Kadant Inc (KAI) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2013 Kadant Incorporated earnings conference call. My name is Catherine and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Thomas O'Brien, Chief Financial Officer. Please proceed, sir.

Well thank you, Catherine. And good morning, everyone, and to welcome to Kadant's first-quarter 2013 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer.

Let me begin by encouraging all participants in our business review today to participate via our webcast. You may access the live webcast by going to www.Kadant.com, select the Investors tab, and then select the Listen Live option for the webcast. To participate in the question-and-answer session at the end of our prepared remarks, you will need to dial into the teleconference. The dial-in number is available in our press release issued yesterday and will also be shown at the end of our presentation.

Let me now remind everyone of our Safe Harbor statement. Various remarks that we may make today about Kadant's future expectations, plans, and prospects are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 29, 2012. Our Form 10-K is on file with the SEC and is also available in the Investors section of our website at www.Kadant.com under the heading SEC Filings.

In addition, any forward-looking statements we make during this webcast represent our views only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change; and you should not rely on these forward-looking statements as representing our views on any date after today.

During this webcast we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our first-quarter earnings press release issued yesterday, which is available in the Investors section of our website at www.Kadant.com under the heading Investor News.

With that I will turn the call over to Jon Painter, who will give you an update on Kadant's business and future prospects. Following Jon's remarks, I will give an overview of our financial results for the quarter, and we will then have a Q&A session. Jon?

Thanks, Tom. Hello, everyone. It's my pleasure to brief you on our first-quarter results.

Overall we had a much stronger quarter than we expected, particularly in the areas of bookings, gross margins, and earnings per share. I will begin today's business review with the financial highlights of the quarter.

We finished the quarter with revenues of $76 million, which exceeded our guidance of $71 million to $73 million, although revenues were down 9% compared to the first quarter of 2012. Gross margins in the first quarter were stronger than we expected at 47.3% and just shy of the record 47.6% in the first quarter of 2011.

We generated GAAP diluted earnings per share of $0.47 in the first quarter, which exceeded our guidance of $0.32 to $0.34. This strong performance relative to guidance was driven by a number of factors, including higher than expected gross margins, particularly for capital, and higher than expected revenues due to several projects that were completed and accepted by the customer earlier than planned. In addition, we had expected higher R&D spending in Q1 for a new product we are working on, but that spending has slipped from Q1 into Q2.

Cash flows in the quarter were $7 million, allowing us to end the quarter with a net cash position of nearly $52 million. In addition to declaring our first quarterly dividend, we also purchased 50,000 shares of our stock for $1.3 million during the first quarter.

Perhaps the most encouraging highlight of the quarter was our bookings, which increased for the second quarter in a row to $90 million and increased our backlog to $93 million. Before I go through our quarterly performance in detail, I want to tell you about two small but exciting acquisitions that we have been working on.

The first one we announced a few weeks ago, the acquisition of CBTI, our long-time licensee in Brazil, for approximately $8 million. This is a business and management team that has impressed us for many years, and I am very pleased that we are finally able to bring them into the Kadant group.

CBTI is a manufacturer and supplier of our stock-prep and doctoring, cleaning, and filtration product lines. The company also designs and manufactures air drying system used in the pulp and paper and other industries.

Over the past five years, the company has averaged annual revenues of approximately $17 million. Excluding acquisition-related costs, we expect our post-acquisition EBITDA run rate for this business to be around 14% of revenues.

I am excited about this acquisition for two principal reasons. First, it advances our strategy to increase our presence in emerging markets.

Paper and board production in South America is expected to grow 4% compounded annually over the next five years as living standards in the region improve and per-capita consumption increases. Adding CBTI to our group significantly enhances our position in this important emerging region.

Second, we have a number of potential operating and market synergies with CBTI. CBTI has a very strong reputation in South America, and we hope to leverage that to grow our fabric cleaning, chemical pulping, and screen basket lines. In addition, we expect to have some operating synergies with CBTI and our fluid-handling business in Brazil.

