藝達思 (IEX) 2005 Q1 法說會逐字稿

Welcome to the IDEX Corporation first-quarter earnings conference call. (OPERATOR INSTRUCTIONS) At this time I would like to remind all parties the conference call is being recorded. If you have any objections, you may disconnect at this time. At this time I would like to turn our conference call over to Ms. Susan Fisher, Director of Investor Relations for IDEX Corporation. Ma'am, you may begin your conference.

Thank you, Dennis. Good afternoon and thank all of you for joining us today for our discussion of the IDEX first-quarter 2005 financial results.

Earlier today the Company issued a press release outlining our financial and operating performance for the three-month period ending March 31st. The press release, along with presentation slides to be used during today's webcast, can be accessed in our Company website at www.idexcorp.com.

With us today from IDEX management are Dennis Williams, Chairman of the Board; Larry Kingsley, President and Chief Executive Officer; and Dom Romeo, Vice President and Chief Financial Officer.

The format for the call today will include management's review of the quarter. We will then open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call by dialing the toll-free number 88 (technical difficulty) 60-4719 and entering the pass code IDEX or simply log onto our homepage for the webcast replay.

Before we begin, let me remind you that this call may contain certain forward-looking statements (technical difficulty) Safe Harbor language in today's press release and in the Company's filings with the Securities and Exchange Commission.

Now, with that, I'd like to turn this call over to Larry Kingsley. Larry?

Thank you, Susan. I'd like to welcome (technical difficulty) the agenda we will follow today is, first, to review our consolidated first-quarter 2005 financial results; we will then review our segment results; following the segments, we'll update you out our progress and operational excellence. I will then conclude with brief comments on the outlook as we move forward in 2005. Following my prepared remarks, Dennis, Dom and I will be happy to take your questions.

I'm very pleased to report that we had a record quarter in terms of orders, sales, and income. We're off to a very strong start to the year. Starting with orders and sales, orders in the quarter were 256.6 million, a 12% increase from the first quarter of '04. Within the quarter, monthly orders were 87 million in January, 89 million in February, and they were 91 million for March. Sales were up 17.5%. Base growth for the quarter was 10%, acquisitions represented 6% and the balance is due to currency.

The US domestic growth rate for all three segments was just terrific. From our standpoint we see a healthy US economy. Internationally, Asia continues to be strong, and we see pockets of improvement in Europe for the segments we serve. Pump products continue to grow very nicely in Asia, and were up slightly in Europe. Dispensing experienced strong growth in Europe following a difficult '04. Other Engineered Products was down internationally, primarily due to relatively weak municipal spending in Europe.

All-in, we're very encouraged with our 10% growth rate for the quarter. In addition, all of our 14 business units experienced base sales growth, and we saw improved operating margins in all three of our segments during the quarter.

Now, turning our attention to gross margin in Q1, the gross margin was 40.4%, up 50 basis points from last year and up 80 basis points sequentially. R&D, which is accounted for in our gross margin line, was 2.3% of sales for the quarter versus 2.1% last year. Gross margin expanded as a direct result of volume leverage, coupled with continued savings from our operational excellence initiatives.

I am particularly pleased with our continued ability to offset material cost of inflation through price increases and surcharges. In addition, our sourcing teams continue to execute their strategy to achieve global sourcing savings. We're carefully watching our direct and our indirect spend to anticipate areas of concern throughout the balance of the year.

Looking at operating margin, operating margin was 16.1%, up 150 basis points versus the first quarter of last year and up 30 basis points sequentially. All three segments improved margins in the first quarter.

Total SG&A was up in dollar terms due to acquisitions, currency and volume, but dropped 100 basis points to 24.3% of sales. We continue to experience significant leverage on our SG&A spend.

We also continue to very closely monitor flow-through on incremental organic sales. Our Q1 incremental flow-through rate was 33%. Just over 40% of our total revenue growth was from acquisition and currency, which provides little or no leverage effect. So if you do the math, 21 million was base growth and 7 million, or 33%, flow-through. Overall we continue to expand margins and to achieve our leverage targets.

