禮恩派 (LEG) 2010 Q4 法說會逐字稿

Greetings, and welcome to the Leggett & Platt fourth-quarter 2010 earnings. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David DeSonier, Vice President, Strategy and Investor Relations for Leggett & Platt. Thank you, Mr. DeSonier, you may begin.

Good morning, and thank you for taking part in Leggett & Platt's fourth-quarter conference call. I am Dave DeSonier and with me today are the following -- Dave Haffner, our CEO and President; Karl Glassman, our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our Director of Investor Relations.

The agenda for the call this morning is as follows. Dave Haffner will start with a summary of the major statements we made in yesterday's press release. Karl will provide operating highlights. Dave will then address our outlook for 2011. And finally, the group will answer any questions you have.

I'll mention to you that during the Q&A, Dave Haffner will direct the questions. We are all located in different sites today due to the weather. We had about 20 inches of snow, and many of us are still at home trying to dig out of our neighborhoods.

This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our express permission. A replay is available from the IR portion of Leggett's website.

We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information. Those slides supplement the information we discuss on this call, including non-GAAP reconciliations.

I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties, and the Company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled Forward-Looking Statements. I will now turn the call over to Dave Haffner.

Good morning from sunny Missouri, and thank you for participating in our call. Yesterday, we reported fourth-quarter and full-year results. For the quarter, sales increased 4% compared to the prior year, primarily reflecting growth in unit volumes in the Specialized Products and Industrial Materials segments.

Earnings per share for the quarter were $0.21 versus $0.26 for the same quarter last year. The earnings benefit from higher unit volumes and a lower effective tax rate were offset by a net change in LIFO impact and higher raw material costs. In the fourth quarter of 2009, we recognize a LIFO benefit of $15 million. As anticipated, that benefit did not recur this year. Instead, in the fourth quarter of 2010, we incurred LIFO expense of $5 million, for a year-over-year net change of $20 million.

In late 2010, steel costs began increasing again. These increases, along with higher than anticipated LIFO expense, led to 150 to 200 basis points of margin compression in the fourth quarter.

We have announced price increases in our major steel-consuming businesses to recover the higher costs. These increases vary in magnitude depending upon the product category and are being implemented during the first quarter of 2011. Because of the lag in cost recovery, our first-quarter margins will likely be under pressure, but we expect margins to normalize by the second quarter.

For the full-year 2010, we are pleased with the improvements we posted. In both sales and earnings per share, we achieved full-year results at or above the high end of guidance issued at the start of the year. Sales grew 10% to $3.36 billion. Demand improved in many of our markets during the year.

The automotive and office furniture markets experienced significant growth from very depressed demand levels in 2009. Retail fixturing demand was also reasonably strong. Our residential bedding and furniture markets started 2010 strong, but weakened in the last half of the year as consumer spending on larger ticket items slowed.

Activities completed over the past few years, including the divestiture of businesses under our strategic plan, closure of certain underperforming and underutilized facilities, elimination of sales with unacceptable margins and other cost reduction initiatives, improved our cost position and enabled earnings to benefit, notably from the higher volume.

Full-year earnings increased to $1.15 per share, which is a 64% improvement versus the $0.70 per share reported in 2009. During 2010, we completed the sale of the seventh and final divestiture identified as a part of our strategic realignment. The seven divestitures collectively generated $433 million of after-tax cash proceeds over the past three years, exceeding our original $400 million goal.

Our focus on optimizing returns was reflected throughout 2010, in part through the low level of working capital that was maintained as sales began to recover. We ended the year with working capital at 14.1% of annualized sales.

For the year, we generated operating cash of $363 million, which significantly exceeded the $223 million required to fund capital expenditures and dividends. In August, we raised the quarterly dividend to $0.27 per share and extended to 39 years our record of consecutive annual dividend increases. At yesterday's closing price of $22.96, the current dividend yield is 4.7%. As planned, much of the excess operating cash was used to repurchase 6.2 million shares of our stock during 2010.

Our financial profile remains strong. We ended 2010 with net debt to net capital at 23.3%, well below our long-term targeted range of 30% to 40%, no significant fixed term debt maturing until 2013 and over $500 million available under our existing bank facility.

