Matthews International Corp (MATW) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Matthews International second quarter financial summary. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions will be given at that time. (OPERATOR INSTRUCTIONS)

I would now like to turn the conference over to your host, Steve Nicola. Sir, you may begin.

Thank you Denise. Good morning, I'm Steve Nicola. On the call with me today is Joe Bartolacci, President and CEO of Matthews. Today's conference call has been set up for one hour and we are conducting the call to comply the Securities & Exchange Commission Regulation FD. This call will available for replay at approximately 1:30 p.m. today. To access the replay dial 1-320-365-3844 and enter the access code 918494. The replay will be available until 11:59 p.m., May 9, 2008. We have posted on our website, which is www.matw.com, the second quarter earnings release and financial information we will discuss this morning. In the left column of our home page under investor relations, you can click on "Investor news" to access the earnings release, or click on "Reports" to access the quarterly financial data. The financial data is presented under the heading preliminary quarterly reports in a PDF file format.

Before beginning the discussion, at the advise of our legal counsel I have been advised to read the following disclaimer as it pertains to forward-looking statements. Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ from those discussed today are set forth in the Company's annual report on Form 10-K and other periodically filings with the SEC.

I might also add that the balance sheet and income statement data provided today are preliminary data, since our quarterly report on form 10Q for the period ended March 31, 2008 will not be filed with the SEC until the week of May 5, 2008. To begin the conference I will review the financial results for the quarter, Mr. Bartolacci will then provide general comments on our operations. Following that we will open the discussion for questions. For the fiscal 2008 second quarter the Company reported earnings per share of $0.65, compared to $0.58 for the same period year ago. On a year-to-date basis earnings were $1.21 per share through March 31, 2008, compared to $1.02 for the first six months last year. Current year earnings include a onetime benefit of $0.06 per share related to a favorable adjustment in income tax expense, which was recorded in our first fiscal quarter. As a result of recent tax rate changes in Europe an adjustment to the corresponding deferred income taxes was required under U.S. accounting rules.

Last year's results reflected a charge of $0.01 per share for the second quarter and approximately $0.03 for the first six months related to the earn out provisions under the Milso acquisition related agreements. Consolidated sales for the fiscal 2008 second quarter were $198 million compared to $203 million for the second quarter a year ago. For the first six months of fiscal 2008 consolidated sales were $380 million compared to $378 million in the first half of fiscal 2007. Last year's sales total included a large onetime project in the Merchandising Solutions segment. This project generated over $10 million in revenue in the fiscal 2007 second quarter. Other factors impacting comparability of sales relative to a year ago included the favorable effect of higher currency exchange values, the acquisition of an interest in a small marking products operation in China in June 2007, and the sale by the Merchandising Solutions segment of its marketing consultancy business in August 2007.

In our Memorialization businesses sales for the Bronze segment were $61 million for the second quarter compared to $56 million last year. Year-to-date, Bronze segment sales were $115 million versus $107 million last year. The increase in sales for the current period principally reflected higher selling prices in connection with the continued high level of bronze metal cost, while volume during the current year declined slightly. Casket segment sales for the fiscal 2008 second quarter were $61 million compared to $59 million a year ago. For the first six months of fiscal 2008, Casket segment sales were $117 million versus $113 million last year. Higher selling prices and the transition to direct distribution in several territories were the primary factors in the sales increase.

Direct distribution sales, i.e. sales directly to funeral service providers, generally have higher unit selling prices than sales to independent distributors. Sales for the Cremation segment in the quarter ended March 31, 2008 were $6.4 million compared to $6.7 million for the same period last year. Year-to-date, Cremation segment sales were $12.8 million through March 31, 2008, compared to $13.3 million a year ago. Lower service and repair and earns and supplies revenues, which were offset partially by an improved product mix in Cremation equipment sales were the principal factors in the segment's sales variance. In our Brand Solutions group, second quarter sales for the Graphics Imaging segment were $39 million compared to $37 million a year ago. For the first six months of fiscal 2008, Graphics Imaging group sales were $74 million versus $71 million for the first half of fiscal 2007.

