Kennametal Inc (KMT) 2005 Q3 法說會逐字稿

Good morning and welcome to the Kennametal Incorporated Third Quarter Results Conference Call.

My name is Kimberly and I will be facilitating the audio portion of today's interactive broadcast.

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At this time, I would like to turn the show over to Beth Riley, Director of Investor Relations.

Ma'am, you may proceed.

Thank you, Kimberly.

Welcome and thank you for joining us this morning to review our fiscal 2005 third quarter and our outlook for the remainder of the fiscal year.

Consistent with prior calls, members of the media have been invited to listen to this call, and the call is being broadcast live on our website at www.kennametal.com.

As Kimberly mentioned, I'm Beth Riley, Director of Investor Relations for Kennametal.

I'm pleased to also have our Chairman, President and Chief Executive Officer, Markos Tambakeras; new Chief Financial Officer, Cathy Smith; and Corporate Controller and Chief Accounting Officer, Tim Hibbard joining me for the call.

Markos and I will provide detail on the quarter's operational and financial performance and then update for the fourth quarter.

After these remarks, as always, we will ask for questions.

Before I turn the call over to Markos, I would like to read our forward-looking disclosure.

This discussion contains statements that may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results, performance, or achievements of the company to differ materially from those expressed in or implied by such forward-looking statements.

Additional information regarding these risk factors and uncertainties is detailed in the Company's Securities and Exchange Commission filings.

In addition, to be able to discuss non-GAAP financial measures during this call in accordance with SEC regulation G, the Company has furnished a form 8-K to the SEC, which is also now available on our website at www.kennametal.com.

The 8-K presents GAAP financial measures that we believe are most directly comparable to those non-GAAP financial measures, as well as the reconciliation thereto.

With that, I will turn the call over to Markos.

Thank you, Beth, and good morning, everyone.

We're very pleased to announce another quarter of top financial performance.

As you know, we exceeded our original guidance for the March quarter, driven by the highest sales and the highest operating earnings for any quarter in Kennametal's history, quite an event for us.

Some of the highlights for the quarter were the following.

Every major business unit and every geography delivered strong sales growth.

The growth was driven by robust market growth in excess of our expectations and by gains in market shares particularly in North America and Asia.

Europe's growth was sustained on export demand and market penetration.

We are increasingly confident in Kennametal's Europe and its potential to contribute to our expected further growth as the new management team and the benefits of the Widia acquisition begin to have a strong impact.

Our profit margins and return capital metrics reflect the operating leverage in the business despite significant increases in raw material cost.

For the quarter, we offset fully raw material cost increases and realized about 110 basis points of price.

Compared to last year, EBIT margin increased 260 basis points and ROIC increased 290 basis points.

We remain confident that these metrics will reach double digit levels as targeted.

As you have seen we have again improved our earnings guidance for the full fiscal year to a range of $3.17 to $3.22 reflecting better than expected performance in the third quarter and modestly increased growth expectations for the fourth quarter, offsetting a higher tax rate impact of about 6 cents a share.

This will be the highest annual EPS in the company's history.

We have now raised our second half sales growth outlook from high single digit to low double digit.

This is a significant incremental growth when viewed on top of the strong organic growth of 6%, which we realized in the third quarter of last year, and the 12% we delivered in the fourth quarter of last year.

The increase in earning expectation needs to be viewed in the context of further incremental headwind from raw material costs.

Tungsten costs, in particular, have recently begun to rise beyond our earlier expectations.

We are fully engaged in actions to manage the impact of such price increases, should they remain at current levels.

However, as reflected in the guidance we expect that the earnings leverage should continue to improve throughout the fiscal year, as price increases close the gap to inflation in raw material costs.

We are also very pleased with our continuing steady and significant improvement in balance sheet metrics, with debt-to-capital remaining below 35% even after the Extrude Hone acquisition.

Our working capital ratio-to-sales also declined to an historical low at 23%.

Inventory turnover reached a new high, and cash flow generation continues to be strong.

Now, as further evidence of our continuing commitment to improving the profitability and growth profile of our business, we announced the divesture of Full Service Supply, this quarter.

FSS has earned a strong reputation for providing some of the world's best known brands, with diverse customer base.

In order for emphasis though to reach it's full potential, it needs to move forward under new owners who's strategic priorities include building critical mass in the integrated supply business, and providing into supply chain expertise and support.

Our agreement with Ferguson includes a 4-year supply contract that allows for continuity, and is a win-win for both Kennametal and Ferguson.