We continue to assess our overall performance by comparing our total shareholder return on a rolling three-year basis to that of peer companies. We target TSR in the top one third of the S&P 500 over the long term, which we believe will require an average TSR of 12% to 15% per year. For the three years ended December 31 of 2010, we generated TSR of 16% per year, on average, which ranks among the top 8% of the companies in the S&P 500 Index.

And with those comments, I will turn the call over to Karl Glassman, who will provide some operating highlights. Karl?

Thank you, Dave. Good morning. In my comments, I will discuss a few segment highlights. You will find segment details in yesterday's press release and in the slide presentation on our website.

As Dave mentioned, our residential bedding and furniture markets started 2010 strong, but weakened in the last half of the year as consumer spending on larger-ticket items slowed. Fourth-quarter sales in the Residential Furnishings segment decreased slightly versus the prior year. Steel-related price inflation from price increases implemented earlier in 2010 was more than offset by unit volume declines in several key businesses.

In our US spring business, innerspring unit volumes decreased 5% in the fourth quarter and box spring units were flat. Unit volumes also declined versus the prior year in our international spring, fabric converting and carpet underlay businesses. In our furniture hardware business, the unit volume increased slightly in the fourth quarter.

The majority of the full-year revenue growth that we experienced in the Residential Furnishings segment is attributable to our furniture components business. This growth is primarily due to market share gains, a well-established international presence and ongoing strength in motion upholstery, as consumers continue to favor seating with added functionality and comfort.

Lower unit volumes and higher raw material costs led to a decrease in the segment's fourth-quarter EBIT and EBIT margins versus the prior year. We have recently announced price increases in our major steel-consuming businesses, including bedding and furniture components, to recover the higher raw material costs. The selling price increases vary by product line, ranging from approximately 8% in bedding components to 12% in furniture hardware.

We have also announced price increases in our fabric converting and carpet underlay businesses to recover recent inflation in the cost of fabrics and foam scrap. All of the announced selling price increases will be implemented during the first quarter of 2011.

Current demand in our residential end markets remains well below historical levels. This presents a notable opportunity for both sales and earnings growth over the next few years as those markets recover. We believe our residential end markets have stabilized, and while recovery may continue to be choppy, we are expecting modest overall demand improvements in these markets during 2011.

In the Commercial Fixturing & Components segment, fourth-quarter sales grew slightly. We continue to see convincing signs of improvement in the office furniture industry. Fourth-quarter sales in our office components business grew approximately 20%, reflecting both market recovery and new programs that we have been awarded. This was the third consecutive quarter that we experienced strong growth in this business.

Sales in our fixture and display business decreased approximately 10% during the fourth quarter versus fourth quarter of 2009. Our prior-year comps were difficult due to a high level of late-year activity in 2009 by some of our large customers. For the full year 2010, sales in our store fixtures & display business grew approximately 5%. Seasonality of this business changed in 2010, with volume in the first three quarters of the year roughly proportional, as retailers increased remodeling activity and reduced new store construction. We expect similar seasonality in 2011.

EBIT and EBIT margins in the Commercial Fixturing & Components segment decreased versus fourth quarter of 2009. The benefit from sales growth in office components was offset by restructuring-related costs associated with the closure of a wood store fixtures operation.

Fourth-quarter sales in our Industrial Materials segment increased 8%. Growth from higher unit volumes and steel-related price inflation was partially offset by a small divestiture. EBIT and EBIT margins decreased versus fourth quarter of 2009, as higher unit volumes were offset by the absence of EBIT associated with a small divestiture and lower metal margins in the steel industry that reduced the profitability of our steel rod mill. Price increases have recently been announced and implemented in our rod and wire drawing operations in response to the escalation in steel scrap costs.

In a Specialized Products segment, we posted 17% sales growth in the fourth quarter from continued strength in global automotive demand. We also experienced sales growth in Commercial Vehicle Products during the quarter. Automotive industry forecasts continue to anticipate meaningful global production growth in 2011.

With those comments, I will turn the call back over to Dave.

Thank you, Karl. Over the last three years, we significantly reduced our fixed cost structure, but have retained spare production capacity so that we can accommodate additional sales without the need for large capital investments. As a result, we have meaningful operating leverage that should benefit earnings as sales increase.

