Insteel Industries Inc (IIIN) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to the Insteel Industries third-quarter earnings release conference call. As a reminder, today's conference is being recorded. For opening remarks and introductions, I would like to turn the conference over to Insteel's President and Chief Executive Officer, H. O. Woltz III. Please go ahead, sir.

Thank you, Anthony. Good morning. Thank you for your interest in Insteel and welcome to our third-quarter 2007 conference call which will be conducted by Mike Gazmarian, our Vice President and CFO and me.

Before we begin, let me remind you that some of the comments that are made in our presentation are considered to be forward-looking statements. Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those projected. These risk factors are described in our periodic reports with the SEC.

As reported in this morning's earnings release, Insteel posted strong financial results for the quarter in spite of headwinds brought about by the continued weakness in the housing sector, PC strand import competition and adverse weather conditions in certain regions of the country. While our topline was unfavorably impacted by these factors, we are pleased with the recovery in margins from the second quarter which served to offset the shipments.

I'm going to turn the presentation over to Mike to comment on our financial results for the quarter and then I will pick it back up to comment on our business outlook, recent developments in the PC strand market and the status of our capital projects.

Thank you, H. As we reported in this morning's press release, Insteel posted solid financial results for its third quarter ended June 30 despite weak demand in certain of our markets. Earnings from continuing operations were $8.3 million or $0.46 per diluted share compared with $9.1 million or $0.50 per diluted share in the prior year. Including the results of our discontinued industrial wire business which we exited last June, net earnings were $8.3 million or $0.45 per diluted share compared with $7.9 million or $0.43 per diluted share a year ago.

Market conditions were again mixed during the quarter. Demand for concrete reinforcing products that are primarily used in nonresidential construction applications including infrastructure related construction, continue to be strong. In contrast, demand from customers with greater exposure to the housing sector remained weak.

These differences are evident in the most recent construction spending data reported by the U.S. Census Bureau. The Census Bureau data reflects construction spending based on the value put in place each month for ongoing projects which is more closely related to the consumption of our products than the new construction starts data which reflects the full value of new projects in the month they start.

For the month of May, the seasonally adjusted annual rate of total construction spending was 0.9% above the revised April estimate but down 2.8% from a year ago due to the weakness in the housing market. Private nonresidential construction for May increased 2.7% from the previous month and 18.9% from last year and public construction was up 2.2% from April and 11.3% from a year ago. Every public construction category posted increases in May as well as for the first five months of the year.

In contrast, private residential construction was down 0.8% from April and 17.6% from last year primarily due to the drop off in single-family housing which fell 26.5% from last year and to a lesser extent multifamily housing which was down 4.3%. Spending for the single-family housing has now fallen for 15 straight months. The five-month year-to-date totals mirror these comparisons with private nonresidential construction up 17.9% from last year, public construction up 11.3% and private residential construction down 18.7%.

Insteel's net sales for the third quarter were down 13.8% from a year ago due to a 19.8% decrease in shipments. The drop off into shipments was due to a combination of factors. First as we indicated on our second-quarter earnings call, we opted not to pursue new business in the post tension segment of the PC strand market during the quarter in view of the recent deterioration in pricing resulting from import competition and the softening in residential construction which represents the largest application for post tensioners. Although this decision had a negative impact on our topline, it favorably affected gross margins.

Second, we continued to experience weak demand from customers that have a higher degree of exposure to the housing market which was compounded by the inventory reduction measures that many of them pursued through the quarter.

Third, unfavorable weather conditions in certain of our markets, particularly in Texas, reduced the level of construction activity and shipments of our products. Finally, we faced difficult prior year comps with our 2006 results representing record high quarterly shipments prior to when we began to be impacted by the downturn in residential construction.

Of the overall 19.8% reduction in our Q3 shipments from a year ago, we would attribute 10% to our decision to pass on new post tension business during the quarter; around 3% to the unfavorable weather conditions; and the remaining 6% to 7% to the housing related weakness and inventory reduction measures by some of our customers.

On a sequential basis, shipments for Q3 were relatively flat compared with the second quarter for the reasons that I just mentioned. Average selling prices rose 7.4% for the quarter from a year ago due to price increases that were implemented in late March and early April together with favorable changes in product mix. On a sequential basis, average selling prices are up 5.8% from Q2 for the same reasons.

Dropping down to our productline level, sales of our welded wire reinforcement products decreased 13.9% from last year while PC strand sales were down 15.2%.