In addition to the acquisition of CBTI, we also signed an asset purchase agreement to acquire certain assets of the Noss Group, a Sweden-based company recognized worldwide for its high-efficiency cleaners and approach flow systems for the pulp and paper industry. Over the past five years, the Noss Group has averaged annual revenues of approximately $14 million, and we expect it to generate EBITDA margins of approximately 12% of revenues in 2014 after the restructuring of the operations.

One of the most appealing aspects of this acquisition is the company's large installed base and strong aftermarket business of high-margin parts and consumables. As you may recall, growing our aftermarket business, particularly for our stock-prep product line, is one of our key growth strategies.

The Noss product line will also expand our product offering for approach flow systems, which is the stock-prep equipment used immediately before the paper machine. In addition, the Noss product line will give us a much stronger position in the virgin pulp market, where Noss has been a leader both in technology and product performance. The increase in per-capita paper usage in the developing world has strained the global fiber supply, and new virgin pulp capacity will need to be added to meet world demand.

In addition, the addition of the Noss product line will expand our offering to this customer base. Finally, we also anticipate synergies both on the manufacturing and selling areas as we integrate this business. We expect to close this acquisition in early May.

Overall, these two acquisitions advance our growth strategy of increasing our position in the faster-growing developing markets, growing our parts and consumables business, and expanding into adjacent market such as virgin pulp and approach flow.

Now turning to our performance, if you look at our revenue performance in the first quarter, you will see a decline in our capital's business, particularly our stock-prep line; and that was the primary factor contributing to a 9% decline in revenues in Q1 compared to the same period last year. The declined in our stock-prep capital business was found across all geographic regions and was indicative of the lower booking rates we experienced last year. Stock-prep capital orders tend to be larger and the timing can be lumpy, which contributes to some revenue volatility in this product line.

Our doctor, cleaning, and filtration and our fluid-handling product lines, however, saw an increasing Q1 revenues of 3% and 5%, respectively, compared to the same period last year. The increase in our doctoring, cleaning, and filtration product line was driven primarily by our European operations, while the increase in our fluid-handling product line was led by our North American operations.

Our bookings in Q1 saw just the opposite effect as our revenues in that our stock-prep product line drove a 16% overall increase in Q1 bookings compared to the same period last year. We generated more than $90 million of bookings in Q1, with strong performance in our stock-prep business where bookings were up by double-digit percentages in North America and China. Even more encouraging, our European stock-prep operations were up more than double compared to the same period last year, as a result of winning several large capital projects earlier this year.

On the other hand, bookings in our fluid-handling and our doctor, cleaning, and filtration product line were down 13% and 5%, respectively, due to reduced demand in Europe and the US. That said, after the quarter closed, we were awarded several fluid-handling capital projects for dryer systems rebuilds in Europe for a combined value of $3 million, including orders from Germany and Turkey.

Slide 10 illustrates our bookings and revenue trends, and we can see clear upward momentum in our quarterly bookings, which is shown in the blue bars. Our quarterly revenues, however, have continued to reflect the lower booking rates we experienced during 2012.

Bookings were up sharply in Q1. And as I noted earlier, this is driven by our stock-prep capital business.

Although we expect Q1 will be our strongest booking quarter of 2013, the rest of the year does look quite solid. In fact, there are several larger projects in the pipeline; and if they turn into orders, we could in fact have a higher bookings quarter later in the year. The strong bookings in Q1 represent the second sequential quarterly increase, and I would say this is one of the key takeaways of our performance this quarter.

Another key take away for the quarter is our parts and consumables bookings and revenue, which are the highest since 2008. Our Q1 parts and consumables bookings were $55 million, up 10% compared to Q1 of 2012 and up 17% sequentially. This growth in bookings is driven by our stock-prep product line, which was up more than 20%, and our doctoring, cleaning, and filtration product line, which was up 9% over the same period last year.

Our revenues for parts and consumables were $51 million in the first quarter, up 4% over Q1 in last year, and made up 67% of our revenue. This is a result in large part of our focus on aftermarket parts and consumables as well as the introduction of new products.