For 2011, we expect sales of approximately $3.4 billion to $3.6 billion, reflecting our belief that the economy will continue to improve modestly. Based on this sales expectation and considering other uncertainties, including inflation and steel costs, we project 2011 earnings to be between $1.20 and $1.40 per share. Cash from operations should exceed $300 million again in 2011. Capital expenditures are expected to be about $85 million, and dividend payments should approximate $155 million.

For the full year, we anticipate purchasing up to 10 million shares of our stock and issuing approximately 3 million shares. We have a standing authorization from the Board to repurchase up to 10 million shares each year, but we have no specific repurchase commitment or timetable associated with that authorization.

While challenges continue in certain areas of our business, we are addressing those. We are pleased with many of the business units and their continued progress. We would like to extend our sincere appreciation to our customers for their ongoing support. We remain committed to working together with you for our mutual, long-term prosperity.

We would also like to thank our employee partners, the men and women whose hard work has contributed to the past year's progress and helped position Leggett for long-term success. With those comments, I will turn the call back over to Dave DeSonier. Dave.

That concludes our prepared remarks. We thank you for your attention, and we will be glad to answer your questions. In order to allow everyone an opportunity to participate, we request that you ask your single best question and then voluntarily yield to the next participant. If you have additional questions, please reenter the queue, and we will answer all the questions you have. Diego, we are ready to begin the Q&A.

(Operator Instructions) John Baugh, Stifel Nicolaus.

Good morning, and I hope you stay warm and safe. Just quickly, there was, if I'm not mistaken, no guidance for Q1. Is that just because with the LIFO being so wild, it is really not worth focusing on and it will smooth out for the rest of the year, or is there some other reason?

We didn't give guidance for the quarter because a couple of years ago, we chose to go to annual guidance, so there was never an intention to give guidance for the quarter.

How do we think about the comment that there will be margin pressure related to the timing of the steel versus getting the pricing?

We are in one of those periods, one of those temporary one what I call lag periods, where our costs of raw materials have come up faster than we had anticipated. And we can't overnight give price increases to our customers. I guess in theory we could, because of the pricing position that we have, but that has not ever been our history. So we give our customers adequate notice, allow them to accommodate for their various repricing in markets.

So John, it is likely that we will see margin compression in this first quarter, but we took that into consideration for the annual guidance. Karl, do you want to add anything to that?

No, I would agree with that. The other thing, John, you will remember is that we are up against some pretty difficult comps, at least in the first half. So we're trying to deal with that.

At the same time that our customers -- and you heard much of this at the Las Vegas market last week -- our customers are very, very optimistic about the full year, but have some near-term concerns as it relates to weather. This week certainly isn't helping much of the country.

And then the fact that the income tax refunds are delayed anywhere from two to four weeks. And in the Residential Furnishings part of our business, there is an element at price points that is very sensitive to the receipt of those refunds. So that may delay some purchasing ability into the latter part of the first quarter.

But the significant issue truly is this lag of recovering raw material inflation, magnified by the fact that we don't know that we've topped out on steel pricing. So the scrap inflation certainly was significant in December and January. We think there may be a continuation of that, which we've warned our customers that the increases that we've announced to date may, in fact, not be the last. So we are fearful of that type of inflationary run again.

Okay. And then two other real quick ones. Number one, on the 5% unit decline in innerspring in Q4, could you comment on the customer you lost earlier in the year, then regained, what influence that had on the number? And then relate that number to what you think the industry did.

And then secondly, is Sealey's new launch of Posturepedic -- I know you aren't vertical with them on a lot of their innerspring business -- but does that influence your business with them in any particular way? Thank you.

Karl, go ahead.

As we spoke on the third quarter call, that we had lost temporarily a little bit of innerspring business to some low pricing that was coming out of Europe at that time. And it was due to the fact that US steel inflation in the early half of last year just came earlier than the inflation in Europe, magnified by a very low currency euro-dollar exchange rate.

We have regained much of that business as we speak. But John's point is valid. In the fourth quarter, demand of US innerspring units was impacted. The units were down from a trend standpoint in October about 6%. November was worse, about 8% off. But those of you that look at the ISPA statistics will remember that the ISPA report for November was particularly soft. And then in December, we had recovered to the point that we were about flat.

