Quanex Building Products Corp (NX) 2004 Q1 法說會逐字稿

Welcome to the Quanex Corporation first quarter and fiscal 2004 earnings conference call. At this time all participants have been placed on a listen-only mode. Following the presentation the call will be open for questions. I would now like to turn the floor over to your host, Mr. Raymond Jean, Quanex Chairman and Chief Executive Officer.

Good morning, and welcome to the Quanex first quarter conference call. Thank you for joining us. With me this morning are Terry Murphy, our Chief Financial Officer, and Jeff Galow, our Vice President of Investor Relations. We will be available after my remarks to take any of your questions.

Today's call will include an overview of our first quarter results, the impact that steel scrap pricing had on the quarter, the current state of our three key market drivers, and an update on the integration of our two recent acquisitions.

The comments I'm making today include forward-looking statements about the future prospects of Quanex. Please refer to the Company's latest 10-K report, filed December 29, 2003, for our complete forward-looking disclosure statement. The Company's first quarter earnings release, dated February 26, 2004 is available on our website at Quanex.com.

During the first quarter, overall customer demand for our products remained at high levels. MACSTEEL reported a 10 percent increase in volume over last year, excluding Monroe's results, reflecting ongoing strong demand for our products. Total North American light vehicle builds in the quarter were about flat to this time last year, while heavy-duty truck builds were up significantly over the same period.

Housing starts and remodeling expenditures remained at strong levels during the quarter, although we did experience some slowing in customer activity in January as the Midwest and Northeast winters kicked in with snow and very cold temperatures. Both sales and operating income in our Engineered Products division, excluding TruSeal's results, were excellent, with operating income a best ever for a first quarter.

At Nichols Aluminum, building product sheet demand remained strong for much of the quarter, and at long last, sheet sales for the secondary markets, such as truck trailer, recreational vehicles, capital equipment and service centers, are picking up.

Taken together, Quanex's consolidated diluted earnings per share for the quarter were 39 cents, down from 41 cents we reported in the year ago quarter. MACSTEEL Monroe and TruSeal's combined January results contributed about 5 cents after interest expense to the diluted per share amount. I'll talk about these two businesses in more detail later.

Let me move on to our two operating segments, where I will talk first about the results of vehicular product, which for purposes of this discussion exclude any results from MACSTEEL Monroe. The primary drivers for this segment are North American light vehicle builds and heavy-duty truck production. MACSTEEL's shipments were up 10 percent for the quarter versus this time last year. They ran both plants essentially flat-out during a holiday impacted quarter to keep up with very strong demand. Light vehicle builds were off a bit in the quarter, yet our automotive volume was up.

MAC did a good job of further reducing their conversion costs in the quarter compared to a year ago, but their operating income was off about 20 percent, due entirely to higher scrap costs which were only partially offset by their trailing scrap surcharge. In our first quarter, MAC's average material costs per ton were up about $65 over the first quarter of 2003, and unfortunately, up some $35 per ton over the fourth quarter of 2003. On January 1st, MAC increased their scrap surcharge to all customers, but as you may have guessed it, they are already well behind their actual scrap costs in the second quarter, which surged higher in January and February.

As we outlined in the earnings release, Piper Impact continues to struggle against the ongoing loss of their base business, namely aluminum airbag components and ordinates. We are finalizing our review of our options for the business.

Let me comment on the Building Products segment, which includes Engineered Products, along with our newly acquired TruSeal Technologies business and Nichols Aluminum. Financial results in TruSeal are excluded from this discussion. The primary drivers for our Building Products segment are housing starts and remodeling expenditures. The segment experienced very strong order releases, although our January sales did slow somewhat in the face of increment weather in the market regions we primarily serve -- that is, the Midwest and Northeast.

Overall, housing starts were surprisingly robust for the quarter at nearly the 2 million annualized mark, and this level of activity allowed Engineered Products to post record operating results for a first quarter. Just as important to the division as housing starts, sales of the big box home improvement stores like Lowes and Home Depot remained strong, which tells us that remodeling activity remains very active. You may recall that Engineered Products also posted best-ever income last quarter.

Nichols Aluminum had a better quarter in terms of sales and operating income compared to a year ago. Shipments to our traditional building and construction customers remained at healthy levels, and we were nearly sold out on our higher margin painted sheet. Shipments from our Golden facility in Fort Lupton (ph) were also strong.