We were also delighted to welcome Extrude Hone to the Kennametal family.

They are already off to a fast start, and are slightly ahead of expectations, driven by strong capital equipment sales into the diesel and aero-engine markets.

We are also saying goodbye to Beth Riley, effective the 29 of April.

Beth will be joining Armstrong World Industries.

I want to thank Beth for her support and valuable contribution during his tenure at Kennametal.

We have already began the search for an Investor Relation’s Director, however until a permanent replacement is identified, Tom Joyce (ph.) an outside consultant with significant IR experience will be filling this role in an Interim capacity.

Tom is from the Pittsburg area, has many years of experience in the Investor Relations, Treasury, and other Finance functions with Rockwell International and Meritor Automotive.

We also welcoming Cathy Smith.

Cathy Smith is our new Executive VP and CFO, who joined us just over two weeks ago from Bell Helicopter.

And I’m very pleased to have Cathy on Kennametal Executive Team.

She is a great addition, will make a strong contribution, and I’m sure, you'll agree once you get to know her.

So overall, we feel very good about our performance, about the outlook for the remainder of the fiscal year, and the continued improvement of our business portfolio as demonstrated by the Extrude Hone acquisition and the FSS divestiture.

We continue to do what we say, we will do.

I will now turn the call back to Beth for more detailed examination of the third quarter results.

Thank you, Markos.

I'll provide a few additional details on our performance in the March quarter, and the outlook for the fourth quarter.

Special items in the March quarter were $5 million goodwill impairment charge, and $1 million loss on asset held for sale, both related to the divestiture of FSS.

There are new special items in the prior year quarter.

My comments will exclude the one-time impact of the FSS divestiture from the March 2005 quarter for a better comparison of results.

For the third quarter of 2005, Kennametal earned net income of 35 million or 92 cents per dilute share, up 39% compared with 24.1 million or 66 cents last year.

Consolidated sales increased 14%, to 597.

The sales increase was driven by organic growth of 12%, a 3% benefit from foreign currency, and 2% benefit from acquisitions, offset by a 3% reduction due to fewer work days.

Gross profit margin increased 190 basis points, to 35.4%, due mainly to price recovery, improved capacity utilization, acquisitions, and favorable currency effects, partially offset by the continued negative impact of raw material cost.

Operating expenses increased 14 million or 11% to a 146 million.

On a constant currency basis, operating expense increased 8%, on organic sales increase of 12%.

Adjusted EBIT was 64.1 million, up about 51%.

The corresponding EBIT margin was 10.7, up 260 basis points.

Interest expense increased 0.5 million to 6.8 in the March quarter.

Interest rates on domestic borrowings of 4.8% were up slightly from 4.4 of last year.

Effective tax rate for the March quarter was about where we expected it to be, at 37%, compared to 32% in the prior year.

ROIC was 9.1, up 290 bases points, over the last year on strong operating leverage.

Net cash from operations was 66 million, compared to 54 million in the prior year.

Free operating cash flows for the quarter was 45 million compared to 41 million.

Debt to capital declined 560 basis points to 31.8% for March 2004.

Annualized debt to adjusted EBITDA is around 2 times.

Alright, turning to our business units.

All comparisons of sales will be in constant currency.

Metalworking continued to deliver strong double-digit growth in aerospace, heavy equipment, and the energy segment.

Automotive segment growth outpaced global unit productions by more than double the market growth rate, due to new products and the leveraging of the Widia brand.

Increased price realization occurred as a result of pricing and margin improvement actions taken last quarter.

Widia brand sales are beginning to accelerate globally, and we continue to focus on new product introductions in target market segments.

In fact, metalworking fiscal '05 new products as a percentage of sales reached 43% in March, up from 39% in fiscal '04.

Widia and Widia India contribution has increased significantly this quarter.

In the March quarter, sales were up 9%.

With North American cement and carbide, and high-speed steel, each up 9%.

Europe grew 3%, and rest of the world grew 22%.

On the volume growth, metalworking EBIT was up 47%, on the 9% sales growth, and the EBIT margin improved 350 basis points to 15.1.

AMSG delivered significant top line growth in the current quarter, driven by strong organic growth across its businesses.

Mining and construction sales improved year-over-year from both market share gains, and somewhat stronger end markets.

Engineered also delivered strong Q3 growth, as improvements in global market demand and further new market penetration.

Energy continued to benefit from the strong oil and gas markets.

While electronics continued to make improvements in cost performance, despite a difficult end market.