Our new FibreWall screen basket, for example, contributed to the growth of our parts and consumables business, as has our emphasis on growing our parts business in China. In addition, we do expect continued momentum going forward due in part to the pending acquisition of Noss, which is heavily weighted towards parts and consumables.

I would like to take the next few minutes to provide a brief review of our business activities in each of the major geographic regions of the world. Let me start with North America.

The paper industry in North America has remained relatively stable, and this region continues to be one of the stronger regions in the world for us. Our revenues in North America were up 4% sequentially to $39 million in Q1, but down 2% compared to the first quarter of 2012.

The year-over-year decline in revenues is due in large part to our stock-prep product line, which had a strong Q1 in 2012. Revenues in our fluid-handling product line, however, were up 11% in Q1 compared to the same period last year, as a result of increased orders from producers in the steel and food industries.

Bookings in North America were quite strong at $44 million, up 3% compared to the same period last year and up 19% sequentially. The year-over-year increase was led by our stock-prep product line, where we booked several orders for recycled fiber processing systems totaling more than $4 million, including one to convert a newsprint machine to linerboard.

You may recall that we announced a similar order for equipment to be used in a newsprint conversion in France in our last earnings call. In addition, we booked an order for a steam and condensate system rebuild project in Canada valued at more than $1 million and an order for our new multi-jet high-efficiency cleaning system, also from a Canadian mill.

Bookings for parts and consumables in our North American operations were up 5% compared to last year and up 16% sequentially. The first quarter is historically a strong quarter for bookings, particularly in North America -- for parts bookings, I should day.

Turning to Europe, the strained market conditions in Europe have continued to impact the paper industry, as announced closures of newsprint capacity will exceed 1 million tonnes in 2013, and prices of most paper grades remain soft. That said, our business in Europe is showing some definite signs of improvement.

Our Q1 revenues in Europe reflect the depressed booking levels we had in 2012 and fell 8% compared to last year to $18 million, due primarily to weaker sales in our stock-prep product line. Bookings, however, rose sharply both compared to the prior year and sequentially. We generated $27 million of bookings in Europe, up 39% over the same period last year and our second sequential increase.

The increase in bookings is largely due to the receipt of two stock-prep recycling system orders with a combined value of more than $9 million for customers in France and Russia that I noted in our February earnings call. As I mentioned earlier, after the quarter closed we also booked orders for our fluid-handling equipment with a combined $3 million from paper producers in Germany and Turkey. Parts and consumables bookings at our operation in Europe were up 16% compared to Q1 of last year and 25% sequentially.

Now let's take a look at China. The economy in China continued its relatively strong growth rate in Q1, with a 7.7% increase compared to the prior year. The timing for additions of new capacity still remains uncertain and is highly dependent on the market's ability to absorb existing capacity, particularly in containerboard.

Turning to our revenues, our Q1 revenues in China decreased 6% compared to the previous year. The decline in revenues was due primarily to lower revenues for capital systems from our stock-prep product line, as our fluid-handling and doctoring, cleaning, and filtration product lines saw revenues increase in Q1 compared to last year.

Our bookings in China increased in Q1 to $12 million, up more than 70% compared to a fairly weak Q1 of last year. As announced during our last call we booked several OCC recycle system orders in Q1 with a combined value of approximately $2.5 million.

We also booked an order for an innovative consumer waste handling system valued at more than $3 million. In this application the customer will use our equipment to recover plastics, metals, and other reusable materials from municipal solid waste. If the initial prototype installation is successful, our customer plans to build up to 20 waste management plants over the next five to 10 years.

In addition to these orders, our fluid-handling business secured orders for four steam and condensate systems with combined bookings of more than $1 million in projects that included our multi-jet cleaning system. And finally, our parts and consumables bookings in China have continued on an upward trend in Q1, up 24% compared to Q1 of last year and up 7% sequentially.

As we look at our bookings and revenues in the rest of the world, you can see on slide 16 that both were down in Q1 compared to the same period last year and sequentially. The relatively low sales volumes in these regions means that the timing of capital orders had a large impact on bookings and revenues from quarter to quarter. Despite the negative booking trends in the last few quarters we do see a lot of project activity in developing regions such as South America, Southeast Asia, and Middle East.

