Kadant Inc (KAI) 2015 Q2 法說會逐字稿

Operator: Good day, ladies and gentlemen and welcome to the Q2 2015 Kadant Inc. Earnings Conference Call. My name is Sheila and I will be your operator for today.

(Operator Instructions)

I would now like to turn the call over to Michael McKenney, Chief Financial Officer. Please proceed, sir.

Thank you, operator. Good morning everyone and welcome to Kadant's second quarter 2015 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer.

Before we begin, let me read 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 January 3, 2015 and subsequent filings with the securities and exchange permission. 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 second 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, Mike. Hello, everyone. It's my pleasure to brief you on our second quarter results as well as our outlook for second half of the year. Overall, we had another solid quarter with better than expected revenue and adjusted earnings per share performance. Although, we had some tough competitors and since against Q2 of last year which is one of the best ever.

I'll begin today's business review with the financial highlights of the quarter.

We finished the second quarter with revenue of $98 million, down 6% compared the second quarter of 2014, which was the second highest revenue in our history. Foreign currency translation had a large impact on Q2 revenue, and excluding the effect of FX our revenue in Q2 was up 2%.

Gross margin in the second quarter continue to be very strong at 47%. Our adjusted EBITDA was a record $16 million or 16% of sales, up 1% compared to Q2 of last year. Our GAAP diluted earnings per share of $0.76 in the second quarter exceeded the top-end of our guidance by $0.05 and was up 9% compared to Q2 of 2014. Our adjusted earnings per share was up 5% to $0.78. Excluding the impact of FX translation, our adjusted earnings per share increased 18% over Q2 of last year.

Our bookings of $94 million were the down 19% compare to the record set in Q2 of 2014. Excluding FX our bookings were down 11%. With that said, our backlog at end of Q2 remains healthy at $132 million. Cash flow for the second quarter was excellent at $14 million and we ended the quarter with net cash of $20 million.

During the second quarter, we repurchase just over 86,000 shares for our stock for $4 million.

Turning to the next slide.

You can see from slide 6, FX continues to have a significant impact on our results when compared to Q2 of last year. Our internal growth for Q2 which exclude acquisitions and FX was down for bookings against a record keep Q2 of 2014, and essentially flat for revenue. Our internal growth for Q2 in parts to consumables revenue in the other hand was 9% while bookings were down 1%.

Excluding acquisitions at FX translation, our internal growth for the first six months of the year was up 2% for revenues and down 7% for bookings. Despite the headwinds from the strong dollar, we saw a solid revenue and bookings performance in the second quarter. Our second quarter revenue of $98 million was down 6% year-over-year, entirely due to FX translation. Excluding the impact of FX our growth was 2% compared to the near record Q2 of last year.

Strong perforamcne our Stock-Prep business in North America is largely responsible for this growth. The strong revenue performance is expected to gain momentum in the second half of 2015 with the fourth quarter expecting to be the strongest of the year and in our history

Our bookings of $94 million in Q2 was down 19% from our record Q2 of last year. Excluding the impact from FX our Q2 bookings was down 11%. Our large stock bookings in our Stock-Prep product lines in China compared to a very strong Q2 of last year accounted for most of the decline.

Turning now to our parts and consumables business, our revenue for parts and consumables in the second quarter increased 4% from Q2 of 2014, and was the second highest in our history with Q1 of 2015 being the highest. Parts and consumables revenue represented 66% of our total Q2 revenue which is at the higher revenue but typical percentage we've had over the last few years.

Excluding the impact of FX and acquisitions, our internal growth was nearly 9%. Our near record revenue performance in Q2 was driven by our Stock-Prep product line in North America and Our doctoring, cleaning, and filtration product line in China.

Going to our parts and consumables business continues to be a strategic focus of ours and we're seeing solid results from both our internal initiatives as well as from acquisitions.

Parts and consumables bookings were down 6% compared to a very strong Q2 of last year to $62 million. The decline was due to FX and when excluding the impact of FX, Q2 bookings were up 2%. Also, contributing to the decline was our wood processing product lines which had unusually strong bookings in Q2 of 2014.