The group benefited from higher foreign currency exchange rates and an increase in sales in the German market, which were partially offset by continued weakness in the UK graphics market. Marking Products segment sales were $15 million in the fiscal 2008 second quarter compared to $14 million a year ago. Year-to-date, sales for this segment were $30 million versus $28 million last year. The sales improvement resulted from the acquisition of an interest in a small Chinese ink jet equipment company and the benefit of higher currency exchange rates. Excluding the effect of the acquisition, sales for the segment declined from a year ago. North American sales were lower than a year ago, principally reflecting the downturn in the U.S. economy. Sales for the Merchandising Solutions segment were $16 million for the quarter ended March 31, 2008, and $32 million year-to-date. Last year, Merchandising Solutions sales were $30 million for the second quarter and $47 million for the first half of the year.

The second quarter last year included a onetime large project, which represented over $10 million in revenue that did not repeat in the current year. In addition, the decline reflected the sale of the segment's marketing consultancy business in August, 2007. Consolidated operating profits for the quarter ended March 31, 2008, was $34.4 million compared to $31.6 million for the same quarter a year ago. Year-to-date, consolidated operating profit was $61.2 million as of March 31, 2008, compared to $55.8 million last year. In our Memorialization businesses, the Bronze segment reported operating profit of $16.9 million for the fiscal 2008 second quarter, compared to $15.9 million a year ago. For the first six months of fiscal 2008, Bronze segment operating profit was $29.9 million compared to $27.5 million last year. Higher sales and an increase in the value of the euro were the principal factors in the operating profit improvement.

Operating profit for the Casket segment was $7.7 million for the fiscal 2008 second quarter, compared to $5.6 million a year ago. Year-to-date, the Casket segment's operating profit was $14.8 million as of March 31, 2008, compared to $11.5 million last year. Higher current year sales represented the primary factor in the operating profit growth. Additionally, both the first and second quarters last year each reflected a charge of approximately $700,000 related to the earnout provisions in connection with the Milso acquisition related agreements. For the fiscal 2008 second quarter and first six months operating profit for the Cremation segment was $1.3 million and $2.4 million respectively. For the second quarter and first six months last year, the Cremation segment's operating profit was $1.2 million and $2 million respectively. Higher average selling prices, including an improved product mix in Cremation equipment, and cost-control efforts were the main reasons for the operating profit growth.

In the Brand Solutions group, the Graphics Imaging segment reported operating profit of $4.7 million for the quarter ended March 31, 2008, compared to $3.3 million a year ago. Year-to-date, Graphics Imaging group operating profit was $7.5 million through March 31, 2008, compared to $5.5 million last year. Higher sales, including the benefit of favorable currency exchange rate changes, and the impact of cost structure improvements implemented last year were the principal factors in the segment's operating profit increase. The Merchandising Solutions segment reported operating profit of $1.4 million for the fiscal 2008 second quarter and $3 million year-to-date. For the second quarter and year-to-date periods last year, the segment's operating profit was $3.5 million and $4.8 million respectively. Lower sales due to the absence of last year's large onetime project and the sale of the segment's marketing consultancy business was the reason for the operating profit decline.

For the fiscal 2008 second quarter and six-month periods, the segment reported operating profit as a percent of sales of 9% and 9.3% respectively. Operating profit for the Marking Products segment was $2.3 million for the quarter ended March 31, 2008, compared to $2.1 million a year ago. Year-to-date, Marking Products operating profit was $3.7 million as of March 31, 2008, compared to $4.5 million last year. Fiscal 2008 results included the benefit of the acquisition of an interest in a small Chinese ink jet equipment company last year and the benefit of higher currency exchange rates. Excluding the impact of these items, the second -- the segment's operating profit declined for the second quarter compared to last year. Lower sales in North America as a result of the recent economic slowdown in certain of its domestic markets was the principal factor in the decline in profitability. Second quarter and year to date sales on operating income by segment are posted on the website.

