Quanex Building Products Corp (NX) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quanex fiscal third-quarter 2013 conference call. At this time, all participants are in a listen-only mode. Later in the call, we will conduct a question-and-answer session, and instructions will be given at that time.

During today's conference call, company management may make forward-looking statements about the future prospects of Quanex Building Products. Participants should refer to the Company's 2012 Form 10-K filed with the SEC for a more complete forward-looking statement disclosure. Additionally, the Company may refer to non-GAAP figures throughout today's call. A reconciliation to the most comparable GAAP figures is included in the Company's most recent earnings release, which is available, along with the Company's Form 10-K, at the Company's website at www.quanex.com. Lastly, participants, as a reminder, today's conference call is being recorded.

I would now like to turn the conference call over to Mr. Bill Griffiths, Chairman, President, and CEO of Quanex Building Products, for opening comments. Please go ahead, sir.

Thank you. Good morning, and thank you for joining us for the third-quarter conference call. It is a pleasure to speak with you today, and I look forward to meeting many of you in person during the coming months. On the call with me this morning is Brent Korb, our Chief Financial Officer; and Marty Ketelaar, our Vice President of Treasury and Investor Relations.

Before we get into the details of the quarter, let me take a moment to provide some observations after my first 60 days on the job. Since joining the Board in 2009, I have been very involved and supportive of the strategic direction of Quanex. Therefore, you should not expect to see dramatic shifts in strategy as a result of the recent leadership change. What you will see is a more focused effort on those specific tactics that will grow our business, along with an increased sense of urgency. Since I am an operations guy at heart, I felt it was be important for me to visit as many of our facilities as possible to meet with the local managements teams, get a deeper understanding of their businesses, including the challenges and opportunities, and what they will need from me in order to accelerate profitable growth. I have now visited 20 of the 26 domestic operating facilities, and I have been very pleased with what I have seen. We have dedicated, hard-working teams in place at all of our locations working diligently to meet the needs of our customers each and every day.

I also took the opportunity to meet with several of our key customers during my tour and was encouraged by their honest feedback. While we heard of areas to improve our service, there was a lot of conversations centered on how we can provide the support necessary for our customers to grow at a faster pace than the market recovery and to provide them with lower-cost solutions. I am very excited about several future opportunities that could accelerate our growth over the next few years. These could include new tooling, new blending techniques, and geographic expansion to be closer to our customer facilities. It may also include bundling out products and manufacturing capabilities within this geographic expansion. Many of these opportunities, however, will require additional capital investments, thus increasing the importance of prioritizing capital deployment.

The capital requirements of these growth opportunities played a significant part in our recent decision to cease all activities associated with our ERP implementation project, or Project Quest. As you will recall, when we launched Project Nexus three years ago, our strategy was to centralize the organization and its systems in order to focus on the 1,000-plus regional window manufacturers, with the intention to cross sell our vinyl profiles, screens, thresholds, and window grills to the same customers we were selling warm edge spacer to. To efficiently manage the business associated with those 1,000-plus customers across three distinct divisions, now four with the addition of Aluminite, we determined that we needed a technology platform that could standardize all of our systems and processes across the Company, and as a result, we embarked upon Project Quest. I, along with the full Board, believed this was the right strategy at the time. But now, with three years of experience behind us, it is clear that while centralizing sales and marketing and some of the back office functions was absolutely the right thing to do, implementing a single corporate-wide manufacturing system has turned out to be significantly more expensive and complex than anticipated and is no longer as necessary as originally contemplated.

While we have had some success at growing our regional business, it is now clear that a much larger opportunity is available by partnering with the top 50 window manufacturers. These top 50 window manufacturers account for approximately 70% of current EPG sales and account for an estimated 85% of all windows shipped in North America. In almost every case, each one of these customers buys large quantities of one of our products and very few of the others. To be clear, this is not a change in strategy. It is a shift in focus, from trying to cross sell over 1,000 regional customers, to cross selling 50 national customers who, collectively, are growing at a faster rate as the housing recovery takes hold. This approach will allow us to centralize our manufacturing systems on a division-wide basis at a far lower cost, freeing up capital to invest in growth projects with higher paybacks. This was neither an easy decision, nor one that was made lightly, but we believe it is the best decision for the business going forward.