Taking a look at net income and EPS, net income of 23.6 million is an all-time high for the Company and reflects a 34% increase from last year. Diluted EPS improved $0.10 to $0.45 per share.

As you can see on the balance sheet highlights, our balance sheet continues to remain strong and our debt to total capitalization is 23%. In the first quarter we generated $10.6 million of free cash flow. Working capital of $132 million represents a $19 million use of cash in the quarter. Inventories were down slightly versus year end despite a significant increase in volume. The improvement, by the way, quarter end to quarter end was about a half a turn.

The majority of the working capital increase is due to accounts receivables, and to a lesser extent prepays. Receivables (technical difficulty) in Q1 primarily due to the increase in sales. Capital spending was basically flat for the first quarter of '04 at just under 6 million.

So in summary for the quarter, on a year-over-year comparative basis -- orders up 12%; sales up 17.5%; net income up 34%; and EPS was up $0.10. We're very pleased with our record performance in Q1 and the momentum in our business as we move forward in (technical difficulty).

Now let's look at the segments, starting with Pump Products, which contributed 58% of total sales and 51% of operating income during the quarter. We continue to experience across-the-board increases in both orders and sales in the Pump Group. Orders were up 17% versus last year and sales increased 21%. 10% of the sales increase reflects base growth, 10% from acquisitions, and the balance is currency.

We're pleased to note this is our fifth consecutive quarter of base growth in pumps, and is now our third quarter in a row that we have generated double-digit base growth in pumps. This growth is coming across all our primary end markets for pumps -- machinery, energy, chemical and life sciences. We also continue to make great progress in terms of innovation in this segment, and I will provide a few examples of this later in my remarks.

In terms of our geographic view, we experienced a 10% base growth in pumps both domestically and internationally. Internationally, Asia continued to be strong and Europe was up slightly as well. The Pump Group operating income was 24.3 million, or 16.6% of sales, and represented 110 basis point improvement over first quarter of last year.

Turning now to Dispensing Equipment, the group represented 20% of our total sales and 25% of our operating income during the quarter. Dispensing orders during the first quarter grew 12%, while sales growth was 23%. Within the sales growth rate for the quarter, 20% came from base growth and the balance from currency.

During the quarter, we completed the replacement of a competitor's paint dispensing equipment at a major retailer. Adjusting for this replacement business, Dispensing Equipment base growth was still 12%. Geographically, both our European and US operations contributed to the increase.

Good operational excellence initiatives and volume (technical difficulty) operating income of $11.6 million within dispensing was up 360 basis points to 22.6% of sales.

Turning now to Engineered Products, this segment comprised 22% of sales and 24% of our operating income during the quarter. Orders were up 1% and sales growth was 6%; 4% was base and 2% came from currency.

International sales within engineered products were down 2%, offset by domestic sales growth of 9%. As I stated earlier, within the mix sales of rescue tools in Europe were sluggish due to continued lower municipal spending, primarily in Germany.

On the domestic side, fire suppression sales were up slightly and we experienced strong domestic demand for our Hurst and CENTAUR rescue tools associated with Homeland Defense spending. In addition (technical difficulty) double-digit growth as we continue to leverage our core competencies in the engineered band clamping systems globally in a variety of new applications. Overall, operating income within Engineered Products of 11.6 million was 20.8% of sales and improved 50 basis points over the first quarter of 2004.

Now turning to our corporate initiatives, we continue to drive operational excellence within the Company to enable us to spend more (technical difficulty) improving earnings. The reinvestment of the Company is driving our organic growth today. During the first quarter (technical difficulty) 19% of our total sales came from new products and applications introduced since January of 2003. We continue to see the positive results of our innovation focus from all three business segments.

In pumps, Viking continues with a constant stream of new products and custom applications for our customers. Recently, through the strength of our sanitary pump product offering, coupled with a complete understanding of our customers' needs, Viking won a significant new multi-year, multi-plan opportunity with a major food processing company.