Importantly, customer activity in Nichols' secondary markets are beginning to show signs of improvement, but really meaningful improvement in these market won't come until the economy exhibits more strength in the capital equipment, commercial construction, and truck trailer markets. I'm sure you're all aware of the rapid escalation in scrap pricing that has occurred over the last 12 months, particularly for steel scrap. You should know that MACSTEEL, and to a lesser extent, Nichols Aluminum, have experienced margin compression over the last several quarters due to these rising costs. And we will likely see further pressure on margins throughout the remainder of our second quarter.

MACSTEEL's scrap surcharge, which is based on a trailing 3 month index, remains in effect, so that when steel scrap prices flatten or hopefully decline, the spread will improve. Our spreads are very vulnerable to scrap price spikes like we've been experiencing every month of late, but we also know that scrap is just another commodity subject to periods of troubling volatility. So until scrap costs flattened or fall, and at some point they well, they will be a significant negative impact on our earnings.

Nichols Aluminum has no surcharge, so they rely on a mix of lower conversion costs, increased value added sales, and higher selling prices to offset higher aluminum scrap costs. Nichols' selling price has been relatively flat in the Building Products sheet market since last fall; however, we are now seeing higher prices as we head into the spring building season.

Turning to our two target markets for calendar 2004, total North American light vehicle builds are estimated to be about 16 million units, about flat to 2003. Taking this excellent light vehicle production outlook, together with the continued improvement in heavy truck builds -- up from 175,000 units to some 235,000 units this year -- we look for MACSTEEL to run close its capacity of 720,000 tons in this fiscal year. When steel scrap pricing finally turns, MACSTEEL's financial prospects will be significantly enhanced.

We look for housing starts to remain strong throughout calendar 2004 with some 1.8 million starts expected. Favorable interest rates, excellent buyer demographics, and an improving economy bode well for this market segment in 2004. Remodeling expenditures, which we believe drive about half the sales of our Building Products segment, are strong, and they are expected to remains so, powered by a reviving economy and slowly improving employment growth.

Let me turn the discussion to our recent acquisitions for a moment. We are excited and pleased with what we have seen so far, and there has been no buyer's remorse. We have made solid progress integrating the two operations into Quanex. We are impressed by the quality of the managements involved, and more importantly, the long-term earnings potential of both businesses. We announced last month that the two acquisitions should add some 40 cents to 50 cents of diluted earnings per share this year, and we remain comfortable with that guidance today.

Taking Monroe first, it's clear to us there are opportunities to improve the operating efficiencies of the facility. Among other things, we are currently looking at how to more effectively serve our various market segments. Because strong demand has our Jackson and Fort Smith facilities running full, it is essential that we improve the load balancing or that we optimize the three plants' productive capabilities as soon as possible to raise their collective output. In other words, we want each plan to be running in its sweet spot a larger percentage of the time.

Already, a noteworthy accomplishment at Monroe was the negotiation of a first-time, 4 year labor contract with the United Auto Workers. We're finding that the workers are very pleased to be part of MACSTEEL steel, and the best practices sharing underway will net us additional productivity gains. Monroe is a great addition to our MACSTEEL organization, and we know what we have to do to take the three MACSTEEL plants to new levels of productivity without the addition of significant capital.

Turning to TruSeal, we have a well-lead, profitable business, which is a perfect adjacency to what we do in the window and door segment. They strengthen our existing door and window market position by providing an extensive customer list and contacts in the vinyl and aluminum segments where we have not had a strong presence. Similar to our other very successful fabricated components business units, TruSeal manufactures a highly engineered window component while providing a high level of customer intimacy. Where traditionally our market strength has been in the Midwest and Northeast, TruSeal's market presence is far stronger in the Southwest and Southeast, where vinyl and aluminum windows have a larger share of the market.

Let's change subjects and review our second quarter business outlook. Overall, we look for customer demand to remain strong in the quarter. Sales expectations at our two core businesses are absolutely robust, and Nichols Aluminum is expected to operate close to capacity. However, from an earnings standpoint, we still don't have good visibility for the quarter. The obvious wild-card in our outlook remains the cost of steel scrap and its near-term impact on MACSTEEL, which has become a bit more complicated now that Monroe has joined the group.