These material sales grew 19% in total, with mining and construction at 9%, energy up 11%, engineered also up 11%, and electronics down 8%.

Pricing actions largely mitigated the negative impact of rising raw material costs in Q3.

EBIT grew 43% versus last year on 19% sales growth, with the EBIT margin increasing 240 basis points to 16%.

J&L organic growth continues to be strong also, despite softness in the Midwest Automotive sector.

E-commerce sales grew to nearly 30% of it's transactions in the U.S.

In the quarter, sales increased 11%, and EBIT grew 23.

EBIT margin of 11.8, was up 110 basis points versus the prior year, and is the highest in Kennamental's history.

For the March quarter, FSS sales were up 6%, compared to the prior year, and EBIT margin increased to 3.2%.

Okay, moving ahead to our outlook to the fourth quarter of fiscal 2005.

The outlook is driven by continued broad-based confidence for the global manufacturing environment, including an ISM index sustained above 55%, and consensus estimate of 3.4% growth in global industrial production.

In Europe, we continue to see modest growth and expect to continue to do better than the market.

These forecasts, coupled with our expectations of further market penetrations, yield an approved estimate of 14-15% organic growth for Kennametal's earning -- entire fiscal '05.

For the fourth quarter, we are now anticipating organic growth of 9-11%, despite a more difficult comparison, and what is traditionally, a seasonally slower quarter than the March quarter.

In terms of EPS, the fourth quarter guidance is now 90 to 95 cents per share, up 11-17% against much more difficult comparisons.

This guidance includes in it, net worthy item.

As discussed in our earnings outlook conference, -- our first earnings outlook conference for fiscal '05, and included in this mornings release, the structural change included in the execution of our European business strategy, as well as the impact of tax planning, resulted in a variability in the tax rate over the quarters.

The expected tax rate for the year is about 33%, only slightly above our original expectation of 32%.

However, the rate for the fourth quarter is now expected to be about 36, which is an increase from the previous expectations of 32%.

Despite this increase, which translates to about 6 cents per share, you have probably noted that we held our guidance for the fourth quarter.

For the full year, therefore, EPS is now expected to range between 3.17 and 3.22, up about 15% on the 14-15% organic sales growth.

Free operating cash flow is still anticipated to be in the range of a 115-130 million, and ROIC should improve more than 2 points to about 9.5, ahead of our previous guidance.

Like most companies, our expected fiscal 2005 performance includes significant cost pressures from increased raw material prices, particularly tungsten and steel.

We now estimate a $45 million increase in raw material costs in fiscal '05.

This compares to our most recent expectation of 40 million, and our original of July '04, 30 million estimates for year-over-year increase.

We expect to continue to offset approximately 70% of these cost increases, through a combination of price increases and some surcharges.

Additional guidance for the year is as follows;

CapEx remains consistent with our original guidance at approximately 70-80 million, up about 30% from FY '04, driven by significant investment in capacity in India, China, and equipment for manufacturing new products in North America and Europe.

Depreciation and amortization should be about 65 million.

PWC to sales at about 23, down another 300 basis points from fiscal 2004.

Debt-to-cap below 30, including the impact of the Extrude Hone acquisition.

This ratio would have been below 25%, excluding the acquisition, and interest expense about level of prior year.

Included in our sales guidance are the following assumptions concerning our end markets for the next 3 months.

On balance, we expect 3% to 4% growth in most of our major end-markets including heavy machinery, like in general engineering, energy, highway construction and coal mining.

In addition, we expect aerospace and defense to accelerate and automotive to soften further.

Consistent with overall strategy, we expect to grow faster than the market through the execution of the Kennametal value business systems.

On a geographic basis for the quarter, we expect industrial reduction in North America to remain strong, up about 3% to 4% and look for modest growth in Europe up 1% to 2%.

In addition demand to remain strong in Asia Pacific and Latin America, each up in the range of 5% to 6%, and with that I’ll now open the line to questions.

As a reminder, ladies and gentlemen, if you would like to ask a question simply press "*" then "1" on your telephone keypad.

Your first question, comes from Walter Liptak with KeyBanc.

Hi, good morning.

Hi [inaudible].

The first question I have is regarding raw material cost and you mentioned that, tungsten is up more than expected recently;

I wonder if you might comment on the magnitude of that?

Well, currently tungsten is in the range of $230 per metric ton, and that’s up from about 90 in January.

What’s not clear is how long that might be sustained.

We feel very good as we mentioned earlier about the job we have done to offset the significant headwind we passed this year, while continuing to expand our margins, and we are proactively managing this increase as well.