At Pulsafeeder we released several new products during the quarter, all aimed at the water and water treatment markets. Our new Vision Series of intelligent controllers and sensors will be used in a broad variety of traditional water treatment applications such as cooling towers and boilers, as well as in a wide range of industrial process applications.

At Scivex, our new Confluent S11 mini pump has been well-received in the clinical diagnostic market. The pump is the smallest, most accurate and longest lived pump in its application. It's used in clinical diagnostic testing such as blood sampling for research associated with all forms of infectious disease. This pump opens up valuable bench space in the overall system and replaces standard syringe pumps with a product that is life of instrument. Our work in this area should provide significant growth opportunities as we move forward.

Outside of clinical diagnostic, Scivex continues to develop a range of new implantable medical components. Examples of these would be more effective, better insulated, longer life pacemaker leads and spinal cage components, which can be implanted to provide orthopedic support to patients with spine damage.

In the analytical instrumentation business, Scivex has recently taken several orders for the new nanospray probe which is basically the liquid junction for the front end of a mass spectrometer. This probe is used in pharmaceutical and drug discovery applications, and is yet another example of our continued innovation and diversification at Scivex as we expand our life science offerings.

Overall during the first quarter, 16% of our total Pump Products sales came from new products introduced since January of 2003.

In dispensing, as I mentioned earlier, Fluid Management recently won a competitive displacement project resulting in $3 million in sales during the first quarter for the Accutinter DVX Automated Paint Dispenser. Based on superior performance, the same DVX technology continues to excite additional customers in the paint industry looking for increased accuracy and reliability. We also continue to be enthusiastic about our progress in the paint sample machine, and expect to begin shipping production quantities in the second half of the year. During the first quarter, 39% of our total dispensing sales came from new products introduced since January of 2003.

Within Engineered Products we continue to introduce new technology, new products and enhanced features for fire and rescue applications. We launched several new products at the International Fire and Rescue Show last week. Our new Defender lightweight rescue spreader (ph) at only 44 pounds of weight provides 44,000 pounds of spreading force, the best force-to-weight ratio in the world. Our new Mother of all Cutters 2 supplies 155,000 pounds of cutting force, enough to cut through the new thickest car frame material. Our new compressed air foam system has the innovating feature of being air-bottle based. This new feature creates a true market opportunity for mini and full-size pumper trucks, wild land (ph) applications, along with other truck retrofit opportunities. During the first quarter, the percent of new product sales for Engineered Products was 16%.

We will continue to increase our emphasis on innovative (technical difficulty) corporation and continue to reinvest in R&D.

In terms of operational excellence, we continue to keep score on savings from our Six Sigma and our Lean Process improvement, as well as to manage our material costs through global sourcing. During the first quarter we generated 2.5 million in savings from Six Sigma and Lean and 2.8 million in savings from global sourcing.

As I mentioned in our last quarterly call, we continue to evolve the IDEX toolkit to make our experience with Lean and Six Sigma and tie more closely to our performance management system. This is an ongoing process, and there will always be much more to do, but I'm very pleased with our progress.

As part of this effort we continue to roll out the use of Web-based key process indicator, or KPI dashboards, within the Company. We incubated this concept at our Micropump unit. During the first quarter, additional businesses implemented our real-time measurement system. This (technical difficulty) management teams to drill down to root cause and to more quickly respond to our customer metrics like on-time delivery and shipping accuracy.

During the last three months we also completed our first wave of training in our new mixed model toolsets. This tool takes value stream mapping to the next level to apply continuous flow to our typically low-volume, very, very high mix model. A good example of this is at Class 1 where our employees are already beginning to map future state value stream for their line of custom (technical difficulty) pump modules. Their goal is to create standard work and flow to reduce engineering cycle times and enhance overall business cycle times. So we're very excited about the continuing longer-term prospects for how we can apply the new tools within the broader context of our operational toolkit.