Year-to-date operating margins by segment were as follows -- Bronze 26% of sales; Casket 12.6%; Cremation 18.5%; Graphics Imaging 10.1%; Marking Products 12.5%; and Merchandising Solutions 9.3% of sales. Our fiscal 2008 second quarter and year-to-date consolidated operating margins were 17.4% and 16.1% of sales respectively. Consolidated operating margins for the same periods a year ago were 15.6% and 14.8% respectively. Gross margins for the fiscal 2008 second quarter was 40.6% of sales versus 36.6% for the same period a year ago. Year-to-date, the Company's consolidated gross margin was 40% of sales through March 31, 2008, compared to 36.8% last year. The increase related partially to the transition in the Casket segment to a higher proportion of direct distribution sales, which have a higher gross margin but also a higher level of selling costs.

The improvement in gross margins also reflected productivity initiatives in several of our businesses. SG&A expense for the quarter ended March 31, 2008, was 23.2% of sales versus 21% for the same period a year ago. Year-to-date, the Company's SG&A expense was 23.9% of sales through March 31, 2008, compared to 22% last year. As I just noted, part of this increase reflects the transition in the Casket segment to a higher proportion of direct distribution sales. In addition, lower sales in the Merchandising Solution segment and the North American Marking Products business adversely impacted the SG&A percentage relative to sales. For the fiscal 2008 second quarter, investment income was $491,000 compared to $439,000 for the same period a year ago.

For the six months ended March 31, 2008, investment income was $1 million compared to $850,000 last year. The increase in investment income principally reflected a higher average level of invested funds. Interest expense for the current quarter was $1.9 million, which was relatively consistent with the same quarter last year. Year-to-date interest expense was $4 million through March 31, 2008, compared to $3.7 million a year ago. The year-to-date rise in interest costs principally resulted from a higher average level of debt. Minority interest deduction was $715,000 for the current quarter compared to $591,000 a year ago. For the first half of fiscal 2008, minority interest deduction was $1.3 million compared to $1.1 million last year. The acquisition of a small Chinese marking products business in June last year was the main reason for the increase.

The effective income tax rate for the fiscal 2008 second quarter was 37.4% of pre-tax income. For the first six months of fiscal 2008, the effective income tax rate was 34.1%. Excluding the favorable impact of the onetime first quarter income tax adjustment, our fiscal 2008 year-to-date tax rate was 37.4%, which is slightly lower than the fiscal 2007 effective tax rate of 37.6%. Favorable rate changes in Europe and the impact of the U.S. federal manufacturing credit were the primary factors in the reduction in the consolidated effective tax rate. At March 31, 2008, the consolidated cash and investment balance was approximately $82 million compared to $56 million at September 30, 2007. Our current ratio was 2.2 to 1 both at March 31, 2008, and September 30, 2007. Our outstanding accounts receivable balance at March 31, 2008, was approximately $119 million, which represented 54 day sales outstanding. Outstanding accounts receivable at September 30, 2007, approximated $121 million, which represented 59 day sales outstanding.

At March 31, 2008, consolidated inventories totaled approximately $91 million compared to $94 million at September 30, 2007. At March 31, 2008, the Company had approximately 31.181 million shares outstanding. During the first six months of fiscal 2008, the Company purchased approximately 232,000 shares under its share repurchase program at a repurchase cost of approximately $10.4 million. At March 31, 2008, approximately 1.8 million shares remained under the current repurchase authorization. Our long-term debt balance at March 31, 2008, both current and long-term portions, approximated $151 million. $129 million of this balance represented borrowings under our domestic revolving credit facility. The remainder is mainly debt on the books of our German and Italian subsidiaries. The maturity of the domestic revolving credit facility is September, 2012.

Depreciation and amortization expense for the quarter and six months ended March 31, 2008, were $5.3 million and $10.3 million respectively. Capital expenditures for the quarter and six months ended March 31, 2008, were $2.4 million and $4.5 million respectively. To summarize our financial results for the second quarter, we were able to achieve earnings per share growth within our long-term target of 12% to 15%. These results were particularly encouraging considering that the second quarter last year included the benefit of a large project in our Merchandising Solutions segment. In addition, economic factors continued to pose challenges in our Marking Products and UK Graphics businesses. Favorable currency exchange rate changes mitigated some of this impact on a consolidated level. More importantly, our Casket segment results demonstrated continued progress in the transition of its business model.