Okay, and so when you talked about the 70% recovery for the fourth quarter, that’s largely because of that big move in tungsten?

That’s correct, as we mentioned to the third quarter we fully offset the raw material impact was great.

That’s right, with some of the other raw materials, would you mind providing an update on cobalt or steel you mentioned a bit, steel is going to be a headwind, are you seeing from moderation there?

We are seeing some moderation in steel that was common steel was more reflective of Q3, that was a full year statement steel and tungsten, and cobalt actually has come down a bit, it’s sitting around $18 right now.

Okay and in the press release you talked about your auto exposure of 18%.

Correct.

I wonder is that adjusted is for the divesture?

No, it is not.

Do you know what your auto exposure would be excluding FSS?

We haven’t done that calculation yet, its 15 roughly.

Okay thank you.

Thank a lot.

Our next question comes from Mark Koznarek with FTN Midwest Research Securities.

Hi god morning.

Hi, Mark.

Hi, Mark.

I was just looking for a couple of kind of detail or just kind of fill in the blank kind of thing and then I had sort of a real question to follow up, and one of them is AMSG, Beth, I think you said the totals was up 19% but you didn’t I think tell us what it was without the Extrude Hone.

That’s correct.

As you know Extrude Hone is, while modestly accretive, is not material to our results and we are going to find it out separately.

So [some of the one times] wasn’t that different.

Yes, it was just one month that Extrude Hone was in this the results.

Okay, and then can you clarify your statement about automotive, your sales with regard to automotive, because you said you are double the industry growth but the industry unit production worldwide, my numbers tell me was down 4%.

So I hope that doesn't mean you were down 8%.

No, that means we were down 2%, roughly.

Okay.

That thus remains on the down flow is obvious but, and in fact until the last month we were seeing some growth in automotive both in Europe and in north America obviously due to market share gain rather than production level.

Okay, --

Mark, its Markos.

Just to stretch, we have introduced a new technology in the last few moths, so that accounts for the pickup in share in automotive.

Okay, so that actually leads into my next question which is the revenue outlook here is quite robust for the forth quarter give that a lot of he companies that use your product are broadly next single digit kind of, lower single digit year-over-year, production increases and, there seems to be kind of wide spread agreement that Europe is softening pretty quickly.

So I am wondering if you can talk about what are the metrics that support your out performance relative to the underlying market.

Well, let me try and answer that.

We don’t see that.

We also have a pretty broad distribution of end-markets, you may recall.

Energy, is becoming an increasingly bigger contributor, money and construction the same thing.

We have a big presence in what we call the general engineering sector and frankly we have a ton of new products that are wining in the market.

We are confident that we are gaining penetration, in all the geographies and we just don’t see that.

We talked about some new products in video, there is in India, for example, we are probably going to be up close to 50% this year, and as I mentioned in my remarks, we feel that in Europe we are getting some traction finally and so I would say you take all these things together, we don’t see any slowdown in our business, certainly for this quarter which is all we obviously able to talk about.

Okay, is there, besides the new products, which obviously are generating quiet a bit of tractions, are there other kind of asset additions that the company has made such as, say an increase to your sales or marketing organization or new points of distribution or, anything tangible along those lines as well?

We have done a number of this under our customer acquisition process that we have started talking about more recently.

We have put in place a business model that focuses on global accounts, we would be going up fiscal [inaudible] here.

This is starting to yield results.

We are able to leverage our distribution around the world more effectively now, we have some significant wins more recently.

We have also expanded our distribution strategy to be more aggressive in selling our products to indirect.

We also have repositioned the sales channel to be focused by market segments.

Where we now deploy by aerospace, we deploy by mining and so on, so what we have been saying is starting to come true which is redeployment around a new sales model, around the things I have said and then finally, we are much more focused on now on providing a total solution, which leverages the complete portfolio we were in the past within primarily a uni-dimensional with respect to saying the metal working business we would focus on the leaving side now.

We are also getting much stronger in turning and in home making or drilling.

On the advanced materials we have much -- many more hours in our quiver and the addition of component is not going to form a clad and of course eventually Extrude Hone are going to give us a broader leverage.

So it's many things around essentially the repositioning of the company we would be talking about for some time and they are starting to take hold and I am hoping that even if we see a slow down that will be able to out perform the markets.

But for now we just don’t see it in the fourth quarter anyway.

Right, thanks that’s very helpful Markos.

You are welcome.

And Beth good luck to you moving onwards.

Thanks very much Mark.