In summary, we are encouraged by our base business sales increase and earnings growth in the first quarter of 2005. Again, during the first quarter organic growth in all 14 business units. At the same time we improved operating income for all three business segments. We continue to evolve our business strategy with an increasing focus on innovation and the evolution of our operational excellence toolkit. We're performance-driven and voice-of-the-customer committed, and we're working very hard to build our business momentum as we move forward in 2005.

So with that, we will be happy to take your questions.

(OPERATOR INSTRUCTIONS) Charlie Brady, Hibernia Southcoast Capital.

Could you just talk a little bit more about on the rescue side and softness in the municipal market in Germany? Has there been any sort of letup on that? Are you seeing any signs of improvement, or is that market, do you think, kind of going to stay soft for a while?

Well, it's continued softness, first of all. In Germany specifically there is a little bit going on between the federal government and the municipal government structure where the municipal governments are picking up more of the pension and social costs as of January 1st of this year. So some of the discretionary spend that they have available for other things is a bit more limited. We expect that to come back. And certainly there's always going to be good demand for the kinds of products that we make in our rescue tools business. As to when that turns up and how fast it turns up, I don't think (technical difficulty) talk about that.

Can you talk a little bit about sort of the experience you are having in the Italian market, I guess particularly on the dispensing side of the business?

Our European dispensing business is doing very well. As you can see, we saw outstanding growth in dispensing in total (technical difficulty) European dispensing business and applies to both our Dutch and Italian (technical difficulty)

Great. Thanks.

Wendy Caplan, Wachovia Securities.

Could you, Larry, give us an update on personal care products? I didn't hear you mention that.

The update is we continue down the same path both for cosmetics, as well as hair color. We continue to work with the small guys and the big guys. And I think as Dennis has mentioned in the past, it comes to kind of a questions set around and how fast does the market create it. We consider it to be a long-term (technical difficulty) and I think as we have also mentioned, particularly with respect to the cosmetic machine, we're already taking the same technology and we're applying it to the sample machine. So as we assume the longer-term for what potentially could be a very big opportunity in personal care, we're reaping the benefits of the technology in the short-term at the same time.

I think historically, Dennis, had use the analogy of the herd and it is running, and when does it run. And I don't really think we're in a position to predict the timing of that. But we continue to see an opportunity for market creation at a point down the road.

Thanks. If I might take the second question, could you give us some indication of the 10% core growth in the quarter overall? What part of that was pricing versus volume?

Sure Wendy. For the quarter, on a year-over-year basis, there was between 1 and 2% that was pricing. So the rest really comes down to unit volume growth.

And one more. Were there any offsets to operating margin in the segments; any kind of negative impact? I'm not complaining; they were great margin. But was there any reason that they should have been a little higher?

We always want them to be higher. It's in our DNA here. Certainly we did see the impacts of material inflation during the quarter and other indirect inflation. We have been successful over the long-term, and will continue to be, in terms of our ability to offset us, as I mentioned, in terms of various pricing mechanisms.

We have reinvested the business, as we talked about. If you look at while gross margin expanded handsomely, we have reinvested in R&D, and it's up 2.3% versus 2.1 last year.

We continue to watch what we think are the material inflation items very closely through the course of the year, and we feel like we're in a good position to continue to see very, very strong incremental flow through on the new opportunities. And we're well positioned to be able to leverage the current cost base, both at the variable level, as well as at the SG&A level.

Thank you.

Michael Schneider, Robert Baird.

Wondering first if you could just, I guess, shed some light on the order patterns. You mentioned earlier that the orders accelerated 87, 89, 91 through the first quarter. But seasonally, wouldn't that be an ordinary pattern? And is there any color you can give us as to what you believe as seasonally adjusted the pattern looks like?

Dom, you correct me if I'm wrong. I don't think the 87, 89, 91 is seasonal, per se.