I am now going to turn the call over to Brent, who will take you through the financials, after which I will have some concluding remarks. Brent?

Thank you, Bill, and thank you to everyone on today's call.

Consolidated third-quarter net sales increased 9% to $259 million, while net income increased to $5 million, or $0.13 per share, compared to $1.5 million, or $0.04 per share, last year. The improved results were due to higher sales across all divisions within EPG and cost savings associated with the IG facility consolidation, partially offset by higher centralization and ERP implementation costs. Both net sales and net income results were in line with the second-half 2013 guidance we provided at the end of our fiscal second quarter. Consolidated EBITDA was $19.3 million, compared to $10.6 million in the year-ago quarter. At EPG, EBITDA increased to $26.6 million, from $20 million in the year-ago quarter. At Nichols, EBITDA results improved to $1.3 million, compared to a loss of $1.5 million one year ago.

Engineered Products ended the third quarter with net sales up nearly 17%, and EBITDA was up $6.6 million over the year-ago quarter. North American fenestration sales for the last 12 months increased 11.5%, or 3.4% excluding Aluminite's revenues. Sales increases were largely driven by the inclusion of Aluminite sales, coupled with good overall performance across EPG. Nichols net sales for the third quarter were $105 million, a decrease of 1.7% over third-quarter 2012 results, driven by the reduction in global aluminum pricing. Nichols shipped 77 million pounds, slightly better than the 75 million pounds shipped in the year-ago quarter.

Market demand for aluminum sheet continues to be good, although demand mix for more mill finished product, instead of painted sheet, has negatively impacted our spread. Nichols third-quarter 2013 EBITDA was $1.3 million, compared to a loss of $1.5 million reported in the year-ago quarter. Spread increased $0.01 to $0.39 per pound in the third quarter, versus $0.38 per pound in the year-ago quarter, but declined sequentially by $0.03 per pound, when compared to the second quarter of 2013. The change in product mix, as well as lower spread resulting from low LME prices and higher scrap aluminum prices, continues to challenge Nichols profitability. The Aluminum Association, which tracks industry shipments of sheet product, reported industry volumes for the 12 months ended July 2013 increased less than 1%, while Nichols shipments increased 16.5%.

Corporate expenses increased $2.6 million to $11 million this quarter, compared to $8.4 million in the year-ago quarter. The higher expenses were primarily driven by higher ERP costs of $2 million, including $1.7 million of higher ERP-related depreciation and IT-related infrastructure costs of $1.1 million, offset by $600,000 of lower stock-based compensation expense. Total ERP-related spending the third quarter was $2.7 million, compared to $5.5 million in the year-ago quarter. Year to date, we have achieved $6.2 million in IG facility consolidation savings, and with planned volume, are confident we will achieve the projected $8 million cost savings in fiscal year 2013. As previously disclosed, in August, we made a decision to stop the ERP implementation effort. Our third-party implementation partners have been notified; and by the end of September, all external ERP consulting expenditures will have ceased. It is our goal to move off of SAP and back to our old systems as quickly as possible, not to exceed more than six months.

Our centralized human resource and payroll processing will remain on the new system. We expect to accelerate the depreciation on approximately $19 million of previously capitalized cost from now until when we complete the transition off of the new system. During the quarter, we repaid the $10 million borrowed against the revolving credit facility in the first half of the year. At the end of the quarter, we had $16 million of cash on hand and no outstanding borrowings on our revolving credit facility. We expect to continue to grow our cash position through our fiscal year end, as the third and fourth quarters are typically our strongest cash-generation period of the year.

I will now turn the call back to Bill.

Thanks, Brent. As you just heard, while our total EPG sales were up a healthy 17% year over year, much of this was due to the addition of Aluminite. Excluding this, our North American fenestration sales for the last 12 months were up only 3.4%, compared to 10% for window shipments in the same period, according to Ducker worldwide. The 10% increase in window shipments is driven by three elements -- a 26% increase in multifamily starts, a 20% increase in single-family starts, and a 1.3% increase in repair and remodeling. As you know, our product offering is the strongest in highly energy-efficient window components, which are typically found in higher-price-point windows. These components are particularly suited to the repair and remodeling segment, which unfortunately is still recovering at a sluggish pace.