Once again, ladies and gentlemen if you would like to as a question, please press "*" then "1" on your telephone keypad.

Your next question comes from George McCalos (phonetic) of Tokesvile Asset Management (phonetic).

Hi, just a very quick question, where would you say you are in the industrial cycle, what do you think of where on the curve?

I think that the same question was the previous one; like we said we feel that as far as our end-markets and our mix of end-markets are concerned and for the remainder for the fiscal year we don’t see any significant slow down.

But no guess as to how much longer this will last.

No, I won't guess.

And it's been our practice because of our fiscal year ending in June, we are now in the middle of putting our plans together for the next fiscal year and we came out late July, early August, and that’s when we will really have all of ducks in a row, if you will and we will be talking about all '06.

Okay, very good thanks.

Thank you.

Your next question comes from Joel Tiss with Lehman Brothers.

Hi Dennis, it's actually Henry Kirn, sitting in for Joel today.

Hi, Henry.

Hi, Henry.

Quick question for you, as far as the high way bill, I know you are not giving out guidance for fiscal '06 but how much leverage would you say you have to a highway bill if it will pass and how long do you think it would take to see increase demand?

You know I think that it's a little difficult question to answer.

We are already -- we have already seen a good pick in our business consistent with the season, and a lot of that buying happens in the, through the June time frame.

So at this point I would say if the bill were to pass it will be having emotional pick up, will it give substantial further upside, it's hard to tell.

We are doing pretty darn well, for now.

Yeah, and I would add that it's not, as I think we have discussed in the past, not just kind of the level of spending script, but how that spending has been allocated, down at the local level, and I don’t, I’m not sure how the rates are in your area but there are quite a few holes in the roads in our area.

So there is some increased pressure to spend some more money there.

I will say something we have said before and that's a global comment, and that is that as developing economies put infrastructure in place which roads in this case, and as that infrastructure begins to ware out especially through trucks that are way heavily overloaded in developing economies then that presents for us good long term potential, sustained growth potential on the construction business.

Okay thanks a lot.

Thank you, I'll charter the bill.

Your next question is follow up form Mark Koznarek with FTN Midwest Securities.

I am back that quick.

Thank you.

Let's see just a couple of other follow ups here, Extrude Hone given that it was in only a quarter or a month this quarter and so we -- you know you are not really talking about what it did or didn’t do much, what do expect the contribution to be within your fourth quarter guidance from Extrude Hone, though it will be material in that quarter?

No, it will not be material to the quarter.

So, it's really only about neutral with regard to contribution to earnings at this point.

No, it's accretive.

It's accretive.

So will contribute something to earnings?

Yes.

It's basically what I’m asking if you are not getting to 95 is you know 2 cents from Extrude Hone for instance -- talk about?

Consider this market it does include some benefit from Extrude Hone and it also excludes FSS for 2 months.

Okay, then the next one is, now, we were talking about the general economic outlook and your performance with regard to that outlook and one thing that is notable with regard to Europe is your base sales did appear to throttle back to 3% growth compared to 10% growth last quarter, so it does appear that your trajectory is moving the wrong direction rather than the right direction, someone -- and if we can -- what can you say to give us confidence that that doesn’t split further in 4Q and later in calendar '06.

We are not concerned about Europe in the fourth quarter.

There is some timing here that -- in fact, we are in Europe right now, we have just reviewed our European operations, and that’s why it shows to single out in my remarks assessment that our European business is, in fact, picking up steam, and we feel pretty good.

Okay, and then finally given that there is -- on the tax rate line there has, you know, lot of choppiness, something down, in ending the year -- the fiscal year here at 36% even though you're not saying anything about fiscal '06 from a guidance standpoint can you at least comment on what's your reasonable tax rate expectation for next year, hopefully it is not 36?

Yeah, no.

It’s not.

It's not.

We are not concerned, you know, the choppiness, the seasonality there is -- the business strategy that's best described but we are not concerned going forward.

So reasonable guess would be just this year's 33% in the absence of anything else.

Yeah, that's not unreasonable.

Okay, great thank you.

Our next question comes from Gary McManus with JP Morgan.

Hi, Markos and Beth.

Hi, Gary.

Hi, Gary.

My first question is looking at the two of the key segments, metal working are advanced materials, very strong operating margins in the third quarter you know, 15% of metal working, 16% change in advanced materials.

What is your ability to improve off those margins over the next several years and let’s hold the economy nothing going on there, you know, one way or the other pricing raw material cost, just your ability to show further margin improvements in those two segments?