Before I finished with the parts and consumables, I will kind of note that, I mean this is one of the key takeaways from this call that the benefit that parts and consumables business and its growth is having one, on our gross margins and really two, in our overall profitability. I think you can see that this quarter.

Next, let me take a few minutes to provide for overview of our business activities and performance and each of the major geographic regions of the world starting with North America.

The North America market is our largest and continues to be the strongest in the world for us. Our revenues in North America was up 11% compared to the second quarter of 2014 to a record $59 million.

Our Stock-Prep product lines led the growth in this region, up 80%, compared to Q2 of last year driven by strong demand for our virgin fiber processing equipment and Stock-Prep parts. Our fluid-handling product line was. All other product lines saw modest revenue declines compared to a relatively strong Q2 of 2014.

Despite this sequential going declining Q2 bookings, I would say overall market condition is still quite good. Bookings in North America were $51 million, down 2% compared to Q2 of last year. Then the quarterly booked several large order for our wood processing equipment and basically in that sector remain strong.

In addition, we expect to receive an order of this quarter for the rebuild of the dryer sections for two large container board machines and this project is expected to be shipped before year end.

The market conditions for spare parts and consumables in North America, also continues to be strong, particularly for our Stock-Prep and fluid-handling product lines while doctoring, cleaning, and filtration product line is experiencing so much softer demands, primarily due to M&A activity in the printing and writing areas.

The globe that are parts and consumables business in North America was led by our Stock-Prep product line which increased with 35%.

In Europe, we've seen improved performance relative to the first quarter of this year with increased business activity in all of our product lines. Our Q2 revenue in Europe was $18 million down 35% from a relatively strong Q2 of last year, primarily due to reduced capital sales. FX also played a role in this decline, and when excluding impact of FX, our revenue was only down 21%.

Q2 bookings of $21 million were down 2% compared to Q2 of last year, but were up 9% sequentially. Excluding the impact of FX, we had a healthy increased of 20% in Q2 bookings compared to the second quarter of last year.

As I mentioned last quarter, we are seeing some encouraging signs of increased project activity including several Stock-Prep projects we hope to book this year. In general, we hope -- we expect the weaker euro will continue to have a positive impact of the European economy overall.

Next, let's look at Asia. As Q2 revenue in Asia was $14 million down 13% compared to Q2 of last year. The decrease was finally due to lower capital revenues in our Stock-Prep, and doctoring, cleaning, and filtration product lines. This decreased was moderated by a strong increased in parts and consumables in our doctoring, cleaning, and filtration product line.

Over the past several years in China, we've seen the benefit of our model of combining high value critical parts with world class service. The increasing focus on efficiency by our customers in China has also allowed us to make a good headway building our after market business.

This is a particularly important in China where at this based a more stable parts and consumables, and stability to this capital heavy region.

Our Q2 bookings in Asia were $15 million, down to 57% in the second quarter of last year. This was one of the best of our history. While project activity was somewhat subdued in Q2 we did book three small OCC system rebuild orders with combined value of approximately $1.6 million.

In addition, after the quartered closed we booked two more orders for stocked up equipment with a combined value approximately $1 million.

Despite, general overall capacity conditions we continue to seek capital budgets activity in Central and Western China. In addition, as I mentioned earlier this year, we also have seen some shipment delays in China. In particular, we believe the shipments of the two large capital projects were likely to [be played] into 2016.

One, which I discussed earlier this year, is due to difficultly with our customers' ability to obtained financing, and the other is due to routine plant construction delays.

At the end of Q2, our backlog in China was $56 million of which $31 million is expected to ship in 2016. I should say, that the majority of the $31 million was always scheduled to ship in 2016 and thus is not delay, only about at third of $31 million in a 2016 backlog is due to delays that we've seen in 2015.

Finally, I'd like to make a few comments of the rest of the world results and activities. As a reminder this region includes South America, Africa, Australia, and the Middle East. Our revenue in rest of the world was $7 million in Q2 down 8% compared to the same period last year, due entirely the FX. Excluding the impact of FX, revenue is up to 16%.