The high growth new construction markets, both single and multifamily, are generally using lower-price-point windows, where our current offerings are more limited. Some of the growth opportunities requiring capital that I talked about earlier revolve around providing lower-cost components to some of our key customers to satisfy this increase in demand. There is no doubt that the housing recovery is well underway, but it will continue to be led by tight construction costs, and therefore, lower-price-point windows. We will be accelerating our efforts to participate more fully in this segment, which is growing the fastest.

Repair and remodeling, which is our sweet spot, is expected to recover last and at a slower pace. We are already well positioned in this segment. Internationally, despite tough economic conditions in Europe, we continue to see good growth prospects for our warm edge spacer, and the third IG line in our German facility is now fully operational to help us meet that demand. At Nichols, I continue to be encouraged by the progress the team is making.

We continue to see improvements in productivity, on-time deliveries, and overall customer satisfaction. Notwithstanding this, however, we continue to be challenged by severe headwinds in the global aluminum markets. Low LME prices, coupled with high scrap prices, continue to pressure net spreads. While a minor improvement from near-record lows is possible in the next few quarters, a meaningful, material recovery in net spreads does not appear likely in the foreseeable future.

Finally, a comment on corporate costs. Much of the increase in corporate costs over the past three years has been driven by our centralization efforts, and much of that driven by Project Quest. Accordingly, these costs will decrease next year. We are currently deep into our 2014 budgeting process, and major revisions are underway in light of the Project Quest decision. Until this body of work is complete, we do not plan on commenting on future projections. We will, however, provide clarity as soon as our 2014 operating plans are finalized. But in any case, no later than our December earnings call.

With that, we would be happy to take your questions.

(Operator Instructions)

Daniel Moore, CJS Securities.

Bill, you talked about the decision to terminate the ERP implementation, driven by multiple organic growth opportunities that were not available in 2010. You touched on, most recently, in your comments some of those. Can you elaborate a little bit? What's changed in the marketplace, and what are the opportunities that are available to you now that you did not see at that point?

I think the biggest overall change is that we now have a housing recovery underway, which of course, was not the case when this decision was taken. I think, very clearly now, we see perhaps a different housing recovery than might have been originally envisioned -- construction costs are tight, lower price points and definitely lower-price-point windows. And, we are seeing significant growth from the major window suppliers, as I said the top 50, and hence the shift in focus.

That's helpful. Switching gears a little bit, regarding Nichols, your predecessor was fairly adamant that operations needed to be fixed and significant investment would be needed to in order to achieve fair value for Nichols over the long term. After looking for a couple of months, does Nichols fit your strategic vision, and do you see significant investment required? Or, might you consider a strategic alternative sooner rather than later?

I think it is fair to say that, operationally, the team there has done an outstanding job in the past year. And while, even they would admit there are still opportunities for further internal improvement, and they expect to get some of those improvements here as we enter our next fiscal year, it is fair to say that, operationally, Nichols is running almost as well as it has ever done in its recent history. Clearly, the market conditions are extremely difficult and that is definitely impacting its profitability. Obviously, after 60 days, there has been a lot on the plate, particularly with respect to Project Quest, and the fact that there are some major revisions to our budgeting process as we go into 2014. So, it is a little premature to comment on strategic alternatives for Nichols. As we go through the budgeting process, I think we will have a clearer view as to what the team can do, internally, and a clearer view as to what may be happening to the aluminum markets, externally, as we get into 2014. And then, we will make the appropriate decisions, accordingly, when we get better information.

Maybe one more, and I will jump back in queue. Over the last quarter or two, you mentioned the competitive landscape in EPG -- a little bit more pricing pressure. Is that still the case? And if so, if there is a little bit more pricing pressure, competition in the lower end of the market, what does that imply for returns on capital if you intend to increase investment and focus more on the lower end of the market going forward?

The pricing pressure is clearly coming from customers who need to put lower-price-point windows out to their customers in turn. It is our job to be able to satisfy those lower-cost price points and still protect the margins that we have enjoyed. I do think there are structural costs that can be taken out of the system, but it will require capital investment. For instance, as an example, we have very high freight costs because we are shipping great distances. If we had facilities closer to our customers' operations, we can take structural cost out of the system. So, my expectation is, as we get into our fiscal 2014, we will be working very hard to ensure that we satisfy our customers' pricing demands, but protect our margins as we go forward through operational improvements.