As we speak today, January was flat; through the first three shipping weeks last week we were off about 15%. We believe most of that was weather-related. So we've regained most of that business.

As it relates to the industry, our box springs, as we commented in the quarter, fourth quarter were flat. We expect -- we believe that our box spring sell-through data is more tightly correlated to industry demand than any other statistic that we see, including the ISPA numbers. They also correlate to some reports from some publicly-held companies previous to ours.

So we think the industry was flattish 4Q. We think we've recovered the vast majority of that lost volume. Box springs, by the way, through the first three shipping weeks of January, were up about 1%. So you can see that connectivity between innerspring and box spring sell-through has narrowed to its normal point.

As it relates to Sealey, Sealey did have a relaunch of the Posturepedic line, first time in three years. And we are backwardly integrated with Sealey from the standpoint that all of their box springs are ours and about two thirds of their wire are ours. So to the degree they do experience some success in that line, we will benefit from that.

Also, at the Las Vegas, Serta introduced the new Perfect Sleeper offering, and did a fantastic job of that introduction also. 100% of that componentry is ours. And that product is positioned at some real velocity price points. So good value for the consumer in both those manufacturers' offerings. We expect that the retailers will promote heavily, both off the introduction of those new lines, and expect some really good things as the year progresses.

Thank you.

Budd Bugatch, Raymond James.

Good morning, everyone, and my wishes, too, for keeping safe and warm during the weather challenges of the week -- of the month, too.

A couple things. One, share repurchases look like you have assumed an acceleration from about $6 million, I think, this year to up to $10 million in 2011. Can you talk a little bit about your view on that?

Yes, Bud, this Dave. And Matt or Karl, if you want to chime in too, please do so. We still see our shares as a pretty compelling opportunity to invest our shareholders' money. The reason we've said up to $10 million, which is our authorization, and said that we don't have any defined plan, be it accelerated or other defined plan, is that we are hoping that we will get an opportunity to spend some money this year on some good acquisitions.

So the timing of those share repurchases will be maybe a little less definable than we've had in the past. And yet, we feel good about that investment, think that the authorization is one that we will probably take full or near full advantage of.

Okay. Secondly, you also indicated, I think, $85 million in capital expenditures this year versus I think you spent $68 million last year. What does the acceleration represent?

I think Karl is going crazy with his capital spending, but I will let him comment on that.

What we are seeing is some larger projects. We are in the process of building an addition to our spring plant in Croatia. It is a low-cost facility that services Europe. So we will incur some monies there in 1Q.

Also, we are in the process of doing some retrofits to the Sterling Steel Mill. We will keep our people safe there. And as you will remember that we purchased that asset out of bankruptcy in 2002, and it has continual capital needs.

So, as you note, the capital spending forecast is up slightly, still significantly below depreciation and amortization. And that is just a sign that there are some particular, specific projects that are reasonably large and have their own imputed returns that are certainly satisfactory, or Dave wouldn't have let me go wild.

And also, just because we put it into our forecast doesn't mean that we have to spend it. As you know, we will spend what we feel we need to spend to protect the shareholders and our employees.

But there is not any built-in expansion other than the Croatian expansion in the forecast of CapEx?

Yes, no production expansion per se. That's correct.

That's correct.

Okay. Let me go lastly to a larger question, just on -- a couple of years ago, we talked about getting the $2.00 a share, talked about getting the 50% or so dividend to payout ratio. I think we were supposed to -- or thought we were going to end this year with an operating margin exit of about 10%.

How delayed are we in that now, and what do you do to power your way through the ties to the economy that Leggett has, and has historically had, to kind of get beyond the shackles of where you've been in terms of earnings performance over the last couple of years?

Bud, very good question. We still -- you've seen some of the models that we've put together. We still feel comfortable that we will get to that $2.00 per share earnings. It is going to take top line. Don't know exactly -- is it 2012 now that we get there? Don't really know. But a combination of that top line, as well as continued share repurchase, of course, aids significantly.

The margin contribution to that plan is very important, too. We continue to see progression on our annualized margins, and I think that we will ultimately get to those goals that we established. But again, it is going to be a function of capacity utilization to get there.

So don't know exactly when it will happen. Is it going to be 2012? Don't know for sure.