With respect to the remainder of the fiscal year, we are maintaining our fiscal 2008 earnings guidance of $2.48 to $2.54 per share, excluding the onetime income tax adjustment and any other unusual items. We do this with some degree of caution as the cost of bronze metal has increased again in the past few months and steel costs have recently risen significantly. However, we expect the pending acquisition in Germany, which is currently scheduled to close next month, to contribute to the achievement of our projections. This concludes the financial review and Joe Bartolacci will now comment on our operations.

Thank you, Steve. I only have a few comments here. Good morning to everybody. I am generally pleased with the -- with how our businesses performed this quarter in spite a difficult economic environment. We began to see the results of several strategic initiatives that we have discussed with you over the past several quarters. If you exclude from prior year results the revenue and operating profit of the significant project mentioned by Steve in our Merchandising Solutions division, each of our divisions improved year-over-year. First, in our Casket division we have seen improvement both on the productivity side as well as on the asset management side of our business. We are now beginning to focus our efforts on improving our distribution network, both as it relates to the number of distribution centers, as well as the location of each center.

This will be a multi-year process which should gradually improve both distribution efficiencies and inventory utilization. Similarly, with regard to our Mexican facility, we have seen continued improvement in the consistency of the product and the skills of the work force. This will allow us to continue to ship additional production to the facility over time. I am pleased with where this division is today and look forward to further improvement. With regard to the Merchandising Solutions segment, our cost reduction and productivity efforts were reflected in the operating profit as a percent of sales, which was improved as compared to recent quarters with similar sales volume. Lastly, our Bronze division continues to perform well despite higher raw material costs.

As Steve said, however, we remain particularly cautious about this division and our Casket division due to the significant increases we have seen in fuel and raw material prices. We are planning further actions to address these issues in each division, but the increases, especially as it relates to the steel pricing, is unprecedented. In summary, I remain cautiously optimistic about the remainder of our year and reiterate our full year guidance of $2.48 to $2.54 per share. We'll open it to questions at this time.

At this time we would like to open the call to questions. For those of you who will be asking questions, we request that you limit them to one question and a follow-up question until all of those who wish to participate in the Q&A session have had an opportunity to do so.

(OPERATOR INSTRUCTIONS) Our first question comes from Jack Ripstein of Potrero.

Hi, good morning. Thank you for taking my call.

Good morning.

You mentioned going direct. Do you think you are taking share, some of the gain you got is taking share from other suppliers, namely Batesville, maybe, in that market.

To be honest with you, we're still in the early process of integrating a lot of our locations, so it is hard to tell whether we are taking share or losing share or just maintaining our position. We have really focused over the last six months on integrating the Yorktown acquisition that we talked about in the prior quarters. So right now, I'm not in a position to tell you whether we're taking share or not. I don't think it's significant if we are.

Okay. Great. Thank you.

Our next question comes from Bob Labick of CJS Securities.

Good morning. Congratulations on strong results in a tough environment.

Thank you.

Good morning, Bob.

Good morning. Wanted to ask first on the Marking Products division, you obviously had a very strong sequential recovery, so that's not related to the acquisition last June. Could you just talk to the margin improvement sequentially? And we know the environment is still touch domestically, so what is the outlook for the second half of the year there?

Well, let's talk a little bit about the second half of the year and then I'll let Steve talk about the margins a little bit. The second half of the year is looking a little better, but the reality is, is that a lot of our profitability stems from the ink sales that are generated through our drop-on-demand product. That product is used largely in the construction and industrial sector. And today that market has not significantly picked up. So we're seeing strong sales of our equipment, which is good. We have some new products in the marketplace, which has helped bolstering some of the sales volumes that were anticipated. We're having some margin pressure as it relates to our ink sales being down. We think that will recover as the market recovers, but right now we're not projecting a big pickup in the second half. Steve?