Let me close remarks with a few comments on our guidance for Q2 and for the full year of 2013. During the second quarter, we estimate that we will realize a gain of approximately $0.10 per share from the anticipated sale of a building in China. In addition, we expect a modest amount of accretion from the operating results of CBTI for the second quarter and the remainder of the year. Including these items we expect to generate $0.53 to $0.55 of GAAP diluted earnings per share on revenues of $79 million to $82 million in the second quarter of 2013.

For the full year, we are raising our guidance and we now expect to achieve GAAP diluted earnings per share of $2.00 to $2.10 on revenues of $336 million to $343 million, up from our previous guidance of $1.80 to $1.90 on revenues of $320 million to $330 million. This guidance does not include any potential restructuring costs from the CBTI acquisition or the results of the pending Noss acquisitions.

I will now pass the call over to Tom for additional details on our financial performance in Q1. Tom?

Thank you, Jon. I'll start with a review of our gross margin performance. Consolidated product gross margins were 47.3% in the first quarter of 2013, the second highest level we have ever achieved, and increased 170 basis points compared to an excellent result in the first quarter of 2012.

Looking at our major product lines, the most notable performance was in stock-prep, where margins were up significantly, particularly in North America. North America stock-prep margins increased to due to better margins on a number of smaller capital projects as well as to higher margins on parts and consumables.

On a consolidated basis, the gross margin improvement from last year was primarily due to a favorable product mix, with higher-margin parts and consumable revenues representing 67% of total revenues, a relatively high proportion and up considerably from 58% in the first quarter of 2012. In addition, parts and consumable margins were approximately 100 basis points higher than last year's first quarter.

Looking ahead, and including the results of CBTI, we still expect that full-year 2013 consolidated product gross margins will be approximately equal to or perhaps even slightly higher than the annual record of 43.29% achieved in 2012. Note that there is likely to be some variability in the gross margin results by quarter due in part to product mix as well as to the timing and profitability of larger system orders.

Now let's turn to slide 20 and our SG&A expenses. SG&A expenses were $27 million in the first quarter of 2013, up $800,000 or 3% from last year's first quarter. Almost half of this increase is attributable to due diligence and legal costs associated with the CBTI and Noss acquisition efforts.

Due to the lower revenues in the 2013 period along with the 3% increase in SG&A expenses, SG&A as a percentage of revenues increased to 35.4% in the first quarter of 2013, compared to 31.1% in the first quarter of 2012. Looking forward, and including the results of CBTI, we continue to expect that for the full year SG&A spending as a percentage of revenues will be approximately 32% to 33%, compared to last year's 31%.

Now let me turn to our EPS results for the quarter on slide 21. We reported GAAP diluted earnings per share from continuing operations of $0.47 in the first quarter of 2013 compared to $0.61 in the first quarter of 2012. This decrease of $0.14 in diluted EPS consists of the following -- decreases of $0.21 from lower revenues in the first quarter of 2013, compared to the first quarter of 2012; $0.04 due to higher operating expenses; and $0.03 due to acquisition due diligence and legal expenses.

These decreases were partially offset by increases of $0.07 resulting from a higher gross margin percentages; $0.03 from facility consolidation expenses in the 2012 quarter; $0.02 from a lower effective tax rate; and $0.02 from lower weighted average shares outstanding.

Turn to our cash flows, working capital, and debt leverage starting on slide 22. Operating cash flows from continuing operations were $7 million in the first quarter of 2013, compared to negative cash flows of $4 million in the first quarter of 2012, an increase of $11 million. The first quarter is often a weak quarter for cash flows, and we were very encouraged with this excellent start to the year.

We had only two notable non-operating uses of cash during the first quarter of 2013. We purchased 50,000 shares of our common stock for $1.3 million, and we expended $1.2 million for CapEx. Also, during the first quarter of 2013 we declared our first quarterly dividend of $0.125 per share, totaling approximately $1.4 million, which will be reflected in our cash flows in the second quarter when it is paid.