One other thing that becomes very important is the product proliferation. As we develop new products, either that take the place of existing products, we need to do so with a mindset to improve our margins in the process. And then also, like we've spoken before, the implementation of brand-new products, new to Leggett, with margins that are above average will certainly assist in that pursuit.

Again, disappointed that we haven't seen a little more aggressive progression, but it is primarily top-line oriented, and we are waiting for that to improve significantly more than it already has.

And just finally, you did spend about $4 million in the fourth quarter on acquisitions. I know that is a very small amount. I'm curious -- and you talked about some more aggressive acquisitions this year. Can you either talk about what you did in the fourth quarter and what you may see on the plate?

I'll let Karl or Matt or Dave talk about what we did in the quarter and then I will talk a little bit more about going forward.

Really, Budd, what that was is we bought out the remainder of one of our joint venture partners in the automotive supply business in one of the Asian operations. So we had owned 80% of that firm and bought the remainder.

That was, like I said, small but very strategic in nature. Going forward, Budd, we've decided -- we are never totally satisfied with our performance at any point. But we have decided that we should really now enter the growth phase of our overall strategy plan. And as you know, part of that growth phase has to do with getting back into the acquisition saddle, but in a way that we are very comfortable with.

So in conjunction with the M&A department, Karl, Matt, Dave and the various segment heads, we've established acquisition criteria for each one of the segments and, indeed, the business groups. Those criteria have been submitted to an outside agency that will assist us in finding fits for those types of potential acquisitions. And so we are starting to see a little acquisition dust in the air, and that is a good thing for us.

Okay. Thank you very much.

Mark Rupe, Longbow Research.

This is actually Andy in for Mark. Just a quick follow-up to Budd's question on CapEx. Do you view that sort of -- that roughly $85 million target as sort of sustainable going forward? Do you expect to see any further acceleration beyond 2011? How do you think about that?

Andy, the way that we look at that in -- Dave's reminder is valid, in that when we started 2010, we forecasted capital spending of $80 million and underspent it. So it's just trying to give ourselves a little bit of running room. It is difficult to plan, especially on the maintenance side of things.

But in terms of the next few years, that $85 million is probably a good number because of the existing capacity that we have in our operations. As we said in the conference call script, we believe we can pass through about $4 billion of demand with the capital that we have in place, all the while continuing, obviously, to maintain the mechanical and the structural side of our investment.

So absent a significant increase in demand, that is a good plan. Might range up to $100 million as we move into the $3.8 billion of sales, but who knows.

Yes, that is the point I was going to make, Karl, is I really can't wait to justify spending more than that, because that will require additional production capacity.

Okay. And then on your office furniture side, could you give us a sense of how demand tracked through the quarter? Did you see sort of any deceleration in the year-over-year trend as you got further into the quarter or was it pretty consistent? What did you see there?

Andy, it was very, very consistent, that office for the last three quarters has been really strong. And while I went through that explanation about difficult comps in first Q, I will quickly admit that the first Q comp in office is relatively easy, in that that strength was really back-half or back-three-quarters oriented.

But it was strong, is strong, and we don't see any slowdown.

Okay. And in the bedding, maybe just give us sort of broad strokes in your outlook for 2011 in terms of maybe units and dollars.

We would expect units in that 3% to 4% range, slightly over GDP, as we start to recover. And I would say that expectation holds true for most of our home furnishings businesses. We expect near-term demand because of an element of pent-up demand, and we think that is relatively conservative at 3% to 4%. It is very highly correlated to consumer confidence.

Okay, great. Thanks a lot, guys. That's all for me. Good luck.

Keith Hughes, SunTrust.

In your guidance, what kind of LIFO reserve hit are you expecting for the year?

We are assuming it is flat for the year, that there won't be any movement up or down. Obviously, we know that will be wrong, but for purposes of our guidance, we assumed that it would be, when it's all said and done, flat year in terms of LIFO.

Okay. So that would probably work out; it would be a negative in the first half and a positive in the second half?

That would be a good prediction, just as we sit here today. But in essence, to answer your question, is for the full year, we assume it is no impact when it is all said and done.

Okay. And Karl, I just want to clarify your comments on some of the bedding demand. You had talked about being flat in the fourth quarter up until the end of the quarter, I believe. Or could you just explain that again?