Within our productlines, there were significant differences in the year-over-year shipment comparisons depending upon the extent to which demand was impacted by the weakness in the housing sector. Sales of PC strand to pre-casters and ESM sales increased from last year due to the strength in nonresidential construction together with the ramp up of the new ESM line in our North Carolina plant.

Sales of concrete pipe reinforcement and standard welded wire reinforcement which have both then impacted more by the reduction in residential construction activities and related inventory reduction measures were down from the prior year. Gross profit for the quarter fell to $17.4 million from $18.5 million last year due to the lower shipments and higher unit conversion costs which were partially offset by higher spreads between average selling prices and raw material costs. However, despite the decrease in gross profit dollars resulting from the reduction in shipments, gross margin improved to 22% of net sales from 20.2% last year and 16.5% in Q2 largely due to the widening in spreads.

On a sequential basis, gross profit was up $5 million from Q2 due to the increase in spreads and to a much lesser extent lower unit conversion costs.

SG&A expense continued to fluctuate within a relatively narrow range rising to $4.2 million for the quarter which is up $0.2 million from a year ago but down $0.4 million on a sequential basis from the second quarter to about the same level as Q1's.

Interest expense and income for the quarter are relatively flat compared with the prior year. Our overall effective income tax rate for the quarter including the disc ops component, fell to 36.1% from 36.7% in the prior year primarily due to a reduction in our effective states tax rate. Barring any significant changes in our tax position, permanent differences or tax evaluation allowance, we expect the effective rate to remain in the range of 36% to 37% for the near term.

Moving to the cash flow statement and balance sheet, operating activities of continuing ops provided $16.4 million of cash for the quarter compared with $10.1 million a year ago due to the year-over-year changes in net working capital which provided $5 million of cash in the current year quarter while using $0.8 million last year.

Change in working capital was largely driven by the $12.3 million increase in accounts payable and accrued expenses in the current your quarter resulting from the increase in raw material purchases from the reduced levels at the end of Q2. The increase in payables was partially offset by an $8.4 million increase in inventories.

The strong operating cash flow for the quarter enabled us to fund $5.8 million of CapEx; repay the $4.3 million outstanding on our revolving credit facility as of the previous quarter end; $8.6 million in cash dividend; and end the quarter with a debt free balance sheet and $6.4 million of cash.

Total additions of property, plant and equipment for the quarter including the portion of accounts payable related to PP&E reflected at the bottom of the cash flow statement were $5.1 million compared with $3.6 million last year bringing the nine-month year-to-date total to $14.1 million versus $11.7 million last year. The majority of the current year additions were related to the North Carolina ESM and Tennessee PC strand expansions which started up earlier this year and three projects approaching completion over the next few quarters, the addition of another ESM line at our Texas plant, a new standard welded wire enforcing line at our Delaware facility, and equipment upgrades at our Florida PC strand operation.

We continue to expect CapEx to wind up at around $18 million for the year although the amount is subject to change based on the timing of certain outlays expected around the end of the year primarily related to our Florida PC strand project. Although we had previously indicated that we expected CapEx to fall somewhere in the range of 3 to $5 million in 2008, we are evaluating additional growth opportunities that could cause this amount to increase and we'll be providing updates as you move further along in our decision process.

As I indicated in my comments on operating cash flow, total inventories rose $8.4 million from the prior quarter end which represented around three months of shipments based on our forecasted run rate for Q4. We expect that inventories will gradually decline over the remainder of the year subject to any adjustments that are made in response to future changes in the rod market.

Looking forward, although raw material costs have recently leveled out, our elevated inventory position as of the end of the third quarter should work to our advantage from a comparative cost standpoint as the carrying value is significantly lower than expected replacement costs.

In addition to our favorable inventory position, the outlook for our primary demand driver, nonresidential construction continues to be strong. Yesterday the American Institute of Architects reported that in June the Architectural Billings Index, or ABI, jumped to its highest level of the year rising more than 4 points to 59.3 with any score above 50 indicating an increase in billings from the previous month. The overall index has now grown for 30 consecutive months and 40 out of the previous 43 months dating back to December of 2003. The ABI serves as a leading indicator of nonresidential construction activity based on the typical nine to 12 month lag time between architectural billings and construction spending.

Breaking down the overall index by sector, the commercial industrial index is 55.8; the institutional index was 61.6; and the residential index was positive as well for the seventh consecutive month at 57.8 although a sizable portion of these billings relate to multi-family units which represent a much smaller component of the housing market than single-family housing.