Helpful. Thank you. I will jump back in queue.

Peter Lisnic, Robert W Baird.

I guess, just to continue on the repair/remodel piece of the business, it looks as though that's where some of the demand pressure is, or at least growth's not as strong. But it doesn't seem to square all that well with, at least what some of the publicly traded companies have said about their window businesses. Is that a function where you have been focused more on the regionals, and thus haven't been able to capture some of that share that the top 50 are playing, and thus the strategic change? Or, is there something else there that is impacting repair/remodel relative to what we might be seeing from some of the larger OEMs.

I don't have statistics in front of me that detail exactly the growth in each of the segments. But, it is very clear that the high-growth is in the new construction markets and it is at lower-price-point windows, and that is where we are feeling the pressure.

Okay. All right. When you look at that top 50 group of customers today, versus maybe one year ago, three years ago, five years ago, has your share been stable, improved, have you had some share erode there? Can you give us a feel for the presence you have with those customers?

I think, collectively -- the emphasis on collectively, that the share has not changed significantly. What we are seeing, obviously, is within that group of 50 is while some customers are growing at a very rapid rate, some of them are actually still, in fact, shrinking. So, our share amongst individual customers may, in fact, move around somewhat, but collectively, the group has remained reasonably stable. It is really an opportunity that we don't want to miss as the housing recovery -- clearly, the recovery is underway, but it's been stutter step as we've gone through the summer, here. And, there is still an awful lot of runway left in the housing recovery, and we clearly do not want to miss the opportunity by not being sufficiently well positioned to grab the highest growth opportunity, which is clearly within that top 50 group.

Okay. All right, that helps. Then, on some of these new growth opportunities that you have -- realizing that you're not going to give a whole lot of color on '14 until the plan is complete. But, I'm wondering as you look forward to some of the capital investment you need to make here, should we think about the cash that you are going to need to fund that growth as being more significant than what we have been seeing over the past couple of years? So, if CapEx last year was, whatever, $40 million-some odd, and it was running at a similar clip this year, is that a fair [bogey] to think about even though there is what appears to be a pretty material change in the strategic operations here?

I would expect to see higher capital investment numbers within the EPG group, and some of that capital deployment could, in fact, take the form of acquisitions. When I talk about capital deployment, I am actually talking about two forms of it -- some of which may be acquisitions, some may be increase capital expenditures. But as you say, clearly, it is a significant part of the operating budget discussions that we are in the thick of right now. We will give color on that as soon as that process is completed, either through a separate investor presentation, or as I say, no later than the earnings call in December.

Okay. All right, fair. And then, last question if I could. On the selling organization, you had essentially geared up to serve the regional window OEMs. Is the structure that you have in place from a selling and marketing standpoint, any significant changes to be made there to focus on the top 50 and any significant incremental costs, or are you pretty well set from that standpoint to address the --?

We are absolutely set there, and in fact, of the centralization efforts, that clearly was the right thing to do. It has been tweaked over the three-year period since it started. It is in great shape. And, it raises a point that I want to emphasize and that is -- the two elements of this are not mutually exclusive, which is why I said it is not a change in strategy, it is a shift in focus. That organization is still geared to serve the 1,000-plus regionals, but it is also geared to better serve the top 50. And, we'll continue to do both, but the emphasis will be on the big nationals.

Okay. I understand, that makes sense. Thank you, very much, for your time.

Scott Levine, Imperial Capital.

Hoping for a little bit more color on how you view the balance sheet -- I can appreciate that you don't have many specifics by way of the magnitude of investment. Do you have bigger-picture parameters, in terms of your willingness to lever up to fund these investments and to what extent? Maybe thoughts on how the dividend factors into the capital deployment plan, with what seemingly is a greater focus on growth investments, internal and external, as we head into fiscal '14?

All I will say is that I see no reason that we couldn't satisfy most of the internal capital investments from cash generated out of operations. Clearly, I think there are opportunities for some targeted acquisitions. It may not be possible to fund those, simultaneously, out of cash from operations, so we may need to, at some time, take on some debt, at least, for a period of time. Now, that's by no means certain at this point. Clearly, we have the capability. We have demonstrated, over a long period of time, we are very conservative when it comes to balance sheet management. I think having no debt at all in this environment is ultraconservative, but by no means, will we swing the pendulum in the opposite direction. That will not happen.