Yes, I went through it pretty quick, Keith; I apologize. No, we actually saw that we were flat in December. So the quarter, as it progressed, the demand -- it's hard for me to say good -- became less bad. So October was down in that 6% range, and this is innerspring units.

November, we saw some softness and that was actually reflected in the published ISPA data for that month. And we saw about an 8% reduction. December itself was flat, bringing the quarter innerspring units to a negative 5, while box springs were flat through the quarter.

You said January started off flat and then you had a tough week a week ago with the weather, correct?

Exactly right.

Okay. If you look at the ISPA numbers for the quarter, it's up a couple points in units. Is the difference between your results and that what's going on at the very low end of the mattress market?

No, I would say that the real difference is that our box spring numbers, as I said, for the fourth quarter were flat. I believe that the market was flat, the whole market was flat in the fourth quarter on bedding demand.

Remember, the ISPA statistics just cover 64% of the total market. So -- and generally, really all the alternative sleep guys and the large conventional players. So we still believe that in this economy, with the big guys trading down, that there was some cannibalization from the big of the smaller customers.

Okay, thank you.

Robert Kelly, Sidoti & Company.

As far as the 2011 sales outlook, you talked about the price increases that you are attempting to get. Does that include a couple percent of price, the sales outlook?

No, that sales increase, that -- call it 4% at the midpoint roughly -- we expect that to be units. There will be inflation on top of that. We don't know, as we sit here today, what the back half will bring in terms of inflation/deflation. Most of the inflation is being driven by cost of steel or steel-related items.

So we've left ourselves kind of some running room. So inflation should layer on top of that. And I'll just remind you -- and I know you know this -- that we won't have the same contribution margin on those incremental sales as we would on the unit-driven sales that is the core of our sales guidance.

Understood. Now, as far as your segment margins, you actually do a little bit better if prices are rising -- or you get the price increases -- right? But it kind of washes out with LIFO.

That is the right way to think about it (multiple speakers).

-- segment margins?

That's accurate (multiple speakers).

So assuming inflation calms down by the second half of the year, should we also expect a beneficial impact to margins, assuming price increases stick for 2011?

It would not be negative to us.

Okay, great. And then if you all are right about -- you talk about your customers being optimistic about the full year, and say you are right about the 4% volume increase for 2011. Hopefully, you are conservative, but say that we hit that.

How far -- how much more would we have to recover to get back to what you guys seeing as the bogey for the $2.00 kind of earnings potential number, the 6% dividend, all the sort of long-term goals you laid out?

I don't have my data in front of me, but it would be the difference between that roughly $3.5 billion in sales and about $4 billion, a little over $4 billion in sales. And I don't know what that -- and that assumes the same product mix.

Maybe asking another way -- the $4 billion in sales, does that assume that you get back to 2008 volume, 2005 volume? How do you think about what level of volume you need to get back to to kind of hit your longer-term goals?

2007. From a unit run rate perspective, that was all kind of calculated based on 2007 demand.

Okay. Thanks, guys.

Joel Havard, Hilliard Lyons.

My question sort of anticipated the previous one as well. David, I'm going to try and ask it a little bit different way. Is $4 billion then where your current capacity can be, bricks and mortar, presume no acquisitions, et cetera? I'm getting to capacity utilization now.

Yes, Joel. If we didn't have any significant product mix, we could go up to a little north of $4 billion, say, $4.1 billion, maybe even $4.2 billion, depending upon what transfer prices are at that particular point in time. But until we get to that circa $4 billion, $4.1 billion, we won't optimize some of our margins.

Okay. And to make sure I'm understanding, the $4 billion-ish is your current production capacity, let's call it nameplate or whatever. But that's --.

Yes, Karl has got the -- I don't have it in front of me because I'm stranded here at my home office. Our capacity utilization chart is sitting on my desk.

In 4Q, total Company, we were only about 53% utilized.

There we go. All right.

So -- yes, that gets to the crux of it. We need to be somewhat north of $4 billion to get our capital -- in top-line demand -- to get our capacity utilization in that 80% to 85% range. That is the sweet spot.

All right. That's what I was getting at. All right, guys. That was my one question. You guys pace yourselves on those snow shovels.