Yeah, we did -- as we mentioned toward the end of last quarter, we started to see some pickup in our order rate going into this quarter. So that helped the sales and that also helped the margin improvement get back to closer to traditional levels. But, again, we have seen it cycle down a little bit here toward the latter part of the quarter, so we're still very caution because this economy makes this a little unpredictable.

Great. In regards to my follow-up, I'll just go with -- you've talked about copper, I guess, bronze, steel and fuel, are there opportunities for surcharges? Or what is the pricing environment, I guess notable in the Bronze and Casket division, which was most impacted by those raw materials.

When we talk about surcharges, over the last several years, we have been fortunate enough with our relationship with our customers to be able to increase through surcharge the price of our memorial. I'm not sure how much further we can push that, that limit at this point in time. Obviously, we are taking and planning other steps as it relates to the business. We'll talk more about it over the quarters to come, but right now I don't want to speak to whether we can or could not pass on additional surcharge on bronze. As it relates to steel and the Casket business, that is a novelty in that industry. We have been in this business for a while and have never seen the, neither the escalation in steel prices that we're seeing right now, nor the industry passing on surcharges to cover that. So we will wait and see.

Great, thanks very much. I'll get back in queue.

Our next question comes from Scott Blumenthal of Emerald Advisers.

Good morning, Joe, good morning, Steve.

Hi, Scott.

Not to beat a dead horse, Joe, but the steel issue, can you talk about the type of steel that you are buying and if you are buying forward and how you have your contracts set there?

That's a good question, Scott. We are buying cold rolled carbon steel. Plain old fashion steel mill steel. Nothing particular that is out there on that product. We have had contracts in place throughout the remainder of the fiscal year and unfortunately we do not know whether our vendors will honor those contracts. We have been told that in the industry there are a lot of people, in the steel-consuming industry, let's put it that way, where others have been informed that they will not honor those contracts. We have had notice that it is in question whether they will. Our supplier is really directly linked to the mill and to the extent the mill passes it on, they don't have much option. So it's an unusual situation, but from what I can understand, not unusual as it has been in the past. We're expecting that steel prices will go up, whether it's this month, next month, or sometime soon they will go up.

So you are buying through a service center?

We have to, yes.

Okay.

We're not direct to the mill.

And what do you think is your ability at this point, and I understand that you're now the distributor and the retailer, but what is, I guess, they -- I mean, you are just the distributor. What is your ability to raise prices into the retail channel? And how often can you do that with steel prices as volatile as they are?

Scott, historically this industry has gone up once a year to cover all costs throughout that year. And that usually occurs in the latter part of the third to fourth quarter. And so we've not seen it in the past. We are not the market leader in this industry, so generally, we tend to watch what the market leader does. We will, however, if necessary take the appropriate steps and test the waters if we need to.

Okay. And one more, if I may, Joe? With the softness in construction, especially residential housing, are you seeing any relief in the wood costs?

Wood costs are not being relieved, but we don't see anywhere near the escalation that we have seen in the other metals. So we're pretty stable on the wood side.

Okay. Great. Thank you. I'll get back in queue.

Thank you.

Our next question comes from Gregg Halter of Great Lakes Review. Good morning.

Good morning, Gregg.

Wonder if you could comment on the Saueressig acquisition? If there has been any change in their fundamental dynamics since the announcement was made. And also what makes you confident that that will be, I guess, accretive to your results for the final five or six months of the year.

As we do with all of our acquisitions, we expect them to be accretive as the first step in determining whether or not we even proceed. So the fact that it is accretive was part of the evaluation when we looked at the acquisition. There has been no change in -- in our estimates or our expectations since we announced the deal back in February, I believe. The only thing that has occurred, we have had to wait this long waiting for the FTC equivalent in Europe to approve the transaction given its size. And we're anxious to close here in May, in sometime in early May, we expect.

Okay. And Steve, wonder if you could comment on your capital spending plans for the year and if that changes once Saueressig is in place.

That certainly will change once the Saueressig acquisition is in place. Although, I'm not sure that will have a material impact on our capital spending in fiscal 2008. As of March 31st, we're actual running slightly below what we expected our capital spending to be for the year. But I still expect capital expenditures for the year to be in the 15 to high teens range in total.