No, Mike, I think the point there is we did see a slight ramp up in March, so clearly no decline in the month of March. It would compare as a percentage to the first quarter of last year fairly closely. So the point there is March was not a declining order month for us.

And then I guess guys could you give us the organic order rates for each of the segments? Larry, you gave us the sales organic number, but what about the orders on an organic basis?

Why don't we talk about it kind of as follows, Mike? If you look at backlog -- call it base backlog, so it's adjusted for acquisition and currency -- at end of the quarter this year versus the end of the quarter last year, it's up 7%. So our given backlog, as you know, doesn't vary a lot. I think over a long period of time it hasn't varied a lot. So we're still very encouraged by where we see order rates. And as you saw, the three-month strength through the quarter certainly trending up through the quarter.

Right. And then final question on Europe. Dispensing is obviously doing well there, maybe somewhat on an easier comparison. But that's helping the European commentary you made overall. If you focus on pumps in Europe, have you seen any of the weakness that many of the other public companies are commenting on?

Short answer is no, Mike. Our pump business in Europe is quite strong.

Jamie Cook, CSFB.

Nice quarter. My first question has to do with (technical difficulty) across any of the business segments, I guess, are you seeing any notable change in mix which could be -- which would be either adding or subtracting, I guess, to the margins?

I wouldn't say significant in any way. The only mix change is the one that we alluded to was in the fire and rescue business, particularly rescue tools. But nothing of significance that is impacting.

And then my next question has to do with the incremental margins on the pump side of the business, and it seems like -- the pump was a little lower, and it seems like I guess that would be attributed to the acquisitions. And I guess as we move forward, especially in the second quarter and beyond, should we expect more normalized IDEX incremental margins on the pump side of the business, just because I would assume most of the acquisitions you've done should be anniversaried at that point in the second quarter and beyond that, unless there's something that you announce between now and then?

If you start with acquisitions, it will be more of a third-quarter event. As you recall, Systec and Scivex were acquired during the second quarter. If you think about flow through, the numbers Larry quoted are on base organic growth. So when you look at pumps on the base organic growth side, it was still well within our range. To some extent, the engineering investment that Larry alluded to was a little bit higher in the first quarter for pumps as well. But we were very happy with the performance of pumps in the first quarter.

So I assume all the acquisitions, the integrations, everything, is going as planned, on target?

Yes it is.

Walt Liptak, KeyBank.

My question is about the Dispensing Segment. And I think I heard in the commentary that you said that there was a major replacement of a competitor product, and that the base revenue during the quarter was 12% excluding that. Is that correct?

That's correct.

I wonder if you could provide some detail about the geographic region that that took place. Are you done with that replacement of the competitor's product? And what I'm trying to get to is would the base be similar to -- in the second, third quarter more similar to what you saw ex that large replacement order?

That replacement order was the US order. It is entirely booked. There is some remaining shipments for that order. The base growth adjusted at 12% is really representative of what's going on very well both in Europe and the US. You can model that the way you would like to, but we feel good about where we were in order rates through the first quarter excluding that replacement order.

Okay, that's fine. And would you mind talking a little bit about acquisition pipeline? What are you seeing with pricing? And as the COO of IDEX, what kind of maximum size of an acquisition would you be willing to look at?

We still see the valuation environment as being a bit challenging. At the same time, we've got quite a bit going on. Dan Salliotte is doing a fantastic job with our (technical difficulty) efforts from the corporate office. And I think we have just got a great number of both bolt-on, as well as new potential business opportunities that we are under consideration with.

Obviously I wouldn't talk too specifically about what we think might happen. And beyond just saying I think we feel very good about where we are from an overall process management standpoint, at the same time we're going to be very prudent about those that we do ultimately make in the way of deals happen just because we're prudent about return on investment at the same time.

From a size-of-acquisition standpoint, we would like to do larger acquisitions versus smaller ones. But at the same time we're going to do those acquisitions that are strategically enabling for us. So we consider all sizes of acquisitions. There's nothing that prohibits us from thinking a little bit larger than we have most recently. And we've got lots of available firepower, as you know, so we wouldn't discount those larger opportunities.