Let us now look at our key working capital metrics on slide 23. As you can see, the changes here were not significant, other than perhaps a sequential increase of 8 days in our days in inventory measure. That said, days in inventory decreased by 6 days when compared to the first quarter of 2012.

Looking at our overall working capital management, our cash conversion days -- calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable -- were 116 at the end of the first quarter of 2013, up slightly on a sequential basis and essentially unchanged from last year. Also, working capital as a percentage of the last 12 months' revenues was 14.8% in the first quarter of 2013, up slightly from last year's 13.7%.

Our net cash position improved by over $4 million during the quarter and is at its highest level since the first quarter of 2005. Net cash -- that is, cash less debt -- at the end of the first quarter of 2013 was $51.8 million, compared to $47.7 million in the fourth quarter of 2012 and $30.9 million in the first quarter of 2012.

On slide 26 you can see that our leverage ratio has declined substantially since the end of 2009 and now stands at 0.12 at the end of the first quarter of 2013. Under our new credit facility, this ratio must be less than 3.5.

That concludes my review of the financials, and I will now turn the call back to the operator for our Q&A session. Catherine?

(Operator Instructions) Walt Liptak, Global Hunter Securities.

Hi, thanks. Good morning, guys, and nice quarter.

Hey, Walt. Welcome back.

Yes, thank you. I'm back on line. I wanted to ask about the mix of business in the parts and consumables this quarter, and the kind of visibility they might have going into next quarter. Maybe just the first question would be just -- you said you had bookings of $55 million but sales of $51 million. Is this book and ship, so there is not much of a backlog that built up for parts?

Generally, the parts go in and out pretty quick. The stock-prep parts, particularly things like screen baskets, can take a month or two to go out. So it is a lot to do with the mix within parts as well as the when. Does it come in, in March versus January?

Okay. So I guess what is the visibility looking like for -- it sounds like you are expecting less of a mix of parts in the second quarter.

Yes, as you know, you follow us. That 67% is definitely on one of our higher parts or consumables pieces; and there is two parts of it, obviously -- the parts and consumables and the capital. It is often the capital that -- when we'll have a big revenue quarter, that is what will bring it down. The parts is relatively stable, but the capital moves way up.

I will say, as you know from the past, Q1 does tend to be a stronger quarter for us for parts and consumables. That saying, I was -- I am very pleased about the efforts that are going on, on our parts business, in terms of really growing market share. We see this in China, we see that in screen baskets. You noticed in the call I went through the improvement in parts; it is really in every geographic region.

So I do think we are making some solid, sustainable work. But that said, Q1 does tend to be a little stronger.

Okay, got it. Is it -- your guidance I guess could have gone up more if you thought -- if you had confidence that the parts were going to come in, in the second quarter or the back half. Is it that it's because you don't have much lead time on it, it's hard to forecast?

We forecast the parts almost on a flow business. We don't have backlog or we don't see these parts coming in a long chain. I would say a lot of what goes into the forecast is really our projections for the timing of capital and the margins on those capital.

So I said in the call we have some projects that are pretty big out there. We are not factoring those into our guidance. I don't think -- I am not sure that the timing would be such that we would get much revenue from them in this year if we got them.

But I would say it is more related to the capital than the parts in terms of our guidance for the year.

Okay.

You want to add anything to that, Tom?

I am just wondering, Walt, if you are looking -- if you're thinking about margins as something going forward, I think the mix will still be good, I think, in the second quarter, which will be good for margins in the second quarter. I don't think it will be quite as high as the first; but I think it should be pretty strong in the second.

Okay. Okay, then if we could switch over to China. It sounds like your bookings have picked up a little bit here, but you are still expecting more as the year goes on. I wonder if you could provide a little bit more color on the visibility or the quote work that you are doing or capacity levels, I guess, if you have got that.

The industry doesn't have great information on operating rates and capacity levels. It does seem -- I guess you have got -- it is kind of a mixed message a little bit. The stuff you read about still talks about an overhang; you have capacity that needs to be absorbed and is being absorbed.