At this time, we don't know where our average steel scrap costs per ton will come in for the second quarter, but early estimates have costs up 30 percent over our first quarter. What is particularly distressing, of course, is the ongoing monthly spiking in costs. Needless to say, the rise in scrap costs is going to significantly impact MAC's results in the second quarter. We know that current scrap surcharge, effective January 1st, will not cover these higher costs.

Because of this uncertainty, we'll have to wait until the second quarter update to give you credible earnings guidance for the quarter. We can say, however, that results for the quarter will be down significantly compared to the year ago period. As for guidance for the fiscal year, we are delaying it until we have a sense that a flattening of the scrap cost curve has occurred, or at least that the spiking his diminished.

Let me finish this morning with an update on our balance sheet. After financing the acquisitions, the balance sheet remains very healthy. Our total debt to capitalization stands at about 34 percent, affording us the flexibility we need to continue to fund growth opportunities.

A key metric we use to track how well we're managing working capital is our conversion cycle. The conversion cycle gives us an easy-to-use tool which indicates how many days it takes us to convert our purchases of raw materials from our suppliers to cash from our customers. The conversion cycle is a blending of our days sales outstanding, days payable outstanding, and days inventory on hand. These data points are tracked down to the individual plant level. At the end of January, the cycle improved 12 days from this time last year. It's all part of the continuous journey we are on of leaning out our businesses. It may be a cliché to some, but we take it very seriously.

That concludes my formal remarks this morning. We will now answer your questions.

Thank you. (OPERATOR INSTRUCTIONS). Mike Harris, Robert W. Baird.

Ray or Terry, can you just give us an appreciation of how the incremental steel scrap costs impaired operating income for fiscal Q1?

I think ballpark is that our costs for scrap in the first quarter versus the last quarter of last year were up a little above $30 on average. And the impact to our earnings was some 2.5 million.

And that is relative to --?

That would be relative to the fourth quarter of '03.

That's helpful. And then -- obviously, the timing lag of the surcharge at MACSTEEL and Monroe is really the heart of the issue here.

It is, Mike, and particularly when things are spiking it makes it all the more difficult.

I understand. Can you just discuss the potential that when your existing contracts expire, the possibility of being able to renegotiate a surcharge that is more real-time going forward? Meaning like month-to-month for example?

Right. I think the answer to that is that market sets the price to some extent, but I can tell you that we are going to be looking at the commercial terms that we have with the contracts. And we will do all we can to structure them to our advantage going forward.

Sure.

And we are not standing still, because not all of our business is contractual. Where we do have opportunities to adjust prices to recover our costs more rapidly, we are doing just that.

And I guess at the end of the day you don't want to adjust to a month-to-month when steel starts to go down.

We certainly have to take that into consideration.

I will go back into the queue here. Thanks.

Michael (indiscernible), (technical difficulty).

Just had a question on -- not surcharges, but price increases above and beyond the surcharges. We have seen that in a number of different steel products and grades. Can you talk about any of your thoughts on that? And then also on, generally, the customer acceptance of price increases out there, we have been hearing some mixed reports on customers accepting these surcharges.

Where we have contracts, we are honoring those contracts. We are not violating the terms of our contracts. Where we -- at the opposite end of that, we have some situations where it's strictly spot purchases, and there, obviously, we are pricing to recover our costs. Steel is tight, and it is a question of if they don't want to pay they're not going to have the steel. Because we are running hard within the plants. And in some cases we have some contractual terms that are not as tightly defined as perhaps they could be. In other words, we do have a little bit more maneuvering room, and there we're also (indiscernible) the name of the game to -- again, to recover our costs. Where we play it isn't just -- it's not a commodity that is easily substituted; you've got barriers, such as (indiscernible) paths that you have to go through to approve the product and so forth. So our negotiation position is, as I say, it is a fair one. We are abiding by the contracts that we do have, but where we have the maneuvering room, we are taking it and it's sticking.

So should I interpret, then, that the OEMs are either accepting it our going without the steel?

No one has chosen to go without steel.

Okay. And then, can you also just specify in your auto build estimate what you're assuming for the big three, and the impact that that would have if you're assuming big three auto production will be up or down?