Okay good. Yes, there's no doubt you've got the firepower. Thank you.

Scott Graham, Bear Stearns.

I have three questions. Are we in a position right now where 1 to 2% pricing is fully offsetting the raw materials hit?

Scott, yes, I think that would be a simple way to do the math, yes.

Secondly, last time I asked you this question, Larry, and I just would ask you that maybe you get used it. On a full year basis you guys still -- it looks like from the first quarter numbers that you are, but that's just one quarter, looking at maybe 20 to $25 million worth of cost saves this year as well?

From the combination of the Lean/Six Sigma savings and the global sourcing savings, we believe that north of $20 million on an annual basis -- that's all incremental, obviously versus last year -- is doable. And if you look at where we finished the first quarter at a little over 5 million, obviously we're running a little above the rate that will get us there, but lots of opportunity still, Scott.

I hear you. Last question is again on the orders number. Understanding of course that they're really 30 to 45 days worth, and we shouldn't be extrapolating too much into it, but obviously with a 12% base orders number last quarter and a 10% core growth rate this quarter, and then a 5% orders number maybe having a little trouble connecting the dots there.

Scott, one way to first think about it is the 5% is indeed 7% if you were to look at backlog, just due primarily to timing of some orders we received in the fourth quarter. And I think the key point on the order rate as well as within pumps, it is still very strong. If you were to look at the chart, it is 17% growth on a 21% total growth rate. So the external growth rate on pumps is strong. And Larry mentioned in Europe with our rescue tool business driving the Hale piece downward.

Very good. Thank you.

Ned Armstrong, FBR.

My question regarded new products. You have mentioned that you had 19% of your sales from new products this quarter. Is there a particular goal that you're striving for or a percentage or a number that you think you can reasonably reach over the next four to six quarters?

Well, it's ever-increasing, obviously. We don't necessarily have a number that we think we would top out at that we would top out at that we would speak to, Ned.

We measure that versus the first of January of 2003 on a look-back basis right now. So we move the chains once a year to the first of the following year. So the bottom line, if you look at it year-over-year on a year-to-date basis, we're always trying to improve the percentage of new products sales. It's a great indicator of what we're doing to innovate the product line. And in our case, what's attached to that metric is what needs to be accretive margins on the new products. So it kind of comes directly back to how we feel about flow-through and the way we're managing flow-through right from the beginning of the new product development process, and that all new products coming are representing great opportunities for us. So I wouldn't say that we're close to where we want to be. Mid-20s or high-20s is certainly something that we ought to be striving for, and we will continue to work our way there.

Okay good. With regard to the acquisition pipeline, have you seen any changes in it? And how would you characterize it in general?

The acquisition pipeline is robust. We've got a number of opportunities that we're working on. And I wouldn't say that I would characterize it as being terribly changed from what we said a quarter ago or even six months ago. As I said, I think we've got a great process, and we need to make sure first from a criteria standpoint they represent strategic growth opportunities for us, and at the same time that they serve the appropriate shorter term return for us. And we will continue to look through the variety of those that we have to bring to closure, but no specific changes that I would speak to at this point.

Good. Thank you very much.

Bill Cram, Reed, Conner & Birdwell.

I just had a question for you, Larry. This is kind of general, but I just wanted to see how the transition into the CEO role has been going for you. And just as you look outwards months, years in your experience specifically at Danaher kind of what you expect to bring to the table long-term here at IDEX.

Sure. As far as the transition into the role, there have been a couple of long days; a couple of weekends' work. It's going well. It's a lot of fun. And Dennis has been a fantastic mentor and been there alongside on many different occasions, including he's here today in the room with us, and he will continue to be. So I don't think the transition could frankly be going a lot better.