At the same time, we do have active discussions for projects of both in our fluid-handling product line, our stock-prep product line, and really all our product lines. So things are moving forward at what I would say levels that we're seeing right now.

Okay. Okay, I will get back in queue. I have got a couple more, but I will let somebody else go. Thanks.

Larry Stavitski, Sidoti.

Hey, good morning, guys. Thanks for taking my question. You guys covered a lot of the material with your previous caller. But I guess just turning to the bookings, I guess what gives you confidence that you guys can mirror what you did in the first quarter?

I know you mentioned a lot of the orders are lumpy, and I guess there's some visibility. So what gives you guys confidence that you guys can achieve what you did in the first quarter?

Well, I mean you may remember when we did the last call, we said that we expected our second quarter to be the strongest quarter of the year.

Right.

That's what we said in February. In fact, if you read into my remarks, things like R&D expenses are going to be more in the second quarter than the first, I would say some of the income that we expected to make in the second quarter we're in fact generating the first quarter. So I'd basically say that the second quarter is still a very strong quarter, but it is not as strong as we thought probably it was going to be in February. Some of it shifted to Q1.

But with -- if we are up there at $79 million to $82 million, with the mix we have of spares and capital, we should get $0.53 to $0.55 of EPS out of that.

Okay, got you.

That is about what we do.

Okay. You purchased -- you said your share repurchases equaled about $1.3 million this quarter. Do you guys have any outlook on the rest of the year, or maybe the next quarter?

We don't. We don't have a program we buy a certain amount every quarter. We don't have a program where we look -- it is not formulaic in any way.

I think we try to be opportunistic. We try to look for blocs.

We look at the value of the stock, just like we look at when we do an acquisition. Is it a good value for our shareholders?

So it is really -- it is not very easy to predict it. The only thing I would say is we are committed to the concept of returning cash to shareholders, both through the dividend and through stock buybacks.

Okay, got you. I guess switching gears to the acquisitions that you just alluded to, do you guys have a benchmark ROIC for these acquisitions? Or how do you, I guess, view the return on that?

Tom, do you want to comment on that?

As a general rule, Larry, what we try to say is that three to five years out we like to see a 20% return on invested capital, that is a pretax measure for us, from the acquisition.

Okay.

We did try to give you some indication of what it would look like next year by giving some of the EBITDA forecast that Jon mentioned in his remarks. So both of those you will see have good EBITDA prospects, once we do some restructuring and some reorienting of some of the business that we expect in 2014.

Okay. Thanks a lot, guys.

Walt Liptak, Global Hunter Securities.

Okay, great. I wanted to ask about just a fast one on accretion from the two deals. You mentioned you thought in the second quarter and in 2013 you would get some accretion. I wonder if you can give us a number?

Well, we didn't. Just to be clear, our guidance for this year, since Noss isn't closed, there is no -- we didn't include Noss at all in our guidance.

Okay, but the accretion from the CBTI that --?

And CBTI, I think we just said it is modest, it is under $0.05 kind of thing. To be honest with you, this is a nicely profitable business over the years. They are not really, I would say, used to making forecasts by quarter and that kind of stuff, so we are taking it somewhat cautiously; and we have got some acquisition expenses to work through, that sort of thing. But it is not a huge impact is really the answer for 2013.

Okay. Well, congratulations on these two acquisitions. I know they're difficult to do. You talked about -- just so I understand the air-drying system, is that an add-on to an existing product line that you've got? Or is that a new system? And what kind of growth --

It is a totally new system. So this is not -- they license our products for the stock-prep and doctoring, cleaning, and conditioning. And this is a product that they have on their own.

Okay. So what kind of a market opportunity do you think you have here?

They tend to be -- I would say it is fairly volatile. One of the reasons we gave five-year average revenues is because these systems can be fairly large and it is fairly lumpy. So when they get them it is not -- sometimes they will get $5 million, $10 million orders, but you could go a fair bit of time without having that.

Okay. Okay, then switching over to Europe, interesting that you had the strong ordering during the quarter, given what is going on there. Is that because of pent-up demand, do you think? Or these are just projects that were in the pipeline and eventually they go, despite the economies out there?