Our assumption is that big three production is going to be fairly close to last year. If you look at January results, they were down several percentages. But I think first quarter overall, they will be in line with last year. And I would expect the second quarter maybe about the same. Transplants are up a little that, and we love the increases in heavy duty truck because we've got good content, we've got good value-added product there. And that is certainly a nice plus for us. The secondary market is showing signs of strength as well. Defense, where we play a little bit. The oil patch has come back some -- capital equipment. We do have a reviving manufacturing sector which has been down for a number of years, and we're -- even though it's not a large percentage of the total for us, where we do play there it's good margin stuff.

Tim Aquino, McDonald Investments.

I just have one question. Can you give us a general sense of how you see the inventory levels of your customer base? In other words, are they running lean or are they well stocked? What is the situation?

I think there has been some inventory rebuilding, is my take of things. And I'm talking about on the light vehicle side more than anything. I rally don't think inventories are fat perhaps in the other markets that we serve, including heavy duty truck production. But on the light vehicle area, I think there's been a restocking or a rebuilding of the pipeline, so to speak.

One last question here. Did I hear correctly when you said that the scrap surcharge had a 3 month lag to it?

Correct.

A follow-up question from Mike Harris, Robert W. Baird.

I apologize in advance for obsessing on the negative steel scrap pricing issues here, because you guys are experiencing such a healthy topline environment. But I just wanted to ask regarding the management over at MACSTEEL, I would be interested in knowing their best guess as to where scale steel scrap prices are going to go in the near term? If you're willing to discuss that.

I will answer it this way. I picked up American Metal Market this morning, and the headline says -- A Bundle of Confusion Clouds Scrap Roadmap. And right now for example, you can't get a quote for what auto bundles are going to be for next month. I talked to my -- to the President of MACSTEEL this morning reviewing the situation. And he's finding the same thing, that it is just a very difficult market to read right now. On the good side, though, is that there is more scrap coming in from Europe. I happen to know that there is more (indiscernible) rail cars being scrapped. And the washing machine and the cars in my neighbor's backyard have gone away. To me, the collections are going to pick up, and it will turn at some point. I'm just not sure when.

I have heard that older rail cars are starting to be shredded for their steel content because it is starting to make economic sense.

Right.

I'm confused, too, as to where these scrap prices are going, so that is why I was asking what the head of MACSTEEL thinks. Because his guess is probably as good as anybody's. Just -- the other point here is, just setting aside surging prices of steel scrap and looking at it at a different potential threat -- what is the threat of actual shortages in the availability of steel scrap showing up here, which could lead to production delays in the near term?

Never say never. Thus far we have been able to get the scrap that we need, it's just how much you're willing to pay. And we think we'll continue to be able to get the scrap, but shortages could happen, Mike. I can't say never.

Kind of switching gears here. Can you give us separately the revenue contribution from Monroe and TruSeal for fiscal Q1? I know it's just a month, but can you break that out for us?

I don't think we want to go there. On an annual --

I think on an annual basis, we have said in the individual announcements that North Star is about 190 million in revenues, and 100 million of it, and that TruSeal is in the $80 million range. At this point that is all we have disclosed.

Fair enough. And Piper Impact, can you tell us how much Piper lost in the quarter on an operating income basis?

It was less than a million.

Ray, you commented that you were getting closer to finalizing a review of your strategic actions for his division. Are we talking a possible announcement in the next quarter or two? Is that possible?

Yes.

Okay. Just a couple more come here. You already alluded to that aluminum scrap -- I'm sorry -- price increases, that Nichols is starting to pass through additional price increases finally. Can you just give us your outlook or your forecast as to how long -- basically the forecast for price increases for Nichols over the next quarter or two? And if you plan on trying to get additional price increases through, when considering your key markets that are really starting to pick up?

Well the LME has been increasing, as I'm sure you have been reading about. Demand has been strengthening. Building products demand is expected to remain strong in the near term. Secondary markets, again, are far more robust than they were last year. So the ability to get some price relief is -- the environment is very positive to do just that.

You made the comment recently that you have been able to put price increases through. Is this 50 percent of the increased cost that you are seeing, is it 75 percent? Can you give us kind of an order of magnitude of what you're able to pass through?

The price increases, we're talking in the order of 3 to 4 percent.

But relative to the increases in your raw material, what does that cover?

The increases are greater than the increases in the price of scrap, but it's been marginally so.

That's helpful. I guess I had one more question here. Considering the two acquisitions you recently closed on, I just wanted to ask you, are you going to slow down on the acquisition front for a while? Or conversely, are you seeing some attractive opportunities in the pipeline that possibly could be closed in the near term?

