakening markets in Latin America, including Brazil, as well as Eastern Europe to only partially offset growth in the significant Western-developed markets.

A significant increase in operating profit is expected during the second half of 2014, in excess of the rate of the sales increase, with the majority of the increase occurring during the fourth quarter. The favorable effect of the anticipated increased unit volumes, increased parts volume, and product enhancements are all expected to contribute to this improvement.

In addition, because we do not anticipate that the market price for our stock will increase at the rate experienced in 2013, we expect lower estimated equity incentive compensation to contribute to the improved operating profits in the second half of the year. These favorable items are expected to be partially offset by the full-year impact of marketing and employee costs associated with our investments in the strategic initiatives that were made over the course of 2013 and in the first half of 2014 and by unfavorable foreign currency movements in the Americas and Asia Pacific, as well as anticipated higher employee benefit costs, primarily healthcare expenses.

Overall, we expect net income in the second half of 2014 to improve compared with the same period in the prior year. The effect of improved operating profit as well as lower interest expense due to lower debt outstanding and lower interest rates under our revolving credit agreement are expected to be partially offset by a higher effective income tax rate. Looking at our various segments, we expect operating profit results in the Americas segment, which includes the North America, Latin America, and Brazil markets, to improve significantly in the second half of 2014, with the anticipated increases in unit and parts margins partially offset by continued unfavorable foreign currency movements from an expected strong euro and slight increases in material costs.

Operating profit in the Europe segment, which includes the Middle East and Africa markets, is also expected to increase moderately in the second half of 2014 compared with the prior-year due to the anticipated benefits of the current strength of the euro, the favorable effect of improved pricing, and slightly lower material costs. These improvements are expected to be partially offset by the full-year effect of marketing and employee costs, which gradually increased throughout 2013.

Asia-Pacific results for the second half of 2014 are expected to be slightly higher than the second half of 2013, resulting from the favorable effect of improved pricing and an expected increase in unit volume, partially offset by the weakness of the Australian dollar and weaker industry demand in Australia.

Finally, we expect cash flow before financing activities for the 2014 full year to decrease from last year, primarily due to an increase in capital expenditures, largely driven by the construction of a new plant in Brazil. These capital expenditures will be partially offset by the final cash payment from the sale of our current Brazilian facility, which we received during the second quarter of 2014.

That concludes our prepared remarks. I will now open up the call for your questions.

(Operator Instructions)

While we are waiting for questions, let me provide my contact information. For any additional questions you may have at the conclusion of today's call, my number is 440-229-5168. Katina, are there any questions?

Mig Dobre representing Robert Baird.

Christy, I will have to apologize in advance; I missed a portion of your remarks, so I don't know if you covered this already. But my first question -- I'm looking at the Americas segment. And maybe you can help me understand the margin swing in there a little bit better.

If we are excluding the gain on the facilities sale, operating margin declined about 180 basis points on a year-over-year basis to 4.6%. This is a pretty big move. Can we parse out some of the impact from mix, versus currency, versus some other items that were in there?

This is Al Rankin. Let me give you some perspective on that. It's a complicated story, actually, I think.

And I'll speak just to the Americas, although, obviously, these comments that reflect the Americas have a big impact on the numbers in total. If you will look at the revenues, we went up a modest amount in revenues in the Americas -- $7 million or $8 million, something like that. And if you look at the added margin that came from that volume and include the material costs in freight variances, what we call what happened to our adjusted standard margin, our regular profitability on the parts and units business that we do, it actually went up quite nicely.

And so the issues occurred in other areas than that. There were some very significant manufacturing variances compared to the previous year. And the biggest single driver there was an unusually high level of health costs that came through. Because effectively, as a practical matter, we are self-insured in that area. And there were deaths and other claims that occurred that generated some unusually high charges. We certainly hope that those are more in the nature of one-time charges, and we don't have any reason to think that they will be particularly variable on a regular basis.

In addition, we had currency variances of significance. And we had a warranty pickup, I believe, in the previous year that, of course, wasn't repeated in this year.

And so you put all that together, and those manufacturing variances and the changes in other cost of sales, with currency and warranty being big portions of that, the result is that the gross profits actually declined despite the fact that the profitability on the business that we did was better.

So the other thing that happens in other cost of sales, which is really very important to understand and is a big driver, is that the benefit we received from the material cost going down -- which is in the cost of the goods that we sold -- hurts us in accounting, because the accounting rules require that you write off during the period, effectively, the amount of historical cost that is above the latest purchase price.