Understood. Maybe as a finer-point question, I guess, obviously, you have been very busy here the last few months, but anything you learned as you met with the regional offices that surprised you in any way or changed your view of priorities versus your tenure when you were on the Board and obviously not as active in meeting with folks in the field? Any surprises or changes in thought process in your part of the last few months?

I think the biggest is that the number of opportunities to grow and grow profitably are actually greater than I thought there were when I was a Board member. Hence, some of these shifts in focus to really get after those with a greater sense of urgency. There were no negative surprises whatsoever. I would have to say the biggest positive surprise was clearly that the level of opportunity out there was greater than I first thought.

Got it. One last one if I may. There's no mention of guidance in the release. I'm not sure if you addressed this during the call, but can we assume that the prior [2H] guidance [reflect forward] the 3Q results isn't a factor, or should we consider that as being withdrawn at this point or still intact?

Yes. Excluding corporate, which of course, is going to get adjusted with the accelerated depreciation and because we are not sure of exactly the timing of that, but other than that, generally speaking, that guidance is good.

Understood. Thanks.

Robert Marshall, Davenport.

I hate to beat a dead horse here, but just touching on the R&R space again -- you've got a low-angle recovery here. You've got repair and replacement dollars tied to the consumer level. Is there more need over and above lower price points, here, from the OEMs? Is there a lack of credit impacting things, a reluctance to take on credit? I would like to hear your thoughts on that.

I think if you go to the homebuilders, what is impacting the type of window that is installed is, clearly, highly energy-efficient windows and high-price-point windows go into the custom-built market much more than into the tract-built market. I think the custom builders and the small private builders are struggling to get financing, struggling to get land, and so I think at that end of the housing market, the growth is a lot more limited than it is with the big publics, who are trying to keep their costs tightly under control and are, therefore, trying to put in lower-price-point componentry into the house.

I think it is fair to say that for most of us, windows unfortunately, we tend not to pay a great deal of attention to. You go to a new home -- look to buy a new home, typically the kitchen, the bathroom are focal points, and nobody pays a great deal of attention to the level of windows that is in the home. So, I think that is impacting it from that standpoint. If that helps.

Yes, it does. In terms of shifting your focus back to the OEM, does that put margins in peril? You are going to have a pretty high customer concentration, and they are tough to deal with. Do you worry about that?

The truth of the matter is, we have actually been in that position for a while. Yes, it is difficult, but by the same token, when you are dealing with large organizations like this -- and I use the analogy of the automotive sector, which sometimes is not a great example, but you are dealing with a very sophisticated customer who has a clear understanding that getting a lower price point doesn't necessarily mean sliding margin across the table. We have had some meaningful discussions about taking structural cost out of the system, which is really what the automotive guys did with their large suppliers back in late '90s. So, I think if we can enter into some stronger partnerships with those customers to collectively take cost out of the system -- a big part of that is co-locating facilities, or at least putting manufacturing capability closer to our major customers' sites.

Last question, here. On the aluminum side, looking out five years other producers are going to be shifted capacity towards the automotive segment because of CAPA standards. Have you looked at ancillary opportunities that might be popping up here, over the next few years, and do you see anything that looks particularly exciting?

Actually, we have not at this point.

Okay --

In this short period of time, the focus has really been on what the opportunities are for growth in EPG, and what are the short-term opportunities to continue to get operational improvements out of Nichols while we are under severe spread pressure. I can assure you, though, that we will be looking here, after the budgeting process, at some longer-term opportunities or challenges at Nichols.

All right. Great. Thank you very much.

Phil Gibbs, KeyBanc Capital Markets.

My question was largely on the dichotomy that you are seeing between the high end to the low end of the window market. You've clearly discussed the differences there. I had thought that the Project Nexus initiatives taken a couple years ago were designed to help you get growth in excess of what you might have seen at this point. How are those going? Are you having any traction with the regionals? Because, I would've expected growth for you guys to be better, given the fact that those initiatives were put in place a couple years ago.

Yes, that is exactly why the shift in focus. Clearly, we are underperforming to those expectations, which is why -- I think one of the reasons for that is the growth is coming much faster in an area where we do not have the strongest product offering. It is our job to get that fixed (multiple speakers) correct.