Another positive was the new project inquiries index which was 62.6 in May, implying increased demand for architectural services and ultimately construction projects in future months. On June 28, the AIA also issued its semiannual consensus construction forecast with a survey that includes six of the nation's leading nonresidential construction forecasters. Nonresidential construction spending was projected to increase by 7.2% in 2007 on an inflation-adjusted basis versus the 6% growth that was posted last year driven by an 8.9% forecasted increase in commercial construction; 6.5% increase in industrial construction; and a 5.4% increase in institutional construction.

In 2008, overall growth in nonresidential construction spending was forecast to moderate to 2.9% reflecting a 5.2% increase in industrial construction; 4.5% increase in institutional construction; and a 1.1% increase in commercial construction.

Despite the increasing likelihood that a recovery in the housing market will not occur until sometime next year, we expect that the continuation of favorable spending trends for nonresidential construction combined with the ramp up of our expansion and cost reduction projects should have a significant positive impact on our 2008 results.

I will now turn it back over to H.

Thank you, Mike. I want to make a few comments concerning our outlook for business conditions, recent developments in our PC strand business and the status of our capital investment initiatives and then we will take your questions.

First, I want to address our top-line expectations for the balance of the year. As Mike pointed out, approximately half of our Q3 shipment shortfall compared to last year was related to our decision not to pursue new business in the commercial post tension segment of the PC strand market which is the segment that has been most adversely affected by import competition.

The balance of the shortfall can be attributed to weakness in the residential construction segment together with some inventory liquidation activity that adversely impacted the quarter. However, shipments of products that are pure plays in the nonresidential segment were up more than 10% over our strong prior year quarter.

Looking ahead to our fourth quarter, we expect that shipments will exceed prior year's levels assuming that current trends continue. This would represent the first time since the third quarter of 2006 prior to the impact of the housing downturn that shipments were up year-over-year. I would remind you though that forecasting shipments and revenue is an inherently risky proposition due to our limited backlog of orders.

Next I want to comment on our various activities in the PC strand market. First, imports continue to be a source of concern. While the volume of imports declined 13% through May and their share of the U.S. market declined to 40% from 46% for all of 2006, they have continued to negatively impact the market and the primary origin of offshore material continues to be China which accounted for 87% of total import volume through the first five months of 2007.

We recently received some positive news with the announcement that effective July 1, the Chinese government was reducing the value-added tax rebate for strand exports from 13% to 5% which has the effect of increasing the cost of Chinese producers by approximately $45 per ton. Our recent experience indicates that this additional cost will be passed through to customers for imported strand which favorably impacts our competitive position. We view the change in tax policy as a small first step in the right direction, but given the magnitude of their underselling, additional action will be required to restore reasonable economics to the market segments most affected by the Chinese.

There is speculation in the international trade community that the Chinese government will pursue additional steps to control exports of PC strand similar to steps taken over the past few months with respect to hot rolled long products.

Through a series of reductions, the [VAT] rebate on long products having initially been set at 13% was eliminated over a period of about eight months. Subsequently, an export tax was levied of 10% and it's rumored that this tax will rise to 15% which would represent a cumulative negative swing of 28% for Chinese exporters of long products. If PC strand exports were accorded the same treatment, Chinese costs would rise by $130 to $160 per ton as compared to the first six months of 2007.

Assuming such increases were passed on to customers, the impact on Insteel would be extremely favorable and we'd be well positioned to capitalize in view of the recent and planned expansions to our strand facilities in Tennessee and Florida. There is no assurance though that the government will pursue the same policies for PC strand that it has implemented for hot rolled long products and the Chinese government is unwilling to comment on its plans.

During the second-quarter call, we indicated that we would not be soliciting new orders for PC strand in the commercial post tension market for the third fiscal quarter and plans to import strand for sale into this market during our fourth fiscal quarter. We initiated the program on a pilot basis and we are currently receiving our first deliveries. It is unlikely that we would continue the program, however, if export control measures instituted by the Chinese Government caused prices to rise significantly. We expect to have a clearer view of that make versus buy economics within a few weeks.

As you know, we've undertaken two significant PC strand capital projects. The Tennessee project included an expansion of production capacity and consolidation of existing machinery into one building and is essentially complete. All of the new equipment was brought on line successfully and the last of the relocated machinery is currently undergoing debugging and startup. While current market conditions do not warrant utilization of the additional capacity, we expect the project will increase labor productivity by approximately 10% and eliminate redundant costs associated with transporting material between two facilities.