And so, in a way, the better you do on material costs, the more exposure you have to inventory variations or inventory adjustments that are driven by that. I've already mentioned the currency. Those are factors that are all coming to bear here that make it kind of an odd quarter.

And, in fact, SG&A in the Americas was positive compared to the previous year; and it's positive for the Company overall. So the entire change is in gross profit, which is driving the negative, with some currency impact in the SG&A as well that is a negative. So in total that's kind of the story. It's a complicated one, but it has a number of what I would call one-time components.

I appreciate that Al, thank you. I guess, unfortunately, I'm still unclear as to how big these impacts were that were one-time in nature. And you mentioned some benefit from warranty in the prior year that might have boosted margin a bit to get it to 6.4% and a number of one-time items this time.

And I'm trying to figure out what is the normalized level, if you would, for operating margin in this business at current volumes, excluding one-time items? And I'm not entirely sure I got --.

No, I'm not going to really get into trying to answer the question that way. I will tell you that some of these things will reverse in the third quarter, because they -- particularly the material cost variance items that I mentioned -- some of those kinds of things will not reoccur. The currency -- I mean, I can't tell you that these are all nonrecurring.

I can tell you what happened in the sense that they are not regular events in the business. Currency went against us, and gross profit was a significant piece of the decline. The inventory adjustments, I've mentioned; the warranty, I've mentioned; and the healthcare costs.

So I can just tell you that it was -- you put all those together, and you've got a decline for the Company in gross profit of $4.9 million. And I think in the best of all worlds, we wouldn't have declined.

All right. Maybe kind of a big-picture question: one of the things that stuck out from your press release and commentary --.

Let me just add one other thing is that I really think you should look particularly at our comments about the second half, because we expect the second half to be significantly stronger than the first half, especially the fourth quarter. Michael or Colin, do you have anything you want to add at this point?

No, I think you said it. As the comments earlier, expect profits to improve despite increases in unit cost margins, partially offset by continued unfavorable foreign currency movements from an effective, strong euro and slight increase in material cost.

And I appreciate that. And sticking with this, in the guidance in the press release you mention anticipated increasing unit volumes in the second half. You mention the strategic initiatives.

I'm looking at the unit volume bookings that were up about 2% in the first quarter that were down 5% in the second quarter. And I'm wondering, at this point, what gives you confidence in your outlook for increased volumes in the back half of the year?

Well, you know, we have a history of having stronger bookings in the second half of the year. It's very difficult to know when the bookings will occur. Some of it is industry-related, but we had the same pattern, in a way, last year. So I would ask Colin to comment on that.

I think you said it. Our national account business is traditionally stronger in the second half of the year. The third quarter of 2014 is really a result of the bookings we took during the second quarter.

So the variable factor from our perspective is what happens -- is booking sufficiently in the third quarter to fill up the schedules in the fourth quarter. And based upon our intelligence of what's happening in the market, we believe that that will occur.

I think we will also see benefits from new distribution that's coming online, particularly in Europe. We have been restructuring some of our distribution on a scheduled basis, and I think we will see some benefits later this year and, of course, into next year.

That's great. I appreciate that. Can we talk a little bit about replacement demand in North America, in particular? Where you think we currently are in terms of that? And maybe a comment on Europe, as well, if you can?

Colin?

I think we saw a lot of pent-up demand coming out of the Great Recession. We went about two years where levels of demand were very low. We are still seeing some large catch-up buys by certain major camps of people who wanted to preserve cash coming out of the great recession.

You can only run a lift truck fleet for so long, particularly if you rely on those lift trucks for the productivity of your operation. So we are continuing to see some catch-up buys. I think we are probably getting to the tail end of the particularly high magnitude catch-up buys.

But then companies who bought trucks in 2010, coming out of the Great Recession, a lot of those companies will be replacing those trucks again in 2015. The most popular lease term is five years. A lot of our big customers lease trucks under operating lease contracts.

So I think, as we move into 2015 we will see some of the increased demand that we saw coming out of the Great Recession repeat itself, as well as continuing to see some of the catch-up buys.

Let me just add a couple of other bits of color, if I could, because obviously replacement demand isn't the whole story. There's new demand as well.

So in North America, I think we are seeing a marginal amount of strengthening compared to what we anticipated when we put our plans together last fall. In Latin America it's probably -- we are down some compared to what we had anticipated.

And that's particularly true in Brazil. The market is softer than we anticipated and softer than it was in 2013. And as you know, we have a very substantial, leading position in the Brazilian market. And a number of the countries, the developing countries around the world, are weak. And Brazil certainly falls into that category.

The market in Western Europe has strengthened over our expectations when we put our plans together, and as well over the last year. Eastern Europe is probably down a little bit. That shouldn't surprise anybody.