Were the regionals targeted in the Project Nexus initiative design get you more into that low end of the market, or mid end of the market? I was under the impression that was -- it was still on the high end?

No, it was still on the high end.

Okay. That makes a lot more sense. I appreciate that. Lastly, if I could, on the acquisition front, what should we be expecting from you as far as potential targets to fit in some core competencies or be adjacencies to what you're currently doing? Thanks.

What I am currently getting the Organization focused in a much more laser-like way at adding to our current core competencies. That is a pretty limited list that we are in the process of working our way through. At this point, unless an opportunity arises that we cannot say no to, we will not be focusing on adjacencies. But, be prepared to have a change in view if there is not enough opportunity for us in our direct core competency. But, I think, let's go for a couple of quarters, exploring that more aggressively. I think the expectation should be -- we are going focus very strongly on what we currently do, as opposed to something out of the box.

Thanks, Bill. Look forward to seeing you next week. I appreciate it.

John Kohler, Oppenheimer & Close.

Quick question on capacity utilization at EPG, is there --?

Sure. A number?

Yes, please.

I do not have a number. I am not sure whether that is something we normally publish. If it is, we will be happy to get back to you separately. I do not have an answer right now, though.

Okay --

But, we are not [at the case] the capacity threshold. That is for sure.

Right. On the geographic expansion, do you have the capability to move existing tools or adapt them in some way to meet some of those opportunities that you mentioned earlier?

Yes, we do, and that is a potential consideration.

Okay. Then, on the Aluminite acquisition, that was completed, and I am assuming that everything that is going on there is as expected?

Yes, that is going very well, and of course, their business model is to be located very close to their customer with very short lead times -- in fact, in most cases, measured in hours, not days or weeks. It is a business model that I think could work extremely well in other facets of our business, so standby for further announcements on that front.

Okay. Great. Then, on the Nichols and the mix shift within Nichols to paint, all the ovens and everything within Nichols are functioning and are up, so it is more of a customer demand than a downtime of capacity?

That is absolutely correct. The Alabama facility, where we just put the new oven in, is now up and running with no unexpected issues.

Great. Thank you very much.

Bob Kelly, Sidoti.

Question on -- you had made an answer earlier to the second-half fiscal 2013 operational guidance. Was that in respect to both engineered projects and Nichols or just on the engineered products side?

Both.

Okay. The original guidance was for $3.5 million for Nichols for second half, and it implies that we have earn $4 million in 4Q and spreads aren't going to recover materially -- I'm just trying to reconcile -- are shipments heavily weighted towards 4Q?

We are expecting a lift in shipments in the fourth quarter, yes.

So, up sequentially from where we were in 3Q on the shipment front?

Correct, yes.

And, spreads similar or improving from where we were in 3Q?

I think, as Bill mentioned a little bit in his talk, a slight improvement in spread is expected in the fourth quarter.

Okay. So the rest of it, the increase is coming from productivity and getting Alabama squared away?

Yes, I think that's fair.

Okay. On the engineered products side, even with the IG facility cost savings, the incremental margins have been somewhat below where you have been historically -- and I realize you have Aluminite in there probably driving it down a little bit. My question is, if you are going to start skewing towards the lower end of the window market, what should we expect out of engineered products, incremental margin wise, over the next two to three years?

Bob, as you know, we have not talked about what the incremental margin is, but I think it is safe to say what Bill has alluded to is our objective in trying to meet the demand that exists at that lower end is not to just offer our same products at a lower price. It is to find other ways to take costs out of our system to be able to offer that to try to enjoy similar margins to what we do today. It might be similar margins on the lower price point, but that's our objective, here, in the short term of how to achieve that.

It is possible that for a short period of time our cost savings will be out of phase with our pricing. So, we could see additional margin pressure over a short period of time. Over a longer period, a full year and beyond, my expectation is that we will not see margin erosion.

Okay. And then, one big-picture question -- the way I have always understood engineered products is that you are basically outsourcing your engineering capabilities to the window and door world. If you target the low end of the market, how do you do that? How do you take that core competency of Quanex and pass that to the low end of the market?