Rest of the world bookings, we're down 12%, to $7 million in Q2 of 2015 also due to the negative impact of FX. Excluding FX, rest of the world bookings were actually up 13% compared to the second period last year.

Improved performance in South America particularly for our doctoring, cleaning, and filtration product lines was the main driver for the increase.

Let me close my remarks with a few comments on our guidance for Q3 and the full year 2015. The first half of 2015 has positioned us well for another great year. That said, the capital shipment delays in China I discussed earlier have led us to lower our full year revenue guidance to $395 million, to $400 million. And while we expect improved operating margins will diminished the impacts of these late capital shipments, they will have a negative impact on our earnings for share for the full year.

As a result, we're [narrowing] our full year guidance for GAAP diluted earnings per share to $3.5 to $3.11. As I mentioned in past, FX had had a significant impact on our expected growth rate versus 2014 reducing revenue and adjusted earnings per share by 7% and 10% respectively.

Excluding the negative currency impact, we expect our revenues to grow 5% to 6% and our earnings per share to grow 21% to 23% over 2014. For the third quarter of 2015, we expect to achieve GAAP diluted earnings per share of $0.70 to $0.72 on revenue of $95 million to$97 million.

We expect the fourth quarter will be the strongest of the year and the best adjustment earnings before -- share performance in our history leading to another record year in 2015.

I'll now pass the call over to Mike for some additional details on our financial performance in Q2. Mike?

Thank you, Jon. I'll start with our gross margin performance. Consolidated product gross margins were 46.5% in the second quarter of 2015, up 350 basis points compared to the second quarter of 2014. The increase in gross margins from last year's second was due to higher margins in our capital business as well as a favorable product mix and lower amortization associated with acquired profit and inventory.

Our higher parts and consumables revenue represented 66% of total revenue in the second quarter of 2015 compared to 60% in the second quarter of 2014. Looking ahead, we expect full year 2015 consolidated product gross margins will be approximately 45% to 46% or 50 basis points higher than we had guided to during our previous earnings call in May.

Now, let's turn to Slide 17 and our quarterly SG&A expenses. SG&A expenses were $31.1 million in the second quarter of 2015, down $500,000 from last year's second quarter and included a favorable foreign currency translation effect of $2.4 million. Excluding the translation effect of $2.4 million and the SG&A from acquisitions, as well as the transaction expenses of acquisitions, SG&A expenses were up $1.4 million or 4% compared to the second quarter of 2014.

SG&A expense as a percentage of revenue was 31.6% in the second quarter of 2015 compared to 30.1% last year's second quarter. For full year, we expect the SG&A expense as a percentage of revenue to be approximately 30% to 31% or 120 to 220 basis point improvement over 2014.

Let me now turn to our EPS results for the quarter. We reported GAAP diluted earnings per share from continuing operations of $0.76 in the second quarter of 2015 compared to $0.70 in the second quarter of 2014 or an increase of $0.6. This increase of $0.6 in diluted EPS consists of the following, $0.23 due to higher gross margin percentages; $0.03 due to lower operating expenses; $0.02 associated with acquisition operating results and acquisition cost, and $0.01 due to lower effective tax rate.

These increases were partially offset by a decrease of $0.23 from lower revenue. Collectively included in all the categories, I just mentioned, was an unfavorable foreign exchange translation effect of $0.09 in the second quarter of 2015 compared to last year's quarter, due to the strengthening of the US dollar. In regards to our tax rate, we now expect our effective tax rate to be approximately 31.5% to 32.5% in 2015.

Now, let's turn to our cash flows, working capital, and debt leverage starting on Slide 19. We had strong operating cash flows from continuing operations of $14.2 million in the second quarter of 2015 up $5.2 million compared to the second quarter of 2014. Free cash flow, defined as cash flow from continuing operations less CapEx was $12.7 million positive in the second quarter of 2015, from last year's $8.1 million.

We had several notable non-operating uses of cash during the second quarter of 2015. We purchased $4 million of our common stock, paid down debt $2.3 million, paid a dividend of $1.9 and expended $1.4 million in CapEx. Stock repurchases in the quarter represented $86,518 shares at an average price of $46.70 per share.