Again, we have a pretty good position in Russia, and it's a not-insubstantial market. We are being very careful about what we ship in there, number one. And number two, the market has clearly declined a little bit. And the Middle East and Africa is pretty much where we anticipated that it was going to be.

And Asia is improving compared to what we had anticipated in our operating plan, but the Pacific area is probably a little bit weaker -- that is, New Zealand and particularly Australia. And we have seen some strengthening in the Asia-Pacific regions, excluding China and Japan. And Japan has been strengthening.

So it's a very mixed bag out there. But generally speaking, if you look at it from a total point of view, just excluding China, we are looking at a situation which around the world in total is a little bit better than we had anticipated in our operating plan, which was pretty much flat with 2013 in total, with the ups and downs that I just described. So perhaps that gives you some additional color on the various markets around the world.

Sure, sure. I appreciate that. That's very helpful.

Just two more questions for me. The first one: as I look at the mix in the backlog, the implied ASP is up nicely year over year, the average selling price there. Is that part of the thing that gives you, I guess, a little more comfort in better margins as you look at the back half of the year? Am I thinking about that correct?

Well, it certainly means that it's a somewhat richer volume. Michael, I would say that the answer to that is yes.

Oh, the answer is yes for our visibility. And I would say that it is for -- that valuation would support the improved mix that we indicated in the earnings release.

And can you parse out exactly what drove this shift in mix, maybe, as the year progressed? I don't know if there's anything to highlight.

You do get variations that you can't control. Sometimes big deals land in one month or one quarter, and then they don't recur. So really you've got to look at the whole year to get the full picture.

Yes; we may have trucks that we sold that are on the water; we can't recognize the revenue -- high-value trucks coming from our European plants to the Americas plants, for example.

Or to Australia, for instance.

Or going to Australia, or going from Americas into Europe. But a lot of it is just timing on shipments.

Don't forget, too, there could be -- and I can't give you the answer to it, to be honest. But there could be also some currency movement in that. But of course, that affects us positively to the extent that Europe is more highly valued in terms of our sales revenues.

That's great. And I guess the last question is a big-picture question. If we are looking at the electrical trucks and maybe some other ones that are lower margin -- they have impacted this quarter in mix -- and we are looking at your initiatives, where you are looking to grow your presence, or rather your share in electrical; and some of these trucks that potentially have lower margin: how do we think about the long-term impact of this business on your ability to drive operating margins toward your goal, 7% and 9%?

Well, I think that on balance the percentage margins can be very similar in total. And so what really happens is that you can't correlate the number of units, per se, with the number of dollars of sales. But in terms of dollars going up to improve our overall volume in dollar terms, we would expect the margins to go up with it.

Leverage on SG&A?

Yes. And it's the same story we have been telling.

The one caution I keep mentioning that I think is very important is that we view this share gain program that we have put in place is a multiyear program. And I think we've never felt that we could predict just when the share gain will occur from that.

And I'll just give you some examples. We have now really completed putting in place the organization structure in the Americas and Europe that we think is essential to accomplishing our long-term objectives. And it adds strength in certain areas that are new initiatives for us in terms of providing assistance to our dealers and helping them be as effective as we think they can be.

On the other hand, it takes people a while to become fully effective. It takes a while for these all to play out. And so I really do emphasize that we will see ups and downs, but that, over time, the course, we feel confident, is going to be the course that will achieve the volumes that can fill up our plants and get the 7% operating profit numbers at the peak of this cycle, which we say is 2017 or 2018 or so.

And that's -- we don't see any change in that in terms of our own thinking and the maturity of the individual programs that we are putting in place. We've got some additional product components that will be coming out -- what, Michael, in the beginning of 2016?

Yes.

And there are some very important initiatives that will be coming out then in the product area. And we've got other things that take time to continue to mature, to crack the code, so on. Michael, do you want to add any others?

No. What you have is just getting all the products out there that we have in the pipeline. We have, of course, improvements that we are making in our products to improve our cost of ownership as one of our key strategic initiatives. We continue to make very good progress in terms of service cost, fuel economy. These are core to ongoing needs of customers, particularly larger customers.

We are in the early days of our industry strategies that are coming out of meeting customer needs. And I say that in two senses: one, that the ones we have done now have to be fully deployed in the marketplace; and the ones that we haven't done, we still have to do.

So it's a very orderly, disciplined process that we see over the next few years. We intend to be very determined and methodical about it in terms of getting those to come to pass. So I just add that as a little color, Mig.

Thank you, guys.

Chris McDougall representing Westlake Securities.