At the low end of the market, the engineering content tends to be lower and not as significant. I think it's -- the way to think about it is -- good, better, best. We do well in better, best -- good has a different set of characteristics, not as engineering intensive, not as complex. And, there are some other factors there in partnerships with customers, fewer [store-keeping] units, all of which allow you to reduce costs and still maintain a healthy margin, but passing those cost savings on or at a lower price point to the end user. I think it is possible to play in both ends of the market. But as Brent said, what you cannot do is offer the same product and the same services at a lower price.

Okay. I understand. Then, just one follow on -- the top 50 was 70% of engineered product sales and then 85% of all US window shipments -- was that the data that you had given?

That is correct.

You have a presence, now, with the top 50, but you are not selling all your products to them?

That is correct.

So now, what are you selling to the top 50, predominantly?

No, it varies all over the place. The issue is each one of them, as a general statement, buy significant quantities of one product. It may be grills in one case, it may be spacer in another case, so it is all over the map. But the key point is, they buy one, not all.

Okay, understood --

So, it's a different solution with each customer, but clearly, the problem's a lot easier to manage because you are dealing with a handful as opposed to a multitude.

Understood. Thanks very much.

Al Kaschalk, Wedbush.

Just a clarification question on aluminum -- is the customer demand causing the mix -- is that something transitional or seasonal -- just to have a better appreciation of what's changed short term?

I don't want to couch it as seasonal. I think there's a couple things going on. Overall reduction in demand and where you see it has tended to be more in the painted products. That is a portion of it, so the reduction in the housing market over the years tends to drive a lot of that painted product, as well as there are a bit of our customers that have their own paint lines. So, when you get down to lower levels of demand, they are able to paint their own product. Part of it is, also, just internally driven. We have hurt ourselves over the last 12, 24 months in lower-quality products going out the door, so we have lost some of that share. The objective, now, with the oven in Alabama back up, is to prove to the market that we are making good painted product out of there, and recovering some of that share.

Those painted products have a customer characterization -- meaning good, better, or best, or top 50, top 1,000?

It is harder to really put it into that characteristic. It is still a commodity with a coating on it.

Very good. Then, my follow-up question, Bill, when you look at what I think you are alluding to, here, is obviously not having product at the market -- where the market has moved from the housing perspective. Would you -- do you think, culturally, the organization is more geared to build, own their product, or to acquire their own product? Then secondly, does that have an impact -- or is that impacted by what you are alluding to on either co-location or better location of where that demand is currently stemming from?

Yes, that actually is a great question because I think you are right. I wouldn't go so far as to say, culturally, we can't build the product internally. I think the problem becomes significantly easier if you, perhaps, pull out some lower-end product and locate it elsewhere. From an internal standpoint, I think that becomes something that is much more doable internally, than running it in the same factory as you run a high-end product. But also, you can't rule out a potential acquisition to satisfy that market as well.

Okay. Thank you very much. Good luck.

Thank you.

(Operator Instructions)

Keith Hughes, SunTrust.

Actually, this is [Judy Merrick] in for Keith. Just to follow up on your earlier comments on the Aluminite acquisition, is there anything that was more positive there that you've seen? Or, is there organic growth where you would invest in more of that business or another acquisition candidate similar to that?

I think the thing to point out, and a lot of what Bill's been talking about of the lower price point and offering different value, we made screens before -- and go back to our analogy -- the good, better, best. We provided screens that were better, best and we are getting a lot of price pressure to offer those same screens for a lower price. By having, now, the capabilities in house, because Aluminite being on the good side, we are able to protect both product lines. We can now offer you -- what is it that you're looking for -- if you want a good product that comes with the associated good services at the good price, then we can offer that to you. It allows us to protect our stratification, if you will, so that's been very powerful. We have seen a lot of strength in growth of Aluminite and the opportunities of Aluminite. And, I think it is showing us what is out there to grow this lower price point across all of our offerings.

Okay. Great. Thanks.

I am not showing any further questions at this time. I would like to turn the conference back over to Mr. Bill Griffiths for closing remarks.

I want to thank everyone for joining us on today's call. Before we wrap up, I would like to invite you to join us for the 2013 GlassBuild show in Atlanta. It is our single largest trade show of the year and gives us a great opportunity to show off our products, meet with our customers, and see what is new in the marketplace. If you are interested in attending the show, which runs next week, from September 10 through September 12, please give Marty a call, and he will provide you with the details.

Once again, thanks very much for taking the time this morning to join us. Look forward to meeting many of you in the near future. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.