Over the past 12 months, we have returned $14.7 of capital to our shareholders, $7.9 million from share repurchases, and $6.8 million from dividends. This represents approximately 47% of our net income during that period.

Now, let's look at our key working capital metrics on slide 20. Days and inventory were 107 in the second quarter of 2015 compared to 92 in the second quarter of 2014 and 109 in the first quarter of 2015. Our days and receivables measure improved to 57 days in the second quarter of 2015, one of our best performances ever and compares to 61 days in the second quarter of 2014 and 63 days in the first quarter of 2015.

I should note here that a measure of 57 days in receivables for a multinational company with operations in many countries with different payment practices is outstanding. In addition, our AP days were 49 in the second quarter of 2015 compared to 44 in the second quarter of 2014 and 50 in the first quarter of 2015.

Looking at the overall working capital position, our cash conversion days measure, calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable was a 115 at the end of the second quarter of 2015 down 7 days from the first quarter of 2015 but up six days from the second quarter of 2014.

Working capitals as a percentage of revenue with 15.8% in the second quarter of 2015 compared to 15.7% in second quarter of 2014, and 15.4% in the first quarter of 2015.

Our strong cash flows led to increased in our net cash position are $7.6 million in the second quarter of 2014 compared to the first quarter of 2015, net cash that is cash less debt at the end of the second quarter of 2015 was $20.1 million compared to $12.5 million in the first quarter of 2015, and $9.5 million in the second quarter of 2014.

As you can see on slide 23, our leverage ratio calculated is defined in our credit facility was 0.37 at the end of the second quarter of 2015, down slightly from 0.43 in the first quarter of 2015, under the 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 over to the operator for our Q&A session. Operator?

Operator: (Operator Instructions). Your first question comes from the line of Walter Liptak of Global Hunter, please proceed.

Thanks, again guys.

Hi, Walt.

Hi, Walt.

Hi, I want to start by asking if we can get a little bit more detail about the China project delays, you know, I wonder if we can just give us some color, you know, the kind of customers. These are the chances - these could get cancelled, you know, my understanding is a lot of times, China will place orders but they don't give you a timing on when they're going to ship.

And so, wondering about that and then if there other customers that could delay, you know, given the slowdown that has gone on with the financing there?

Okay. Yes, that's good question, Walt. You know, I kind of mentioned in my remarks. There's a two kind of larger ones. The first one is the one that we talked about earlier in the year, where we said it was a project of over $14 million that we -- the first part had been delayed into 2016. That project, you know, is looking for financing there. I guess they're now getting some equity contribution.

We believe those projects are going to go forward because they've already put around $200 million into the project, I mean buildings are built, that sort of thing. So, you know, our experience in the past is when you see that kind of money already invested those projects going forward. So, we feel pretty good about that one.

The other larger one is really, I would say routine construction delays is actually in Taiwan, a well-established player, nothing special I mean, that kind of stuff happens, you know, they have site preparation work, that kind of thing. So, I don't see - I view that as a little bit [differ]. We also have a few smaller projects in China that had seen some pushback, you know, hard to call it a trend. There's no doubt that, you know, the market in China is slowing in general, but my sense from a financing point of view is that the government is trying to be more accommodative on lending than less in their own efforts just kind of spark that economy.

Okay. Are there -- I guess, what's the [quote] activity looking like in China, is this something we think where there might be a pipeline building or is it--

Pretty subdued, you know, it's mainly in Central and Western China. I would add, if you want a little more color in the region in general in the -- I think I mentioned on one of the other calls that in the Dongguan in Guangdong area they've actually, you know, closed a lot of the smaller mills.

So, the mills in those regions are doing quite well, have good profitability. They're benefiting from a somewhat restrictive, you know, supply. So, that's good. I would say the mills up the coast are doing, you know, medium to a little worse so, as you move north.

So, I think we still need to see, you know, the economy grow and work off that surplus before we really have a strong, you know, [quote] activity.