Thank you very much for taking the question. I appreciate the update. So I wanted to understand a little bit of color on you tackling the Tier 4 Final emissions standards. I saw in your release that in third quarter you are planning on releasing a big truck with a Tier 4-compliant package. And I wanted to understand if that was the only one or the first of your product lines that is meeting that spec for next year, or if there are other ones that are meeting that. And then I've got some follow-up along those lines.

Sure. Well, the current trend is that our Big Truck range, from 18 tons up to 52 tons, will be fully Tier 4-compliant in the second half of this year. So that's Tier 4 Final and not Tier 4 Interim, because we already comply with that.

And then our next one is our 8 to 16 range, which will be done by June of 2015. So our 8- to 52-ton range will be fully Tier 4 Final compliant with other -- by the way, with other enhancements in terms of transmissions and, as I said earlier, low cost of operation. But they will all be in place by the middle of next year.

We have on our products staying below that: the higher-volume 1 to 3 ton and the 4 to 7 tons are in various stages. But we are already compliant in those, mostly. We have some updates to do, but essentially they are behind us.

And so the Big Truck Tier 4 is the major outstanding one while we have some updates to do to fine-tune and to bring up to the Final standard on one or two of the products. But essentially, a lot of this work is done.

Okay. And then can you give me a little bit of color on the Big Truck as far as what size engine and maybe the manufacturer so that you are able to meet the standards with?

Well, we are working on the Big Trucks with Cummins. We have a very strong partnership with Cummins; they are a leading developer of emission control technology. And so we have worked hand-in-hand with them, along with their major supplier of transmissions, ZF, to produce what we think are world-class leading powertrains for our Big Trucks.

Okay. And then on the smaller ones, it sounds like all of those currently meet the Interim standards --

Yes.

-- and you just introduced the 2.5-liter for the 4,000- to 7,000-pound class. And that's not -- or is that intended to be kind of the primary engine choice? Or are you still going to have the three engine choices of Class 4 trucks?

There are certain countries in the world that don't require the same emission levels as, let me call it, the more highly developed markets. So we will have a mixture of engines which meet the requirements of those various markets.

Okay. And then is the Tier 4 standard -- from a customer standpoint, is this a very big catalyst for maybe buying before it goes in Final? Or is it somewhat transparent to the customer and not a big input on their decision either before or after?

I would say in general that it's a minimum impact. There are some customers, but if they wish to have big buys, they might determine they want to stay with the pre-Tier 4. But in general, people that order trucks -- there are enhancements all the time. And they just buy as they require.

Okay. Great. Now, that makes sense. And then just lastly, we see some things in the news on fuel cells and such at kind of the trial stage for some of the indoor smaller forklifts. Is that something that you guys are spending any time on? And if so, is it really something that's addressing the size and the types of users that are already using electric trucks? Any color around that would be good.

Sure. What we do all the time is we are always working on various technologies, be they batteries -- for instance lithium-ion; whether it's hybrids; whether it's fuel cell. We have delivered trucks with fuel cells already to customers.

So when a customer in certain applications or for certain ecological reasons wants fuel cells, we can arrange for that. We have done that. We continue to work on new technologies in our research and development center. And so I think we are prepared to respond.

The thing is that some of these technologies are not fully developed yet. But in the meantime we are investing in these. And I think we are ready to respond to customer demand.

We can say in certain markets that there is an interest in more electric trucks, electric power trucks. And in that case there may be increasing demand for alternative sources. The challenge with electric trucks is that they don't have the same ability to respond to heavy loads or heavy-duty loads as an ICE truck, or internal combustion engine truck.

So part of what we are doing is to be able to enhance the performance of electric trucks and to have the onboard capacity to survive for a shift, for instance. So there are some things we're working on. It's an evolving part of the market, but it's not there yet.

Okay, thank you very much for the color.

(Operator Instructions) Joe Mondillo.

First question, just regarding the Americas segment -- obviously, the product mix was unfavorable in the second quarter and also those additional costs that you talked about. Just wondering what you are sort of -- going into the back half of the year, your product mix expectations versus the mix last year. I'm just trying to get a better idea on the operating margin expectations, given that mix does play a big role.

I think we expect to have a comparative mix to the first half, which was negative in the first half compared to the first half of 2013, and substantially so, to be basically neutral in the second half in comparison to the previous year.

Okay, good enough. And then the fourth quarter of last year -- I remember there were some one-time items. If you exclude that, you got to an operating margin in the Americas of over 7%, potentially. Is that still a possibility, that we see some quarters here and there in the near future where we get over 7%?