We don't have anything that I would consider to be keyed up, but we certainly are looking at a few things -- some very interesting things, as a matter-of-fact.

Barry Vogel, Barry Vogel & Associates.

Actually it's Carlo Vilarenta (ph) For Barry Vogel. You guys answered the question for Piper Impact. Can you elaborate on the situation of your other non-core businesses?

You're talking about Temroc?

Right.

This is not a good time of the year for Temroc, but the prospects are positive. They have picked up some new business from some automotive accounts, as well as others. And we look for improved results from them in the next few quarters.

But are you considering either selling them or getting rid of it?

Not at this time.

My second question would be can you give us the tonnage for MACSTEEL and Monroe, if you could break that out?

We don't break that out.

Greg Macosko, Lord Abbott.

Could you talk a little bit -- you mentioned that the heavy-duty truck market going from 175 to how much this year?

230, 235.

And you said that you have good content and good value. Would it be fair to say that the profitability on that business is at the higher end of the range of MAC products?

I think that is a fair statement.

Okay. And so that, clearly, is going to be up this year?

Yes.

Also, with regard to the pricing at Nichols Aluminum, with regard to the aluminum, etc. As you said, there is no passing on of surcharge, but how is your pricing going relative to others in the industry? Perhaps pricing being set by Alcoa or Commonwealth or any of the others -- how does that affect you and impact you and impact your market?

As I said earlier, the market sets the price. But it's a function of supply and demand, too. And as demand has picked up, I think everyone is exhibiting more pricing discipline.

And so is -- if Alcoa raises the prices, does that mean you can do it as well, or --?

I can't talk about Alcoa's behavior.

Bill Baldwin, Baldwin Anthony Securities.

A couple of questions. Ray, can you give us some flavor or color as to the kind of improvements we're seeing in converging costs at both MAC and Nichols? These are initiatives I know you've been working on for a period of time. I don't know exactly how you measure those metrics there, but to the degree you can give us any color, can you tell us how those initiatives are coming along and what kind of improvement you're seeing over the last 12 months or so?

I don't have any percentages in mind, but I can tell you that we continue to make some gains. I think the overall results from our lean initiatives you're seeing with working capital. And I can tell you that what we are doing internally is benefiting our output of our value-added MAC products, specifically. We have always talked about our capacity to be some 270,000 tons of MAC-plus, and we've got that up to 285, 290 without having spent any capital, thanks to the lean initiatives. And I would expect that to continue moving forward. We are particularly encouraged by the opportunity now to better load-balance our plants, and I would expect that we would be able to increase our effective capacity moving forward 3 percent, 4 percent going forward -- again, without any -- certainly without any significant capital -- just by running the plants in their sweet spot more of the time. I like our chances for keeping the productivity gains coming.

Do you think you'll be pretty close to getting the load balance situation where you want it this year, here in 2004?

Some of that will drift, certainly, into the fourth quarter. And the reason for that is that we can't -- some of the products we can't move until we take it through some test processes with the customer. So it's going to take a little time to get to where we want to be, but we certainly recognize the opportunities and we are excited about them.

Two more questions, if I may, Ray. On the MACSTEEL output, where you've got a little wiggle room on pricing, can you roughly indicate what percent of your output you've got a little bit of pricing flexibility on, where you're not locked into the escalators in the contracts?

We have said we certainly have 20 percent of the business that tends to be spot, where the agreements aren't firm. And that's where we are focusing our attention.

And lastly, Ray -- excluding the impact the surcharges have had on the operations here, can you give us a feel for the Monroe plant you just acquired -- whether its operating margins at the time you acquired it are, say, 50 percent of MAC's, 25 percent of MAC's? Give us some flavor for what the base is and where you're coming from there.

They're some 20 percent, perhaps, below MAC's. Is that a fair statement, Terry?

I don't know if they are that low universally, but they are lower margins by some percentage.

It wouldn't be that much different than MAC's really then. Okay. I thought maybe it was closer to half of what MAC was. It sounds like it's better than that.

Bill, this is Jeff. One of the things you need to keep in mind there is, as you know, as Ray just mentioned, MACSTEEL has an awful lot of value-added product.

Exactly.

And we don't have that at --

You don't have that at North Star.

That's correct.

That's why I was thinking maybe the operating margin would be closer to about half of what MAC's are but it sounds like they're maybe more like 75 percent of MAC's. Would that be a fair assessment?