Okay. Okay, sounds good. And then switching over to North America, the parts business and consumables continues to do great. And so, I wonder if you can talk a little bit about market demand versus your own internal initiatives [out] to the marketplace and, you know, what the visibility looks like, pricing, et cetera, for North America parts and consumables.

Okay. You know, one of the - you may remember Walt in Q4 we did acquisition of the screen [basket] business that ran around $10 million that's heavy in North America, it's doing extremely well. I would say better than we expected. So that's definitely adding a boost, you know, to our business in North America.

But I would say, you know, across the board with a little bit of exception of our doctoring business, we've seen customers responding to, you know, our initiatives on parts and consumables very well.

And with regards to doctoring, our doctoring business probably has a little more exposure than some of our other units to the printing and writing grades. And then some of those grades are tied up under sort of new page, [Verso], even a little bit -- it's even at [printing], you know, the [less rock] stuff is been delaying a little bit of their purchases.

Okay. Okay, thanks guys, I will get back in queue.

Okay. Thanks, Wal.

Thank you. And your next question comes from the line of Dan Jacome of Sidoti. Please go ahead, Dan.

Good morning. How are you?

Hey, Dan, how are you?

Not too bad. I appreciate taking the time. Just to stay on the doctoring blades, just want you on the ceramic blades. I know that's been kind of like a newer product ramp for you guys, just wondering if you're seeing any incremental customer adoption or any news to share with us?

Sure. So, as you might remember we did a small kind of technology acquisition last year and we're in the process of kind of, you know, getting established here in North America with a facility.

Okay.

That will probably take us through the end of this year, I would say, you know, it's actually quite difficult to do which is, you know, good news and bad news. It is good news, because bad news because it takes us a long time, but its good news because it's hard. So, you know, we've sent some blades out for customer trials which I would say have all done very, very well.

But obviously, we want to get to established and make sure we have sort of manufacturing where we wanted to be before we accept orders for that stuff of any size. But I would say, the results of the trials which basically are using the blades that we make in Europe had been very -- has been really terrific.

Dan Jacome: Okay, good. I mean, I want to just integrate it into your ecosystem. Do you think the barriers into entry will be higher here?

Well, I would say we have a couple of significant advantages in the ceramic doctor blade market. And, you know, as I know you knew that maybe other people on the call don't know. Ceramic [crating] blades, this is for making tissue. It's sort of a longest lasting blades for tissue and the most expensive ones.

So, you know, where I think we are uniquely positioned is we're very, very strong in [crating] point holder, the thing that holds that [crating] blade on the, you know, against the [role]. We've got a high degree of service, you know, I would say proceed as world experts in this.

So, I would say we're a natural to be able to sell this high end blade. And our customer is very much want us to sell this high end blade to them.

Okay. And then, well, I guess staying on tissue. Everything I'm reading is a lot of incremental like TAD, tissue machine capacity coming online for the at home segment. Are you guys seeing this like in your business or do you have any thoughts here?

Yes, I mean definitely, your North America seems like when they're adding tissue, it's on these TAD machines. Incidentally, those TAD machines are naturals for these ceramic blades they tend to use those.

So, you know, that's great. It's not so good for our recycling business which, I mean our [stocked up] business which is kind of heavier on the recycle side, with that machine is tend to be virgin. But yes, we definitely see that on the doctoring side of our business.

Got you. And then last one, you mentioned the [West Wall] integration problem -- I guess giving pause to your business; what side is that? Is that sort of like on the Stock-Prep or the blades, where is that?

It's more, you know, like -- it's was odd to us that, you know, we've -- as you can see, we had an excellent quarter for parts and consumables in North America and I would say, our doctoring business has been a bit an outliers in the sense that they're not seeing the same kind of strong demand but some of the others are.

When we kind of look into it we see occassionaly like, you know, when there's merger activity, often -- you know, projects are slowed down, you know, things kind of get put on hold a little bit. And a couple of key mills in North America, I think that was the case.

Okay. I appreciate all the color. Thank you.

All right. Thank you.

Thank you. We have no questions at this time. (Operator Instructions). And the next question comes from the line of Walter Liptak of Global Hunter. Please go proceed.