The Tennessee project is expected to yield labor productivity improvements in the range of 15% to 20% when the plant is operating at capacity. The project at our Florida facility is in its early stages and not expected to begin startup activities until late in the first quarter of 2008 or early in the second quarter depending on the timing of equipment deliveries.

While the Florida plant has a history of outstanding operating efficiency, its equipment has become increasingly outdated over the years. The improvements planned for this facility are expected to yield increases in labor productivity approximating 25%. Taken together, the two strand projects will provide additional production capacity of approximately 30,000 tons per year which based on today's selling prices, would represent $30 million of incremental revenue.

While it is unfortunate that irrationally priced import competition will result in the underutilization of our new facilities for a period of time, these projects are vital to maintaining Insteel's position of cost and market leadership and will ensure that we are well positioned to capitalize on the continued long-term growth of the strand market.

Moving to our capital projects in welded wire reinforcement, the ramp up of our engineered structural measure production line at the North Carolina facility has gone smoothly. We are currently operating the line at approximately 70% of capacity.

Installation of the second new ESM line at our Texas facility which is a clone of the North Carolina line is almost complete and we expect production to begin before the end of our fourth quarter. We've taken steps to leverage off our startup experience at the North Carolina plant and compress the timeline for ramping up the new equipment.

As previously indicated, we expect that each of these ESM lines has the capability of generating $16 million to $20 million of annualized revenues at current average selling prices depending on product mix.

At our Delaware plant, we are in the last stages of commissioning the new standard reinforcing line which should yield significant productivity improvements in operating cost reductions. We expect the new line to contribute to earnings during the fourth quarter.

The last topic I want to comment on is the market for our primary raw material, hot rolled steel wire rod. Last quarter we reported that price increases of about $125 per ton had been announced by domestic wire rod producers. At that time, transaction prices had risen by approximately $70 per ton, and additional increases of $55 per ton were scheduled to be implemented later in our third quarter. The magnitude of these increases was driven primarily by the escalation in steel scrap prices that occurred between January and April.

Subsequently, however, weak quarter levels together with sharp downward moves in steel scrap prices caused our vendors to become less committed to pursuing the previously announced third-quarter price increases.

As we look forward, we expect wire rod prices to remain stable assuming that steel scrap prices are stable. And I would reiterate Mike's earlier comment that we are comfortable with our inventory position.

That concludes our prepared remarks and we will now open it for questions. Anthony, would you explain the procedure for asking questions, please?

(OPERATOR INSTRUCTIONS) Casey Flavin, CJS Securities.

Good morning, Mike and H. Congratulations on a good quarter.

Thanks, good morning.

Can you speak to your ability to initiate further price increases and how that matches up with your current inventory? And how sustainable do you believe that these margin levels are going forward?

Well, I think the necessity and the ability to increase prices is going to be determined by the movements in our raw materials. You can tell by the shipping performance that we had in the third quarter and our expectations for fourth quarter, that we wouldn't characterize the overall market as particularly robust and particularly accommodative of rising prices.

Okay. Can you give us a sense of how utilization shaped up in Q3 and what your expectations are going forward?

Would you repeat that for me, please?

How did your utilization shape up in Q3 and what are your expectations going forward?

The utilization certainly varied by productline but our production pretty much matches our shipments which would indicate that third-quarter production rates and utilization were relatively low although I don't have that actual number at my fingertips. We do expect that the fourth-quarter environment is going to be stronger and that we should operate at higher levels of utilization. But again, I'm unable to give you any exact numbers by productline.

Okay. And lastly, what are your expectations for free cash flow over the balance of the year?

We really don't provide any specific guidance on that. We would expect operating cash flow to again be strong in the fourth quarter.

Okay, great. Thank you, Mike and H. We look forward to seeing you at our conference.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Kevin Liu, B. Riley & Company.

Good morning, guys. Congratulations. I wanted to talk about the inventory just a little bit more. In terms of the build and you guys touched on it a little bit, but just also was curious was that primarily driven by higher expectations from you guys in terms of shipment volumes at the beginning of the quarter? Or did you just continue to see opportunities to acquire raw materials at a favorable cost?

I would say it was a combination of those factors where as we indicated the housing related portion of the business continued to be a little weaker than we had anticipated. But we were also opportunistic in making some commitments that we felt would favorably impact us going forward.

And then in terms -- I know you are comfortable with where the cost of that inventory sits today. But how would you say that compares to the first half of this year? In the first half you guys had mentioned that the costs were favorable there. That is why you had acquired heavily. Were the raw material costs here still kind of in line with that or was it a bit higher?