Hi, Gary.

Absent -- holding all those other factors levels than what you have is inherent operating leverage in this businesses now 35 to 45% and we would expect to continue to realize that over the next couple of years all other factors held constant.

Yeah, there is no change in our view of the long term to what we've said before that it is top line growth accompanied by strong operating leverage that drives continued increase in margins.

If these are the highest margins at least you've seen in the last -- I don’t know, I mean --.

Yes.

10 years or so.

So you still see further margin improvement even with let's say relatively modest volume growth?

Yes, and I'd said that in my remark.

Okay and second question is, you know, you provide these both orders three months [growing] average and the March numbers dropped sequentially from February, I think it was 12 versus 15, and, you know, obviously these are three month growing average.

So it suggests that the month of March orders were weaker than you know, you can do in 15% order growth pretty consistently over the past year or so.

So was there any deterioration in the incoming orders for the month of March or any kind of visibility you have on April?

The office [inaudible] a step that would suffer from the daily order rates and it is clearly a function of comps really stepping up last year the month of March there was a significant increase in growth so it was just clearly more difficult times then and April is also continuing in a very good pick.

But if I'm looking at your order numbers the comparisons get even tougher as we go through the rest next several months, you know March '04 was up 6% and by May it was up 12, so should we expect further deterioration in the order rates because of tougher comparisons?

Modestly and that’s why the organic growth that we [inaudible] fourth quarter is 9 to 11.

Yeah, but I know that those you know revenue growth doesn't naturally, you know, time the order growth?

It usually does, but we had, kind of an odd situation this month with the number of work days really swinging the number more than it would normally and that first due to [when Easter fell] and also last year we converted pieces of our business from the 445 to the calendar month.

We've last that impact.

We won't see that again.

And the last question I have, I guess for Markos is, you just, I know, I think I've heard you said before the preference is more towards acquisitions versus share repurchases.

Is that's true, should we look at more acquisitions like Extrude Hone, and do we have any other divestures that you would consider or is that -- that's really?

Well, let me just say what I've always said before that we're looking constantly to improve the profile of the portfolio.

We've been very clear about our direction forward, Gary, in terms of the manufacturing sector being our core focus.

In terms of the, you know, the deployment of cash, the priorities are to maintain our investment grade rating and keep our debt-to-cap ratio within the range where we are now very comfortably.

Beyond that, we think we can deliver and drive shareholder values through well time and acquisitions that are accretive and beyond that we certainly, you know, we would look at disposal of excess cash in from another, whether it make sense to return some to shareholders to repurchase, we would not be afraid to do that.

But we also are very focused in terms of developing a robust additional [inaudible] around the advanced materials business in the kind of acquisitions you've seen from us around Conforma Clad and Extrude Hone, both of which [inaudible] to our margins, are the kind of thing you might expect.

So, you know, the model has been consistent.

We want to continue to drive organic growth to extend the industrial production growth rate around the world and then plus the acquisitions to give us an average sum of between 10-12% growth.

Let me also clarify something else, I think to the questions your raising that March on a daily rate basis was the highest daily sales in the history of the company, its also the kind of sequential comparison what the consequences of the very strong February and fewer sales days in the month of March and then the fourth quarter comparison because I know everybody is concerned about the slowing growth.

All we had a 12% organic growth last year in the June quarter we're forecasting 9 to 11%.

Yeah, that is relatively a smaller growth.

I'll take it any time.

I'll take 9 to 11 on top of 12 any time.

I don’t have a problem with that.

Okay, thanks a lot.

I appreciate it.

Thank you.

At this time there are no further question.

Let me just summarize something before we sign off kind of bring it all together.

I want to make sure that we don’t lose the fact that we are very proud of 14-15% organic growth for the year driving almost 50% of the EPS growth year-over-year that shows you the leverage and that we have and despite a headwind of $45 million of raw material cost increase.

That’s [all for] the year and then strong cash flow and strong reduction in working capital and so on.

For the fourth quarter we talked about continued growth and margin expansion, and to appreciate the performance of this quarter with our aim to our guidance we are observing an incremental 6 cents a share for extra tax for the quarter that was not there before and almost another 10 cents a share for the raw material increases for the fourth quarter, 16 cents a per share, an outline to make sure that kind of at end of the day we don't lose the bottom line here.

Thank you everybody.

Alright, thanks very much everybody for joining us and as always I look forward to your follow up calls with any additional questions.

Bye, bye.

Ladies and gentlemen, this concludes today's conference.

You may now disconnect.