Hi, just follow up with the acquisition question. You know, how have things gone there in the quarter as you, you know, talk with companies and what are you hoping for through the end of the year?

Okay. And I'm glad you ask that question because it's a good chance to talk about acquisition, I would say in general. So, you know, we're very please on how our acquisitions that we've done have gone, you know, we go back and look at those and due kind of postmortems, 1 year or 3 years out in so forth but they're all tracking very well.

So, you know, I would love to do more acquisitions, you know, as, you know, Walt, but I think most people know, you know, acquisitions are definitely part of our growth strategy if you will.

That said, we're kind of finding when you get acquisitions kind of out in the above $50 million range, you know, which that's the size we would love to do, frankly because they're really needle movers as they say, the valuations are getting pretty high, and even the whole process is getting pretty crazy, I think.

So, you know, there's some larger ones that -- if we like it, we'll stretch a little bit on that but I'm a little bit more pessimistic that we're going to be able to buy something at valuations we like. I hope we do but I'm a little concerned about that.

So, where we're seeing more reasonable valuations, and spending more time I would say is smaller acquisitions, you know, sub $30 million, some even sub $20 million, family on business but maybe aren't so much attractive by private equity in that servicing.

And, you know, there's stuff out there, I would say there's a lot of money chasing a lot of properties. So, it's a pretty -- I would say pretty active market.

Okay.

I hope we have something announce. If, you know, I would really love to do something a little bit larger, you know, in that $50, $60, $70 million range but it would have to be pretty great company at a somewhat reasonable price.

Okay.

Okay. Thank you.

Operator: Thank you. There are no questions at this time. (Operator Instructions). And the next question comes from the line of Kevin Sonnett of RK Capital. Please, go ahead.

Thanks. Hi gentlemen.

Hi Kevin.

Just staying with the -- hi - just staying with the discussion on acquisitions, so who are you seeing emerge as the incremental buyer participant in the process and can you try to somewhat quantified evaluations that you're seeing out there?

So, who am I thinking might emerge as buyers?

Correct. It sounds like there is, you know, I'm sure there's a kind of traditional contingent of, you know, strategic buyers and perhaps a broadly just financial buyers I supposed but it sounds a little bit frothier than normal -- I guess I'm just wondering who, you know, you said that the process itself is maybe getting even a little bit crazy. I just hoping you can discuss that in a little bit more detail.

Okay, sure. So, on the, you know, the financial buyers kind of spread across. We're talking now about acquisitions that are let's say $40 million and above. You know, they tend that to be on our super small stuff.

So, the financial guys I would say are across the board, across all industries as everybody knows. They can pay a higher price with leverage and as long as interest rates are low they're going to be able to do that.

The strategics, you know, typically, their ace in the hole is synergies. You know, in the paper industry, it hasn't been terribly active. And, you know, one of the things I talked about in the past on acquisitions is that, you know, I wish there was more stuff going on the paper industry but there's not a well of companies of size I would say in the paper industry that we would find attractive.

We definitely see some of these smaller ones and there I would say less competitive processes. When you get to other process industries and I've said in the past, you know, we're -- the type of acquisition that we like would be sort of an adjacent space, maybe not in the paper industry but some other process industries in which we kind of have a small -- the target has a smaller piece of equipment that has a high impact on the overall process, you know, as good margins technology. Love to see good after market and some stability of earnings.

And of course, in that space we're really looking for very strong management, the acquisition that we did in that wood processing business in 2013 is a good example of that. You know, there -- it depends. Sometimes the strategics, you know, have the kind of stuff that we had in the paper. They can add value on distribution. They can close facilities and that sort of stuff.

And -- I would say, for us that's a disadvantage because -- let's say we're going to some particular industry where -- typically, our only real synergy when you're outside of the pulp and paper industry is one, our low-cost manufacturing in China and Mexico. And two, our infrastructure who supporting global sales but we don't have the salesmen.

And then in terms of the process, you know, the part that just gives me heartburn on the process is normally, you know, you give indication of interest and the seller picks one, you know, one potential bidder and they sign exclusivity and you spend, you know, 60 days or so doing due diligence in negotiating the transaction and then you close.