Well, through the layering of purchases that have been made following those increases that were implemented earlier in the year, there is a slight increase I guess the carrying value would be slightly higher than the costs running through COGs in Q3 but would still be substantially below replacement costs.

And then relative to pricing, we've heard a lot about the situation in China, but have any of your domestic competitors started to price more aggressively on the PC strand side? And then could you just talk about pricing in general from your competitors?

We haven't really seen much movement in the strand market. I think just given the recent development in China, we are waiting to see how that evolves and what the impact will be in the post tension segment as well as any potential spillover implications for our precast business. So where this just went into effect on July 1, we are still waiting to get a clearer view of the outcome from that.

As we look at these similar developments that occurred in the hot rolled long product sector of the market, it really had quite a dramatic impact on the availability and price of Chinese hot rolled products. We would be hopeful that we would see the same in PC strand but it is too early to tell.

Okay. And then just wanted to clarify your comment on Q4. Did you say the volumes were just going to be up from the current levels, or are they also going to be up year-over-year?

Both.

I will get back and queue, thanks a lot.

Okay, thanks, Kevin.

(OPERATOR INSTRUCTIONS) Nat Kellogg, Next Gen.

Just a quick question. I wonder if you can help me. H., you sort of mentioned that the environment is sort of mixed as far as being able to pass through prices but you guys obviously had a nice 7% price increase in Q3. I just wonder if you could help me a little bit with that? It seems like sort of contradictory statements.

Well, keep in mind that as we entered Q3 we were -- we and the entire industry were facing triple digit per ton price increase announcements from our vendors. And I think there was an enormous impetus to get started on recovering those increases and in fact we did recover them in most of our markets. But in an environment where comparable shipments are down nearly 20%, it's probably not too difficult to imagine that our sales guys are scrambling, our competitors' sales people are scrambling and I would not characterize the market as particularly hospitable.

As we look forward, we expect for year-over-year comparable shipments to rise slightly during this current quarter. But again, I wouldn't characterize that as a particularly robust sales environment in view of the fact that our fourth quarter last year was the first quarter that we really experienced a material impact from the housing downturn. So the environment is not particularly friendly right now.

The other factor impacting the increase in our average selling prices or the favorable changes in mix were our decision to opt out of the post tension market during the quarter, actually had a favorable impact on our overall average selling prices. So that was also a factor in driving the increase sequentially and year-over-year.

Absolutely so.

Okay. And then obviously the gross margin you guys mentioned was a little bit from the spread on materials. Was any of that gross margin improvement from getting the new lineup in North Carolina and some of the other lines that you guys have up running now than more operational efficiencies? Or we have yet to sort of really see that flow through?

Some of it could be related to getting the new lineup but the quarter was really a start-up quarter for the new line. And it is difficult to isolate the impact of it in view of the fact that we are both soliciting and accepting new business for new products as well as moving existing business from less efficient equipment to the new equipment and to really dissect that and pull it apart and know exactly what the magnitude of each of those increments is really very difficult. And I couldn't give you a real good answer on it.

Okay, fair enough. And then just sort of last question, obviously you guys did a nice job generating cash this quarter and looks like next quarter if you do the numbers, you will able to continue to generate some cash. Just sort of wondering what you guys have planned for that use of cash? Obviously I think you talked a little bit about maybe doing some more CapEx spending next year?

And also too, I mean you've talked about the environment is a little bit more hostile, just wondering if that makes the environment for acquisitions a little bit more appealing because some of your competitors are a little bit more willing to do deals? Or if you haven't started to see that come around yet?

Well, I think from a priority point of view, clearly the Company's first priority is to grow. And we are working hard at that although as we've described before, it hasn't been a particularly productive enterprise on the acquisition side and we focus mainly on our internal efforts.

But despite the fact that we haven't been successful in finding solid growth opportunities on the acquisition side, we are looking hard and that is the primary objective for the Company. And we want to be patient about it and maintain as much financial flexibility as possible to make it happen when we have the opportunity.

Okay, fair enough. That's all I got. Nice quarter, guys.

Thanks.

[Ryan Levinson], [Provident Management].

Thanks for taking my call. Despite a modest sequential increase and fairly significant year-over-year decline in sales, total inventory increased on an absolute basis and relative to the size of the operation obviously. But factoring in your comment from the prepared remarks regarding the cost basis of this inventory and your higher utilization levels in the fourth quarter, halfway through the fourth quarter, can we divine that margins in the September quarter will in fact be higher than in the June quarter?