IDEX is a great model. And comparatively speaking with my experience I would say it's similar in a lot of ways. What I've been doing historically within Danaher and prior to Danaher is frankly the reason that it made sense for me to come here. And I feel very good about our opportunities to take approach forward using the Lean tools, the Six Sigma tools and many of the innovations tools or ideas that we put forth in our business model. I think we've got a long opportunity to work on this business, to grow it, to continue to improve it and make it one of the best companies out there.

Just one -- kind of this is a more specific, more granular question. In regards to Band-It, I know you guys have mentioned in the past that you have kind of come up with some automotive applications for Band-It. Obviously there's been some well-publicized weakness in that particular area of the industry, so I was kind of wondering what you maybe have been hearing or seeing with that particular end market.

Band-It serves a very broad set of end markets.

No, no, I understand. I was just wondering like in the auto what your feel from that area has been.

Anything significant that Band-It would have with auto we would still be considering incremental. The application base that we have with Band-It ranges from just a broad variety of industrial applications, commercial applications, infrastructure applications. On the auto side there are a number of applications across a number of different car makers. And the relative poor performance, particularly of the big three right now, is not going to adversely impact us because anything we would be doing there would be still considered incremental.

No I understood it was a small piece. I was just kind of curious as to if you had any insight on how that end market was treating you guys. Great. Thanks a lot.

Wendy Caplan, Wachovia Securities.

I forgot to ask one question, which was can you talk about your plans for this year in terms of expansion of facilities in low-cost regions please?

We continued to take more product over to China to our Suzhou operation. We talked about that in our Q4 call. That's going well. And we saw tremendous growth through the first quarter in China. And we're also breaking ground on a new facility in Tianjin up in Northeastern China. We had a large delegation of Chinese officials and folks in here just a couple of days ago. So we're working (technical difficulty) China very aggressively to grow our infrastructure (technical difficulty) do not have any other new immediate Eastern European or otherwise infrastructure projects that we're working on, but we're looking always as to what makes sense.

The model that we talked about before, the umbrella concept that we put together for Suzhou for the Corporation to be able to facilitate the move of some of our operating product lines into China, is the model we like and will continue to use going forward. The team that we're currently continuing to assemble in China is getting stronger all-time. And we see just a logical expansion of what we're going to do as we need the capacity and desire to serve some of the higher growth emerging markets.

Thank you.

(OPERATOR INSTRUCTIONS)

Okay, well, I want to thank -- we actually have one more question?

John Franzreb, Sidoti & Co.

Sorry, I joined the conference call late. But it seems to me that the de-emphasis of the personal care story may be suggesting that that business has kind of lost traction. Could you just comment (technical difficulty) what your goals now are now in this business, and maybe it shouldn't be held up as the model of how you kind of redefine (technical difficulty) and Fluid Management?

Well, John, no, our model for what we're doing to continually redefine markets that we serve is alive and well whether it's in dispensing or otherwise. And within dispensing, we've got a lot of really neat things going on, some of which we can't talk about today. But I would expect between now and Q3 there might be some opportunities to do so.

Within personal care, we're very pleased with the progress we continued to make, particularly on the cosmetics applications. And we continue to see opportunities for the hair color market expansion or redefinition. I just think we're better off talking to what we think are good solid opportunities that we know we will realize short-term. And we don't feel any (technical difficulty) we think hair color might be just a grand slam opportunity for us long-term. I think Dennis has characterized it historically as always being -- it could be huge; it could be nothing. And frankly I don't think we feel any different about it today. And we're still going to work to see if we have a creation opportunity for that market space.

So would it be (technical difficulty) to step back from (technical difficulty) develops as opposed to maintaining this as an imminent story that's going to turn on us?

It's going to develop. I would say -- I would assume that it's not going to be imminent, and we're going to continue to work it.

Thank you very much. Good job in the quarter, guys.

Thank you. We're very pleased with our performance for the quarter. We appreciate your questions. And we will look forward to talking to you again in three months.

Thank you. At this time, that does conclude our conference call. You may disconnect. Thank you.