I think mix is -- makes the thing a little difficult to come up with a good number. Maybe we need to take a closer look at that one, Bill.

Thank you. And good performance, considering the environment that you guys are operating in out there.

Bob Fitch (ph), Lord Abbott.

Can you just update us on where you stand with the review of Piper?

We have some business winding down with auto (indiscernible), as we have mentioned in the past. Not all the end dates are firm with that. We are certainly reviewing the asset base. We have two plants there. We're moving forward with new opportunities. We do have some good programs. So there is a lot going on as we speak.

And generally here's been, obviously, a lot of talk around the macro issues in scrap and so forth. Are there particular vertical markets, or any particular customers that are going to become that much more important to you with some of the initiatives and products that you're providing over the next 12, 18 months?

We certainly have some big accounts, but it's also a diversified base. I don't see any big changes going forward.

And just to repeat what you said before, I think you had said the scrap costs in the quarter effected operating or net income by about 2.5 million?

It would be operating income.

Okay. So that amount was almost 25 percent of what you did report 10/7.

Right.

Okay. So again, obviously, ex the raw material hit, you would have shown very, very nice progress on the bottom line, obviously (multiple speakers)

Absolutely. We have this scrap problem, but other than that there were a lot of good things going on in the quarter. From a demand standpoint, I think our performance internally was solid. But the stars are not quite all aligned for us, and we just need one to (multiple speakers) here.

Typically these issues over time kind of (indiscernible) help in some periods and hurt in others. So it's really the things that you can control that generally matter the most, and whether you're able to expand your business by doing the right things and controlling what you can control. So I think directionally, you just, again, displayed that you're making a lot of good solid progress.

Thank you.

John Hudson, Recolier (ph) Capital.

I just wanted to follow up on that theme of controllable items. I was actually happy to see that despite the much higher year-over-year revenues and the acquisitions, that SG&A was pretty flat. And in terms of looking out for this year -- I know it's kind of hazardous to forecast SG&A as a percent of revenue, given the scrap (indiscernible) and stuff -- but what kind of guidance can you give us at this point on what SG&A will look like once we get a full quarter of these acquisitions in there?

As a percentage of sales it should not change substantially, even with the acquisitions, moving forward. We don't expect it to change substantially as a percentage of sales.

Right. But as scrap goes to your topline, it moves it around -- right?

Well, it will. Said differently, let's say that all things being equal, without the increase in the topline, the percentage of sales, the SG&A as a percentage of sales would be steady. We don't see any increases coming about as a result of the acquisitions. And in fact, on a percentage basis may see some increases -- excuse me -- some decreases as a result of some of the synergies that would result from the acquisitions.

Right. That's what I was thinking. Year-over-year as a percent of sales, you were down pretty nicely.

But we're not going to -- remember, TruSeal is not really an integrated acquisition. North Star is in the sense that it's integrated into MACSTEEL. So we may see some reductions on the MACSTEEL side. We wouldn't see those reductions on the Engineered Products (inaudible).

And then likewise with the depreciation and CapEx, can you give us any guidance now that you have got these acquisitions closed?

We still haven't got the appraisals finalized in order to determine what amounts we are going to be showing for goodwill. Obviously, we booked something on an estimated basis for the first quarter. What we believe in the first quarter (indiscernible) we got the depreciation number specifically for the new acquisitions, but it -- let me get back to you on that. I don't have that number available.

And CapEx -- is that the same?

CapEx is not increasing substantially as a result -- keeping in mind that all of Quanex is down in the $35 million range, CapEx might go up another 3 to $5 million with the acquisitions, but not much more than that.

Thank you. Mr. Jean, as there appear to be no further questions, I return the call over to you.

Our long-term business strategy is directed at protecting, nurturing, and growing our two core businesses -- MACSTEEL and Engineered Products -- and we're doing just that. MACSTEEL Monroe, TruSeal, and Colonial Craft, are excellent examples of how acquisitions can complement the organic growth of these two core businesses to fuel earnings. Both MACSTEEL and Engineered Products earned in excess of their cost of capital again this quarter, and we see nothing on the horizon to change it. Our long-term strategy also calls for us to fix or sell businesses that are under-performing, and we are hard at work making that happen.

That concludes Quanex's first quarter conference call.

Thank you very much, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines, and have a wonderful day.