This is Matt. I'll just add one other, because it is a hot topic here the last several questions. And that is if you think about our incremental margin which we used as a frame of reference, which is 30%, for each $100 million increase in sales -- unit-driven, mind you -- that should bring about $30 million, give or take, in EBIT.

And if you do the math, at an EPS level, that is adding between $0.12 or $0.13 of earnings per share, not bearing in mind share contraction if that continues to take place. And product mix assumes that it (technical difficulty) is right now. So the gearing on every $100 million increase in sales should be, all things else being relatively stable, somewhere in that 12% to 13% range.

I would also quickly add -- and I know Dave and Karl would as well -- is some of our businesses, our incremental margin would be better than 30% and some wouldn't be quite as good as 30%. But again, as a rule of thumb, for many of you asking that sort of question, that might be helpful.

That's perfect, Matt. Thanks, guys.

Herbert Hardt, Monness, Crespi, Hardt.

Can you give us some idea how difficult it was to implement price increases? Was it accepted fairly easily or a lot of resistance or people understand?

Karl, I will let you respond to that.

Herb, they are difficult conversations, but we have been very consistent in the methodology that we implement price increases over the years. Our customers do a good job of understanding the indexes. We had warned most of our steel-related customers 60 days before the announcement of the increase. The increase usually goes into place 30 to 45 days from the date of announcement.

So I don't want to characterize the conversations as easy, but they are certain clearly understood by our customer base. Our position in the market has been a long one. We've been consistent and fair in our dealings. So they weren't traumatic.

I will say at the Las Vegas Furniture Market last week, a lot of those conversations face-to-face with customers, and they clearly understood -- I'm not going to say they were appreciative -- but they clearly understood our position. And they generally are optimistic enough about demand going forward that it truly was not a significant issue.

Okay. Thank you.

Karen Lamark, Federated Investors.

Good morning. I've got a few. You noted that you ended the year at pretty low working capital levels, about 14% of sales. What are your expectations for 2011, given raw material inflation and your outlook for some economic improvement, then presumably some demand?

We believe that 14% to 15% range is what you, as an investor, should hold us accountable for. It is challenged in a very quick, highly inflationary environment to stay at that level. But we've invested a lot of money and time and effort in systems that will allow us to keep at that relatively low working capital level. And that is what we hold ourselves accountable for.

I'm not going to say it won't spike at quarters, but over a long haul, that 14% to 15% range is where we should live.

Okay. And then separately, with respect to CapEx, has there been any deferred maintenance over the last couple of years, and therefore the need to catch up? Maybe you can talk about what maintenance capital was for 2010 and what your outlook is going forward.

It ran about 30%, which has been consistent over the last five years. It is a number that we track regularly, at least quarterly. And there is virtually no deferred maintenance.

Okay. And then lastly I don't know this occurs in your businesses, but I'm just wondering, in light of the price hikes that you've announced, are there any businesses in which you have seen or you anticipate some demand pull-forward?

It will be temporary. Generally, the industries that we serve are very working capital efficient. Our customers don't have long inventories, nor do they have the physical space to take long inventories. So there probably will be temporary pull-forward, but it won't be anything of magnitude -- maybe a week or two of demand sort of thing, but nothing real significant.

Great. Thanks for your help.

[Robyn Browdy], Waterfront Capital Partners.

Just curious when you think about revenue guidance for 2011, how much of that is price versus unit growth? When you think -- just because you guys have announced some price increases in a bunch of your segments.

Karl started to address that. I will let him articulate it again.

Our guidance anticipates, Robyn, that we expect real unit growth of that about 4%, which is the [midpoint] of our guidance. So there -- admittedly, you should have an expectation of selling price inflation on top of that, not incorporated in our guidance, because we just don't have a lot of visibility.

Okay, thank you.

(Operator Instructions) There appears to be no further questions at this time. I will turn the conference back over to management for closing remarks. Thank you.

We will just say thank you, and hopefully next quarter, we won't see quite as much snow.

Yes, and Dave, I would like to just mention to everybody -- not just our employees, but everybody that may be in a challenged position with this weather -- as Joel mentioned, be careful as you deal with it. We will try to get to as many of you as we can as quickly as we can. So just be careful.

That's it. Thanks.

Thank you. This concludes today's conference. All parties may disconnect now.