Okay. Thank you.

Our next question comes from Charles Smith of Fox-Pitt Capital.

Good morning, gentlemen, how are you doing?

Good morning.

On Merchandising Solutions, Steve, what would you guess has been the annualized rate of organic sales growth in that business since you bought it?

Since our purchase?

Yeah.

I would say the organic growth rate has been relatively flat. The reason for that is it's been a lumpy business since we have purchased it in terms of significant projects here and there. And, Charles, recently, in fact about a year ago, we made a conscious decision in that business to scale back on the type of projects that we accept to try to -- to try to gain better margin products -- projects versus just gaining projects. So we have intentionally tried to lower the sales rate in that business and become more productive, which we're encouraged that we have seen in that 9.3% year-to-date margin.

Sure. And obviously that strategy has limits. Eventually you got to begin to grow the sales. What kind of a long-term target do you have for revenue growth in that business?

Again, it will be lumpy, but right now we look for all of our Brand Solutions businesses, including that one, to be in the mid-single digit top-line growth rate.

How much of the goodwill on your books is represented in that business in merchandising?

In Merchandising Solutions -- just give me a second or two to find that. It's about $10 million.

Okay.

Slightly less than $10 million.

All right. So it's not a big number. Okay. Thanks a lot.

(OPERATOR INSTRUCTIONS) Our next question comes from Scott Blumenthal of Emerald Advisers.

Hi, again.

Hi, Scott.

Joe, Steve mentioned, and I guess Steve can answer this too, that Caskets sold through distribution have -- have different margins than those that are sold directly to end users or retail customers. Can you talk about the volumes or number of units year-over-year and whether that was flat or slightly up or slightly down?

Well, Scott, maybe I can put this -- make the answer a little bit more relevant. I think what you are looking for is we currently sell about three-quarters of the caskets sold directly through our own distribution centers. That number would have been lower for the first six months last year simply because we had two additional distributors at that time. Those days -- at that time, I would venture to guess we were probably closer to a 50/50, 55/45 split. But the reality was, as you recall 12 to 18 months ago, is we had the infrastructure in place to confront a couple of termination in contracts, one being the Yorktown territory.

As we had said, we had the infrastructure in place in anticipation of the termination of that contract. And what you are seeing the benefit of now, and you will see over the next quarter or two, is as we -- that infrastructure now will have the relevant revenue attached to it because we'll be direct in that territory. So as you might expect, as we go direct, the margin to funeral home is different than the price -- excuse me, the price to the funeral home is different than the price that we would sell to our distributors. We picked up that margin the distributor has between his sale price and the price he would sell to the distributor.

Sure. So in terms of units that you are moving through your operations, have the unit volumes -- have they remained pretty much the same then?

We were successful in converting a fair -- a fairly high percentage in those territories where we were losing distributors. Therefore, the relative units year to year are almost flat to slightly down.

Okay. That's -- that's really helpful. Thank you.

We view the conversions relatively successful in terms of that front.

Okay. That's very helpful, thank you.

Okay.

Our next question comes from Bob Labick of CJS Securities.

Hi, just wanted to touch base on Graphics Imaging as well. You said certainly there's a pick up in German operations and on a consolidated basis margins improved again sequentially and were very strong. Could you just give us a little update on the UK, and the steps you are taking there and the anticipated recovery or outlook.

Sure. In the UK we took the steps over the course of the last two quarters to improve its profitability by taking the costs out. Unlike last year at this time where we may have had some losses being generated at that division, it is not a drag on our operation at this point in time. Now we're focusing on improving that. We do have some new business coming on line over there. We expect that to take off here in the third or fourth quarter. That business takes time to build, though. You often do a lot of up-front work trying to get the product -- trying to get the project started and the revenues follow thereafter. So I would see the operating results of the UK improving every quarter for the next several quarters as we move forward. Secondly, we have not lost any accounts over there since we did our restructuring. The fact of the matter is each account, though, is down a little bit in volume. So you're waiting for the day when that volume comes back. No one has suggested we've lost it, so we'll sit and wait there. We're swimming, really, upstream against a lot of economic current in that country, unfortunately.