What we're seeing more now which I think is not helpful trend is they'll actually run parallel processes. So you might -- you may not get exclusivity and you may be negotiating a purchase in sale, doing due diligence, at the same time one or two other people are doing the same thing. So, you're spending all that time and effort and, you know, you may have only 25% chance of closing.

You know we -- by the time we spend serious time and energy on the transaction, we want to be, you know, the sole person who's pursuing that.

That's helpful color. Thanks. One quick follow up on that and then a separate question.

And so, what do we see roughly in terms of evaluation and understanding there's different degrees of synergies for you or other buyers, maybe more in terms of X synergy valuations, and then separately could you just characterize today. You've done some of the past but maybe just, you know, currently give your view of a different end markets, perhaps by geography or maybe just over all as far as you kind of publication, you know kind of publication paper, relative to packaging tissue, et cetera

Sure, I could. Okay. So, what was the first part of the question again, it was valuation--

Evaluations.

So, you know, if you been kind of following us, you know, I would say we've been very unfortunate value, yes, we've been getting stuff, 5 times earnings, 5.5 times earnings, you know, that wood processing business, you know, we paid maybe 6.5 times earnings. I think it would be, you know, we're not seeing that. Those kind of valuations, we're not seen in the market. So, you know, I would say that's unlikely. We're seeing evaluations 8 and 9 times and even higher for growth businesses. We probably wouldn't go 9, 10 times earnings.

Okay, thank you.

You know that's kind of where we are. And a lot of that I would say is you know X synergies.

A little color on the sort of end markets, you know, as it general -- is a general rule of the major grades, container board and tissue are the strongest, you know, there is no structural threats to container board and tissue. Container board, and I would say as a general overlay for all the grades, the developing market is going faster than the developed market. So, North America and Europe, you know, container board is kind of trading, you know, I would say typical demands in the 1.5%, 2% range for container board both in the US and Europe. You know, conditions in Europe for container board are much improved, you know, inventories are good. You know, it's outside, it's somewhat rosier picture on the container board side in Europe.

And US has been good for a while, those markets now have enough consolidation of industry players that you have being on the top three players where kind of running 70% of the volume, and they are being very rational in terms of managing capacity to meet demand. Tissue tend to be smaller mills, you know, your use of tissue is very stable its not to economically cyclical, it kind of grows with population that's call 1.5% US and Europe, you know. And I would say for both of those products over the long run should grown 5%, 6%, those kind of numbers in the developing world, where they're not using packaging for food and what have you, or using a tissue products and as their standard of living rise they'll do that.

Another little factor that's on container board is, you know, typically about 50% of it is tied to food so, it's kind of more stable than I think people realize. The troubled grades are printing and writing grades. Those have suffered from electronic media, [Albany International] on our call today -- yesterday, they talked a lot about you know having a significant drop in there printing and writing business, and publication grades in North America.

Typically you know most analyst say those are going to climb probably 3% to 5% in North America and Europe, and the up a little bit in places like India, where as they developed a service economy and again urbanize, they'll have some growth but it's relatively bleak particularly in the developing markets.

Not a free fall but I would say a steady decline. Newsprint is probably the worst grade, again, most, you know, there are places like China may not go through a lot of newspapers, they might go right to electronic media, certainly in North America and Europe electronic media is having a significant impact on newsprint. Some really poor countries like India newsprints -- there is a good newspaper business and newsprint market, people don't have the tablets and smartphones and that kind of thing.

Okay. That was a helpful review. Thank you.

Welcome.

Thank you. I would like to turn the call over to Jon Painter for closing remarks.

Okay. Thanks operator. Let me conclude today's call which what I think are the key takeaway points.

First, despite a strong FX head wins we had another solid quarter in revenue operating income earnings per share and cash flow. Second, our parts and consumables is going strong which is increasing our growth margins and overall profitability. And finally, we continue to expect 2015 to be an excellent year with record earnings per share performance.

I look forward to updating you on our progress next quarter. Thanks very much for listening.

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