Well, it's certainly our objective. And if we get enough volume, we should be able to drive some pretty good numbers in that sense. So I think the quarter to look at from that point of view is going to be the fourth quarter.

We have said in our release that we think fourth quarter is going to be the better period than the third quarter for the Company overall, and just in -- we have summer vacations and periods when things are much more slack. And so I don't think you are going to see that kind of performance in the third quarter. But we do expect moderately improved performance in the third quarter and substantially improved in the fourth quarter.

Okay. And then in terms of the European segment, so it seems like in the release and in your commentary today, it seems like you definitely stress that operating profit should be stronger in the Americas versus Europe. In the second half of last year, specifically even in the third quarter, which brought it down so low, Europe saw pretty historically low margins. I was expecting to hear maybe that we would see a better year-over-year comp in terms of the European part of the business. Anything going on there that's going to offset that?

As we suggested in the news release, a big improvement, really a substantial improvement in the Americas. Europe is going to be a moderate improvement.

Okay. So looking at that third quarter of last year, the 1.3% op margin -- that should be comparable in this current quarter?

Well, I think we would hope to see some improved performance in the third quarter. But European vacations are a little bit more brutal in terms of their impact than American vacations. And so Europe will never -- as an area of the world to do business in, it's unlikely to ever have good third quarters for a manufacturing business.

Right, okay. Another thing I wanted to touch on was your strategy of weeding out inefficient distributors and adding on new distributors. So net-net, just wondering on your total distribution, how that's going? And are you adding on new distribution? Just any sort of commentary on that.

Yes, I'd like to -- Colin, why don't you take a crack at that and give him a sense of your feel for how we are doing in strengthening our distribution.

It's a two-pronged attack. We want all of our dealers to improve; so we have what we call an excellence program in all of our major markets. So we are working to improve the quality of dealers. Some of our dealers are acquiring competitive dealers and absorbing them into their businesses, which obviously is good news from our perspective, because they convert that business over to our brand.

Our biggest movement from a distribution change perspective is happening in Europe. A lot of it has to do with the separation we had with the Zeppelin Company last year. We have been very successful putting in place a network of motivated dealers. And we've got -- so far this year we're in double digits in terms of the numbers of additional dealers that we've added in the European theater.

So I think it's an ongoing process, but I think we are making good progress. I think I would also emphasize that we have significant programs to work with our existing dealers to make them more excellent than they are. So it's a two-pronged program with our dealers.

The other thing I should have mentioned is we are converting dealers to be our mainline dealers from competition. So not only are our dealers buying dealers and absorbing them into their footprints; we are also -- some of the add-ins of dealers into our direct distribution network are also coming from a number of different competitors.

All right. And then two last questions -- one, you mentioned the parts business in your press release a few different times. Wondering how that is progressing, and if there is any sort of initiatives to try to expand that part of the business?

And then also, secondly, the Asia-Pac part of the business -- are we ever going to expect that to be anywhere is more profitable than it is today? Or is that a tough environment, and just nature of the beast?

Well, it's just a much smaller business from our point of view. But I would add that there are -- it's a complicated story, because we account in a -- we don't include the Japanese profits --

Right, right.

-- although we do include the profitability of the business in our Asia-Pacific numbers. So I don't see major changes in the near-term in this area. But it's one where we want to continue to sort of incrementally build the business. And I think that's the way that I would answer that question.

Okay. And then the first question I had was the parts business. Any --

You know, you used the words build. I don't think I would really emphasize build as the key in my mind.

What I would say is that the parts business is continuing to strengthen in a moderate sort of way around the world. And we consider that a good sign that this recovery is continuing and that we are making progress and having increased volume.

We are also -- to the extent we get more population out there, we get more volume. But there's a lag on that. So it doesn't happen really quickly. But we are building a position where we think we are going to have more parts business over time as a result of getting more trucks out in the field.

But in terms of a nearer-term profitability impact, I think what I'd emphasize is that the trucks are being utilized more. And as a result, greater demand for parts. Anything anybody wants to add to that?

No. The two key criteria are population and capacity utilization, and both are increasing.

Okay, great. Thanks a lot.

There are no further audio questions at this time.

Okay. Well, we thank you all very much. Christy?

Yes. Thank you for joining us today. We appreciate the interest. And if you do have additional questions, please call me at the number provided earlier, which is 440-229-5168. Have a great day.

Thank you. Ladies and gentlemen, a replay of today's conference will be available for eight days. To listen, you may dial the US toll-free number of 1-888-286-8010 or the international direct number of 1-617-801-6888 and enter passcode 86580509. Again, the passcode is 86580509.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.