A lot will depend on the pricing side of the equation and from a raw material standpoint just given our inventory levels. We have a good read on the costs that will be flowing through. So I think it's really going to be a function of the strength, the demand, competitive dynamics and our ability to raise prices or on the downside the extent to which some of our competitors make it more aggressive in certain segments and have a negative impact on pricing. So that is really the missing piece of the equation. But I would agree like that from a raw material cost standpoint and assuming that our volumes are up as we expect, I mean those factors would definitely be positive.

Okay. I mean almost seven weeks into the quarter --

Not seven weeks, about three weeks, actually.

Excuse me, excuse me sorry. I apologize about that. But your business doesn't walk in the door every day. You kind of have an idea of obviously what you've done the last three weeks. And then what you are probably going to do for the next three weeks. Are we seeing that kind of benign pricing environment or favorable pricing environment?

I would say through three weeks, the volumes are in line with what we had expected and I don't know if we could really comment on any pricing developments.

Okay.

I don't know if we can really extrapolate off of that at this point just for the reasons that we mentioned, just give the minimum level of backlog that --

-- just so you appreciate the backlog comment a little better, it is a fact that we receive orders today to ship within 48 hours and in certain of our markets, there is constant discussion about pricing. So we really don't know transaction prices or order levels too many days out in some of our markets. So we are not trying to be cagey here. It just really is the nature of the business.

Okay. And not to beat a dead horse about the higher inventory levels, but the $59 million balance is substantially higher than where it was a year ago. And I'm just wondering where -- somewhere between that 40 -- what was it $41 million and $59 million -- is the level that you are going to end up at? Where do you think twelve months from now you will be in terms of an absolute inventory dollar level?

Well, we really view that more as being driven by our expectations for the raw material markets. We're not hesitant to run the inventories up if conditions require it. So I guess what I'm saying is it is driven by more than just the level of our business and our order intake. It has a lot to do with our view of which way our raw material markets are going.

Just to kind of bracket it for you, as we mentioned, the current inventory levels represent roughly three months worth of I guess expected volume which would be on the high end for us. Where in a stable environment, typically our inventories would be down closer to -- I would say 45 to 60 days under most circumstances, just to kind of give you an idea of the downside if we were looking at a more stable environment.

Is the inventory level currently a bet on the raw material side of the equation or is it a bet on the future demand side? Demand for your product?

It is really driven more by the raw material side and the nature of this is that we make well material commitments particularly if they are offshore 60 days out probably in a normal environment. And in cases where we have an unexpected increase or decrease in shipments of our products that effects our rate of conception of raw materials, it takes time to balance the inventories out.

We were surprised somewhat by the declined in shipments for the third quarter which makes the raw material purchases that we made in the second quarter stretch further. And particularly where we took the commercial position that we did in PC strand, we wound up with inventories that were higher than planned on the raw material side for PC strand but we're terribly glad that we did so in view of the way that the market developed. So it is a constant case of fine-tuning expectations.

Last one is companywide, how much of your business is that transactional 48 hours turnaround business?

48 hours is probably only 20%. But shipment within a week of receipt of the order would be maybe half of our business and customers basically buy what they need. We don't have customers who are locked into fixed quantities regardless of their consumption of the product. So it really can change quickly.

Here is really the last one, actually. The destocking that you've referenced I think for the past two quarters on the -- I forget which side of the business it was on --

For the housing related customers?

Exactly. Do you think that that has flattened out as the channel now kind of at a more normalized level?

Do you mean have we've seen the trough?

No, I don't mean -- I'm not asking you to make a call on the housing market. I'm wondering if the destocking efforts by your customers, if you feel like -- I think that that's been mentioned in the last two press releases, maybe even three. Do you feel that that is a trend that is at least flattening out? I think that really refers more to your distribution channel?

Yes, I understand the question. I think that there is more destocking that is going to take place. And particularly in the area of Texas, we have customers who have been unable to ship for an extended period of time not only because of weakness cyclically, but also because of these weather problems. And that is a significant event. But my sense is that there is more inventory liquidation that is going to occur.

Okay. All right, thank you very much.

And with no further questions left in the queue, I'd like to turn the conference back over to Mr. Woltz for any additional or closing remarks.

We appreciate your interest in the Company. We thank you for your time today and don't hesitate to follow up with Mike or me if we can be of help. Thank you.

This does conclude today's conference. We thank everyone for their participation. You may disconnect your lines at any time.