I think, yes, there is an element of both of that, Walt. So there is some -- it was -- our performance in Q1 was largely impacted by those two big orders, $9 million. So that's -- I would not say we are going to get that every quarter.

That said, we actually had one of our managers in last week, and I was kind of contrasting to him, the same thing you were doing. I am saying -- geez, you read in the paper, it seems a lot glummer than you seem; you seem much more optimistic about your prospects.

And he says -- you know, I think our customers are just getting austerity fatigue, and they are deciding to get along with the projects that they need to do. So I was actually fairly encouraged after having talked to him.

Okay. That's good. What did the or what does the profitability of the margins look like on that France and Russia order? Are those very competitive to win?

Yes. It goes with the -- there is two things. They are not as profitable as our overall gross margins, really for two reasons. One, they are large stock-prep systems, which are not as high margin as our other businesses. And these businesses often have a large percentage of buyouts, where we will do installation and that kind of stuff, and that is almost like a pass-through for us; so that impacts the margins as well.

Okay. Okay. Well, thanks again, guys, and good luck next quarter.

Thanks, Walt. I would also add, one of the -- another encouraging thing about Europe is the pickup in the spares business. So the capital kind of comes and goes; but the nice, solid increase in their spare parts and consumables bookings in Europe was to me quite encouraging.

Great.

Bill Hyler, Ridgecrest.

Yes, good morning. Thank you. I have a couple questions. One, I know you break down your approximate exposure to the various paper markets, but it sounds like the growth in containerboard and packaging US and globally is more than offsetting the decline in newsprint and paper for you guys, and helping the longer-term outlook.

But do you tend to sell more equipment into these type of facilities generally, the containerboard and packaging compared to the newsprint and paper?

Absolutely. If you look at our -- if you look on the Investors section of our website, there is a presentation that we often give when we go see investors. It shows that newsprint and printing and writing last year were about 15% of our revenue. The containerboard is by far the largest; and boxboard, which is similar, that can be nearly half our revenue. And tissue, which is a nice, solid steadily growing business, is around 15%, 14%.

I see. So if we had two plants of the same tonnage, paper or newsprint, or paper and a containerboard, you would sell more equipment into the packaging and more parts and consumables? It is just more intense, more intensity?

And we have larger market shares. Our biggest product line, which is stock-prep, they have the largest market share in containerboard.

Okay, great.

That is where they are strongest. They are actually relatively weak in newsprint.

Okay, and just one quick follow-up. I missed -- you said something about waste management. I think it was in China. Is that a new end market for you?

Yes, it is, and it's actually quite interesting. So what -- and we have -- I will say that we have been asked by mills sometimes -- can you help us separate out? We are obviously separating and giving them clean fiber, separating out the contaminants; but often in that wastepaper mix is things like plastics and metals that they would also like to recover, and chemicals.

So this is a little different. It is actually for -- it's municipal waste, so this is postconsumer municipal waste, where the customer is trying to do just that. He is recovering a metal stream, a plastics stream, and he is going to reuse those.

So it will be -- we will see how it goes. This is the first -- this is kind of a prototype installation, but it is quite interesting.

Interesting, yes. Okay, thank you.

Thank you, sirs. You have no questions at this time. (Operator Instructions)

Okay. There are no more questions, operator?

No questions coming through at the moment.

Okay. Well, thanks very much. Let me conclude the call by going through what I think are the three key takeaway points from our performance this quarter.

First, we had excellent quarter for bookings, exceeding $92 million and most particularly with significant strength in Europe. Second, we had a very strong aftermarket parts and consumables bookings, $55 million.

And finally, we are in the process of adding two new businesses to Kadant which are going to further our strategy of increasing our presence in the faster-growing developing markets, increasing our spare parts business, and expanding our product offering into adjacent markets such as virgin pulping and approach flow. I look forward to updating on the next quarter on our progress.

Thanks very much. Bye.

Thank you for joining in today's conference. This concludes the presentation. You may now disconnect and have a very good day.