Thank you for that color. And then just shifting gears over to free cash flow. Free cash was very strong, cash from operations very strong and you mentioned your CapEx was down a little below plan. Is the cash from operations -- are you borrowing working capital from the second half or are you just drawing down inventories from when you had to have them a little higher before? And what should we look for in terms of cash conversion going forward?

Well, one of the things that I mentioned and Steve mentioned in our comments is that we have been -- we've had success in the utilization of assets in our Casket business. We've had a significant reduction over the first six months in our inventory there. As I said, we will continue to do that as we look at our distribution centers moving forward. Steve, next six months?

Yeah, next six months I would tell you that I see working capital relatively stable. We have had the contribution from -- from -- I'm sorry, in the first half of the year from the reduction in the inventory. We would like to project that we'll see a little bit more of that, but we're also going to see, hopefully see some growth in the top-line, which will contribute to increases in, slight increases in accounts receivable. But I don't look for that to be a drag similar to what it was a year ago coming into the second half of the year.

Great. Thanks very much.

You're welcome.

Our next question comes from Jamie Clement of Sidoti.

Good morning, gentlemen.

Hi, Jamie.

Two questions, if I may. The first is when you allude to looking to take some actions in the Bronze division, to help improve productivity and that kind of thing, are you talking about the similar types of actions that you have taken in past years. I can't remember the exact time frame. I don't know if it was two or three years ago. But you took some actions in Bronze. Are those the kinds of actions you are talking about.

Generally, Jamie, that's what we're talking about. We have -- we're working very hard to flex our workforce and getting better at that as we move forward here. We are also looking at our productivity at the various sites and looking at all that as it relates to internal costs for sure.

Okay, because if I remember correctly that was a pretty successful program at the time.

Yeah. It gets harder to get better success for every time, but we're doing our best.

Okay. Another question, little bit perhaps forward-looking. I think you have occasionally talked about it, but potentially some long-term opportunities to realize some synergies between your Graphics business and your Merchandising business.

Right.

Do you still see opportunities down there? Are there some initiatives you can take to potentially realize those? Because originally, it was something you talked about and it just seems like investors focus has sort of been on other areas. So I was looking for kind of an update on that.

Jamie, we still believe in the thesis for making the acquisition when it relates to Merchandising Solutions. There is value in the synergies. We're starting to have some discussions with existing brand owners. It is the chicken or the egg argument in many respects. We were hoping to get more opportunities on the brand side to develop through our Merchandising Solutions to help our graphics business to move forward. In fact what we're seeing is we're probably getting more opportunities as a result of our UK operations and their contacts who are opening up doors for us in the U.S.

Okay. And follow-up question to that, with respect to Graphics, Joe? How does -- does Saueressig and your UK graphics operation is there a fair amount of customer cross-over there? In other words, was this an acquisition you decided to do partially because you already knew some of the customers over there? I know you already have a successful German graphics business also.

It's not just the UK, but it also really relates to the German business, because the Germans are really where this -- Saueressig is strongly focussed in the European -- in the German market, excuse me. They do have a UK operation. It is a relatively small one. We've already started to see some of the benefits. We shared a customer before and that customer now is ours together. We were able to eliminate another competitor. Small, not a bit change. Don't expect reforecasting or anything as a result of this customer, but we do see the synergies that are out there. They both operate in the same market and oftentimes call on the same customer.

Saueressig is big in the gravure market. That's right?

That's what they do. They are relatively small in the photo polymer.

Was your existing German business mostly photo polymer.

It was only photo polymer.

Only photo polymer. Okay. Thank you very much, I appreciate that.

I'm not showing any further questions at this time.

Okay. Well, we would like to thank everyone for participating this morning and we look forward to our next call in July. Have a great day.

Ladies and gentlemen, this conference will be available for replay after 12:00 p.m. Eastern time today through May 9, 2008. You may access the AT&T Teleconference Replay System at any time by dialing 320-365-3844 and entering the access code 918494. Again those numbers are 320-365-3844, access code 918494. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.